Indemnity costs and judicial discretion: don’t let rejection of a genuine Calderbank offer backfire on you

21 December 2012 Topics: Insurance

In the recent Supreme Court case of Mansi v O’Connor, Giovanno Mansi risked it all when he rejected what turned out to be a very generous offer of compensation for personal injuries he sustained in the accident. He obtained a judgment amount of $93,757.51. As a result of his rejection of the offer, Mansi suffered significant adverse cost consequences.

Background

Lyons J held that the driver of the first defendant’s vehicle had been negligent in his driving of a truck insured by QBE (second defendant).

The parties made Mandatory Final Offers (MFOs) pursuant to section 51C(10) of the Motor Accident Insurance Act 1994 (Qld) at the compulsory conference on 10 December 2010. Mansi’s MFO was $240,000.00 plus costs. All ten defendants submitted MFOs of nil.

On 22 May 2012, a week before trial, the defendants offered to settle Mansi’s claim by way of a Calderbank offer for $400,000.00 plus costs. Mansi rejected the offer, which turned out to be substantially more than he recovered at trial.

As Mansi could not demonstrate that his rejection of the Calderbank offer was reasonable or prudent, counsel for the defendants submitted that Mansi should bear the burden of costs on an indemnity basis. Lyons J considered that Mansi rejected a very fair offer. Lyons J determined that the court had the discretion to consider the MFOs when awarding costs on an indemnity basis.

The Court’s decision

As the second defendant lost the trial, it was ordered to pay Mansi’s costs, and the other defendants’ costs, on the standard basis up to the date of the $400,000 offer. However, the consequence of rejecting the offer was that, even though his claim was successful, Mansi was ordered to pay all of the defendants’ costs from the date of the $400,000 offer on the indemnity basis.

The court also ordered that the amount Mansi had to pay under the costs order was to be deducted from the $93,757.51 judgment in his favour.

Significance of decision

This case provides a good illustration of the risks associated with rejecting a genuine and reasonable Calderbank offer. It also emphasises the importance of taking properly considered steps at an early stage to protect a defendant’s position on costs before a dispute proceeds to trial.

A copy of the decision can be accessed here.

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