VCAT has recently considered the impact of a Calderbank offer on liability for costs under s 92 of the Retail Leases Act 2003 (Vic).
Calderbank offers can arise in various circumstances. They are usually expressed as being ‘without prejudice, save as to costs’ and conclude with a threat like: ‘the plaintiff/defendant will rely on this letter in an application for indemnity costs in the event that it achieves a better result at trial than is contained in this offer’.
Typically, a Calderbank offer arises where one party wins, say, $100,000 at trial, but has made an offer prior to trial to settle the case for a lesser amount (say, $75,000). The Court can look at all the circumstances (including the content and timing of the letter) to decide whether it was unreasonable for the losing party to reject the offer and, accordingly, whether costs should be awarded on a higher scale.
It has been acknowledged for some time that the rejection of a Calderbank offer may, in some cases, be sufficient to trigger liability for costs in the retail tenancies list (see De Simone Nominees Pty Ltf v Szabo  VCAT 2919, esp paragraph ).
However, costs can only be awarded under s 92 of the RLA when (relevantly) one party has conducted the case in a vexatious way that unnecessarily disadvantages the other party to the proceeding (see s 92(2)(a) of the RLA). Consequently, the applicant for costs in the retail tenancies list has to satisfy a higher threshold than it would in a court.
The Tribunal rejected the argument, concluding that (footnotes omitted):
I agree with the comments made by Deputy President Macnamara (as he then was) in De Simone Nominees. In the present case, the offers made by the Landlord were that the proceeding be withdrawn on the basis that each party bear their own costs. I do not regard rejection of such an offer as constituting vexatious conduct in the present case. Although there may be instances where the rejection of an offer amounts to vexatious conduct, those instances will be rare. In the present case, it cannot be said that the claims raised by the Applicants were fanciful, hopeless or lacking in substance such that they could be said to have propounded a palpably incredible factual case or a legally misconceived claim. Ultimately, I found that the impugned conduct was not misleading or deceptive. That was a question to be decided objectively based on the evidence before the Tribunal.
In an excellent post on his new blog, available here, barrister Paul Duggan discusses the decision in Complete Pets and suggests that a litigant in the retail tenancies list may be wasting their time and money in making a Calderbank offer.
Given that a Calderbank offer is relatively cheap and easy to prepare, I am not convinced that it is a waste of time as both Deputy President Macnamara (as he was then) and Senior Member Riegler have left open the possibility of a Calderbank offer being relevant to the award of costs in the retail tenancies list, although those circumstances may be rare.
It is also relevant that Senior Member Riegler in the primary decision of Complete Pets Pty Ltd v Coles Property Group Pty Ltd  VCAT 2165 found that the alleged representations were made but that they did not induce the tenant to take the lease (see paragraphs  to ). Consequently, it is difficult to see how the case could be said to have been conducted in a manner that was vexatious.
Litigants in the retail tenancies list still need to show that the other side’s conduct (including the rejection of the offer) means that they conducted the litigation in a manner that was vexatious causing unnecessary disadvantage.
An example of a case in which a Calderbank offer might be successful is where you are opposed to a litigant who honestly puts forward a misconceived case. Being honestly wrong about the law is probably not sufficient to satisfy s 92 of the RLA. However, a well-crafted Calderbank letter that points out the insurmountable flaws in your opponent’s case may help tip the balance in your client’s favour. If the offer is rejected, the letter could be used at the case’s conclusion to demonstrate that the continued conduct of the litigation was vexatious causing unnecessary disadvantage to your client, particularly if the other side is legally represented.
My colleague John Simpson put it well - ‘a Calderbank offer is designed to flush out the vexatious conduct’.