Why it is critical to consider the context when making offers to settle (especially if you want to seek an order for costs later)

In a discretionary jurisdiction like family law, cases which appear on their surface to be not particularly noteworthy (except, of course, to the parties involved) can sometimes fundamentally change the way lawyers practice, parties conduct their negotiations and the court decides issues.

The recent case of Paradin & Paradin [2020] FamCAFC 245 (7 October 2020) (Paradin) may be such a case. Despite the Full Court of the Family Court of Australia publishing their judgment less than a month ago, it is already being referred to by judicial officers.

In Paradin, the wife asked the court to make property settlement orders in October 2017. On 11 April 2018, the wife amended her application and in addition to the property orders she initially asked for, she also requested interim spousal maintenance, a payment of $40,000 from the husband within 60 days and a departure from the child support assessment made in 2018. That same day, the wife made a “Calderbank” offer of settlement to the husband and gave the husband 14 days to accept her settlement proposal before it lapsed (wife’s April offer).

Two days before the wife’s April offer lapsed, the husband rejected it and made his own settlement proposal. The wife asked the husband to make an offer regarding child support, which he did. The wife rejected the husband’s proposal and further offers and counter-offers continued to be made but not accepted.

After the final hearing in June 2018, the court made orders for the husband to pay the wife approximately $150,000 within 90 days and dismissed the wife’s application for spousal maintenance and child support orders. Shortly after, the wife applied to the Family Court of Australia seeking that the husband pay all or some of her costs on the basis that she had received a judgment from the court that was better than what she would have received had the husband accepted the wife’s April offer. The husband was ordered to pay $62,000 to the wife to cover a proportion of her legal costs (costs order).

The husband appealed the costs order and it was overturned. The Full Court of the Family Court of Australia was critical of the decision to make the costs order, primarily because they felt that the primary judge did not take into account all the relevant circumstances that were at play in relation to the wife’s April offer.

If the court was to compare the basic offer made by the wife ($40,000 in 60 days) with the court orders ($150,000 in 90 days) then the wife had done better at court and it would have been reasonable for the husband to have accepted the wife’s April Offer; thus justifying the costs order.

However, so much more was at play. In summary:

• The husband said the wife’s April offer was ambiguous; it did not mention spousal maintenance or child support, nor did it specify that the offer would settle all the applications before the court. Offers to settle must be expressed with precision and in terms that are objectively capable of being clearly understood. The court said there was no obligation on the husband to seek clarification of the terms of the wife’s April offer.
• The issue of whether and what the husband was to pay in child support was “vitally important” to the husband in assessing the wife’s April offer. The wife’s proposed orders regarding child support totaled approximately $105,000 from the date of the wife’s April offer to when each child finished high school. The husband needed to be able to assess whether he could make the cash payment to the wife and pay the child support proposed in the required time. With the issue of child support unresolved by the wife’s April offer, the husband was not in a position to reasonably assess it.The husband’s ability to assess the wife’s April offer was further impacted because at that time (and even at trial 2 months later) the values of the parties’ assets and liabilities were “rubbery” and there were “real issues with the parties assets and liabilities”, in particular the husband’s business interests and how other significant assets should be treated. The court said the context in which offers are made, including the parties’ knowledge of the financial circumstances, the issues in dispute and certainty as to the value of assets, must be taken into consideration when considering whether it was reasonable for a party to reject a settlement offer. The question for a judge deciding whether a costs order should be made is:“…whether what was known at the time of the offer as to the relevant financial circumstances in the context of what each party was seeking, was adequate such that it was unreasonable to reject the offer”.It was not unreasonable for the husband to reject the wife’s April offer because the issue of child support was not clear or resolved, nor had the values of the parties’ assets and liabilities been determined to an appropriate degree.
• The husband argued that the judge did not consider the subsequent attempts by the husband to clarify the wife’s April offer. The court said that this was irrelevant. Those attempts to clarify the wife’s April offer and the parties’ subsequent offers and counteroffers did not form part of the wife’s April offer. Furthermore, even if those attempts were relevant, and the husband was (at some point) able to assess the reasonableness of the wife’s April offer, the only question the court had to consider was whether it was unreasonable for the husband to reject the offer at the time it was made (not in hindsight).
• Given the “rubbery” figures and values in April 2018, the court surmised that it was “impossible” for the wife to have made an offer that met the requirements for a Calderbank offer. She could not set out with some reasonable specificity the basis of her offer and why the husband should accept it.

Settlement offers are an important part of negotiations in family law matters, and crucial to a successful application for a costs order. Simply saying that an offer is a Calderbank offer (and including the details of the relevant case law) will not make it so. It appears that the Paradin case has further extended the already extensive criteria for offers of settlement to comply with Calderbank v Calderbank [1975] 3 All ER 333 and the subsequent cases commonly referred to by practitioners.

If you have questions about offers of settlement and seeking orders for costs, please contact Sage Family Lawyers on 03 9070 9839 or info@sagefamilylawyers.com.au