Offers of compromise are an important tool in litigation. Parties are often eager to resolve a matter before the trial as this can ensure a more beneficial outcome for both parties. Making an offer of compromise not only helps to settle a matter early (and thereby avoid a possible unfavourable judgment), it can also help to avoid incurring further legal costs.
In most civil court proceedings “costs follow the event”. Meaning the unsuccessful party will be ordered to pay the other party’s costs of litigation. Normally only a portion of these costs are recoverable, however making an offer of compromise or a Calderbank offer can improve a party’s chance of recovering a higher percentage of their legal costs from a party who unreasonably declines an offer of settlement.
What is an offer of Compromise?
An offer of compromise is a formal court document relating to one or several claims made in the proceedings which involves a ‘real and genuine element of compromise.’
In order to be valid in NSW an offer must comply with the guidelines in Rule 20.26 of the Uniform Civil Procedure Rules 2005 (UCPR). In short, these require the offer to be in writing, identify the claim it relates to and specify how long the offer is open for acceptance (usually 28 days or a reasonable time if made within two months of the hearing).
What is a Calderbank Offer?
A Calderbank offer is a more informal offer which operates against the background of the court’s discretion with respect to an award of costs. It still requires a genuine offer of compromise and provide a reasonable time for acceptance to be effective.
The offer is made in writing on a ‘without prejudice, save as to costs’ basis, meaning that the offer cannot be used as evidence in court other than to submit for determining the question of costs.
How do these offers help recover higher legal costs?
Courts actively encourage parties to engage in alternative disupute resolution processes and offers of compromise and Calderbank Offers are tools that provide incentive to do so.
These devices provide a sanction as to costs against a party who unreasonably fails to accept an offer of settlement. If the party who makes the offer of compromise manages to achieve a similar result or better result at trial, they are often entitled to indemnity costs from the date the offer is made. Indemnity costs are calculated at a higher percentage than a normal awards of costs, meaning you could recover 75-90% of costs as opposed to 60-75% of costs.
As an instrument of legislation, Offers of compromise are generally more likely to have this effect over a Calderbank offer, which allows for wider court discretion regarding cost orders.
To Sum Up
Offers of Compromise and Calderbank offers are important tools which aid in resolving a matter without trial and can provide protection against incurring higher legal costs and even help to recover a higher percentage of those costs.
If you need help with any legal matter, or have any disputes which need to be settled, contact our business lawyers for help or call us on 1300 337 997.