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Calderbank offers v offers of compromise; what is the difference?

Published on June 7, 2023 by Kate LathamKate Latham

Many people who bring a claim for personal injury are wary of proceeding to a court hearing due to a fear of high legal costs.

In most civil cases ‘costs follow the event’, which means that the party against whom the judgment is awarded must pay the successful party’s costs of bringing and prosecuting the case in court. This is known as awarding costs on an ordinary or party/party costs basis. Generally, orders for party/party costs cover 60% to 70% of the total legal costs incurred by the successful party.

This article looks at two ways that may reduce your risk and exposure to the cost of legal action should your matter be unable to resolve before a contested court hearing; they are a Calderbank offer and a formal offer of compromise.

What is a Calderbank offer?

A Calderbank offer is a type of settlement offer. It is the practice of one party making a “without prejudice” offer but reserving the right to refer to the offer in relation to costs should the matter not settle and proceed to a contested Hearing. It derives its name from the English Court of Appeal Decision in Calderbank v Calderbank [1975] AII ER 333. In that case, the wife made a reasonable offer to settle the dispute and the husband rejected that offer. The wife got a better result when the matter proceeded to court. The court considered that the husband was unreasonable by rejecting the wife’s offer to settle the dispute prior to the hearing of the matter.

The failure to accept a Calderbank offer will almost always be considered by the court when deciding whether to order indemnity costs. Indemnity costs include all legal costs and disbursements that a party reasonably and properly incurs in the preparation of your matter. The legal basis for an award of indemnity costs is when the rejection of the offer was ‘unreasonable or imprudent’ and it is for the party seeking indemnity costs to show that the other party acted unreasonably or imprudently in not accepting the offer. The refusal to accept an offer, however, does not automatically mean the court will award indemnity costs and listed key features below should be included to assist a party seeking an award for indemnity costs being able to show whether the rejection was unreasonable or imprudent.

What are the key aspects of a Calderbank offer?

The following aspects should be used when preparing a Calderbank offer:

1. It is marked “without prejudice save as to costs”;
2. It states that the offer is made in accordance with the principles enunciated in Calderbank v Calderbank;
3. It is clear, precise, and certain in its terms and capable of acceptance;
4. It clearly states the time in which the offer must be accepted and provides a reasonable time for that acceptance;
5. It provides reasons why the offer should be accepted; and
6. It states clearly that if the offer is rejected that the offer will be relied on for any application for indemnity costs.

What is an offer of compromise?

In NSW, an offer of compromise can be served by either party at any time from the commencement of the proceedings before judgment in respect of the claim to which it relates. The timing of an offer of compromise has strategic significance and must be served at a time considered reasonable for the party upon whom it is being served to be able to properly assess and consider the liability issues and value of the case.

Like a Calderbank offer, an offer of compromise has the intent of putting pressure on the party whom the offer has been served and provide parties an opportunity to settle your matter to save on time and costs and where you are unable to settle, protection regarding costs.

What are the requirements of an offer of compromise?

In NSW, offers of compromise are made in accordance r20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) which sets out the requirements for a valid offer. An offer made under this rule must:

1. Be made in writing;
2. Identify the claim, or part of the claim, to which it relates;
3. Must be exclusive of costs (that is, it does not refer to costs);
4. Must specify the orders for the disposal of the proceedings (for example for the dismissal or a judgment for a particular amount); and
5. state that it is made under r20.26 of the UCPR.

There can be significant consequences of failing to accept an offer of compromise. For example, if you serve an offer of compromise on the defendant in your matter and they do not accept the offer and you are required to proceed to a court hearing and beat your offer you will be in a position to make a special costs application for an order for indemnity costs instead of the ordinary party/party costs and disbursements award from the time of the service of your offer of compromise.

Ultimately, both Calderbank offers and offers of compromise will help to minimise exposure to legal costs and put pressure on both parties to try and resolve the proceedings prior to a contested court hearing. These two methods provide a measure of relief to you if you are required to incur costs unnecessarily as a consequence of the other party being resistant to settlement negotiations and they help provide an environment that encourages the quick resolution of your claim.

For further assistance, please contact Carroll & O’Dea Lawyers on 1800 059 278 or via our Contact Page and one of our lawyers will assist you.