Settling for Less: Calderbank Offers and their Implications

What happens when the settlement achieved at trial is not a better outcome than an offer made in pre-trial negotiations? In this situation, if the offering party can prove that it was unreasonable for the offeree to reject the initial offer, it is possible that the other party will be required to pay legal costs and disbursements of the successful party to a grater extent that ordinarily would apply under the scale system applied by the courts.

This is because of something called a Calderbank offer.

Calderbank offers

A Calderbank offer is a special type of settlement offer that may be made prior to a dispute going to hearing, which can later be relied upon for costs protection purpose, if the offer is rejected when it reasonably ought to have been accepted.

Calderbank offers derive their name from Calderbank v Calderbank [1975] All ER 333 (‘Calderbank’). A Calderbank offer is the practice of making a ‘without prejudice’ offer, while reserving the right to refer to the offer in relation to costs in court. The phrase used to mark a Calderbank offer is ‘without prejudice save as to costs’. ‘Save as to costs’ means that there is an exception to the legal privilege and that the offer can be relied on in court in determining what proportion of the costs will be paid by which party in the proceeding. A Calderbank offer will also usually state that it is made in accordance with the principles described in Calderbank. 

Party/Party Costs vs Solicitor/Client Costs

In an ‘ordinary’ case of a costs order, the losing party might expect to pay the other sides costs on a “party/party” basis. That will not result in a full indemnity of the cost, actually incurred, but instead the amount of costs that may be recovered will be limited to costs which the court may allow if a “scale of costs is applied. “Solicitor/client” costs the are the costs that are actually incurred by a party in litigation. As the “solicitor/client” costs will inevitably be greater than “party/party” costs, a successful litigant may use a valid Calderbank offer to fill the gap between the two. The party which applies for a special cost order has the onus of showing that the Calderbank offer was unreasonable and that it was therefore reasonable to reject it. When determining whether the offeree will have to pay “solicitor/client” costs the key question for the court’s consideration is whether it was unreasonable for the offeree to reject the offer. Some of the principles that courts will consider in assessing  reasonableness, are guided by the findings set out in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435, may include:

• Timing – Was the offer made at an appropriate time the in proceeding where the offeree had appropriate time to consider and accept?
• Consideration – Was time given to allow the offeree appropriate consideration?
• Compromise – Was there a genuine extent of compromise in the offer?
• Prospects of success – Did the offer allow for the offeree’s prospects of success?
• Clarity – Were the terms of the offer expressed clearly and in a format that could be understood?
• Transparency – Did the offer foreshadow an application for special costs in the event it was rejected?

A general guide

Based on the guiding principles outlined above, some points to consider to ensure that you will be best placed to rely on an offer of settlement made to an opponent are;

• set out the terms of the offer clearly;
• explain why the offer is reasonable in the circumstances;
• allow the offeree a reasonable period in which to consider offer (ordinarily, 28 days); and
• specify that the offer is made in accordance with the principles in Calderbank and foreshadow that if the offer is not accepted and the offeror obtains a better result in the litigation, the offeror will rely on the letter to apply for a “solicitor/client” costs order against the offeree.

For all dispute and litigation related queries or concerns, please contact the BAL Lawyers Litigation and Dispute Resolution team on 02 6274 0999.