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An offer you can refuse ...

Contract Law News | July 2015

When involved in court proceedings it is important to know when to stop fighting a claim and call it a day. At this point offers of compromise and Calderbank offers are useful methods for negotiating a settlement. These types of offers made between parties are governed by the Uniform Civil Procedure Rules 2005 (NSW) (“the UCPR”).

Offer of compromise

Offers of compromise act as an incentive to parties to settle disputes. Offers of Compromise are prepared on a Court prescribed form and can be made before or after proceedings have been commenced and can impact upon orders for which party will be ordered to pay the legal costs [“costs”] of each/all the parties at the conclusion of proceedings. Regulation 20.26 of the UCPR requires that an offer:

  • must identify:
    • the claim or part of the claim to which it relates; and
    • the proposed orders for the disposal of the claim, or part of the claim;
  • must not include an amount for the legal costs or be expressed as inclusive of legal costs;
  • may propose:
    • a judgement in favour of the defendant;
    • that the legal costs as agreed or assessed up to the time which the offer is made will be paid by the offeror;
    • that the costs as agreed or assessed on the ordinary basis or indemnity basis will be met by a specified or notional estate or fund identified in the offer.

Calderbank offers

A Calderbank offer is an offer of settlement in court proceedings in the form of a letter and may be made before or during court proceedings and sets out the rationale of the offer, objectively puts forward the reasoning for the offer and why the other party should accept it. The letter must carry the notation “Without prejudice save as to costs”. This means that the communications are privileged and cannot be raised in proceedings, except in relation to a question of costs of the proceedings once a decision has been made by a court. The Calderbank letter must contain a genuine offer of compromise of the claim. The offeree must be given a reasonable amount of time for to respond to the offer, usually 28 days from the date of the offer.

Where a party has rejected a Calderbank offer, and the party who rejected the offer is the unsuccessful party in the proceedings, then the Court may order that unsuccessful party to pay the successful party’s legal costs on an “ordinary” [reasonable] basis up to the time to which the offer was open, and on an “indemnity” basis from the date of the offer to the end of the court proceedings. “Indemnity” costs are all of the legal costs and expenses expended by a party regardless of whether they are “reasonable” costs or not, unless those costs are clearly identified as unacceptable.

If you are involved in court proceedings, it is important to know at what point it becomes necessary to make a commercial decision by making or accepting an offer in an effort to settle the dispute. It can be difficult to know what is and is not a reasonable and genuine offer of compromise and it may be unwise to reject an offer in certain circumstances. The benefit of a settled outcome in court proceedings as opposed to a court decision is that a settled outcome can be more finite than a court decision which can be appealed, in many cases.

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