Settling Litigation : Two Methods

13 January 2025 in Civil and Commercial Litigation | 7 min read | skip to FAQs

This article discusses the two most common methods of settling litigation prior to a hearing. These are Offers of Compromise and Calderbank offers. We outline the details of each and discuss their impact on cost orders made by the court.

Settling Litigation prior to a Hearing

Resolving a dispute prior to a hearing or once the hearing has commenced, prior to the judgement is often beneficial to both parties. The dispute can be resolved with less time, stress and cost than a completed court hearing. In addition, the parties retain a degree of control over the resolution decision. A resolution will also avoid the inherent risks of a hearing including the risk of losing the hearing, which will ordinarily result in a cost order being made against the losing party. Throughout settlement negotiations, it is common for both parties to propose multiple offers. Offers may be made in an effort to settle the matter, to protect a party’s cost position or both. Primarily offers will fall into one of two categories; offers of compromise, or Calderbank offers. Both types of offers have their advantages and disadvantages and can be tactically deployed at certain times throughout the course of the dispute. 

Offers of Compromise to settle litigation

An Offer of Compromise is a means of settling litigation. It can occur prior to trial or once a hearing has commenced, prior to the final judgement is handed down. It is a formal court document, and in NSW, is recognised under the Uniform Civil Procedure Rules 2005 (UCPR). The UCPR stipulates specific criteria that each offer must meet in order for it to be valid and relied upon within the courtroom. According to rule 20.26 of the UCPR, the criteria for a valid Offer of Compromise include, among other things, the offer must:

1. be in writing;
2. identify the claim, or part of the claim, to which the offer relates;
3. be exclusive of legal costs (i.e. does not refer to each party’s legal costs in the matter to date);
4. include a statement indicating that the offer is made in accordance with the UCPR
5. specify the period of time for acceptance or stipulate a deadline for when the offer will lapse.
6. Be an honest and genuine attempt to reach a settlement

The UCPR allows for an Offer of Compromise to be served by either party to the proceedings. These offers can be used for a wide variety of reasons, including a genuine attempt at resolution at a quantum genuinely believed to be appropriate, to put pressure on the other party to accept a reduced amount in exchange for the early resolution of the matter, and sometimes with further strategic planning in relation to future potential costs orders.

How Offers of Compromise affect Cost Orders

The court will consider several factors when making costs orders, and these orders come in various forms. In the majority of civil cases, the court will make an order for costs on a party/party basis, which essentially means that the losing party will pay the legal costs of the winning party, most commonly up to an amount of 60-75% of the total legal fees and disbursements that the winning party bore in relation to the proceedings. These type of costs orders are sometimes referred to as ‘costs follow the event’ or on an ordinary basis. Costs can also be awarded on an indemnity basis, which is an order that the losing party pay the winning party’s legal costs in full.

Effect of Rejection of Offers of Compromise on Cost Orders

If an offer is validly made pursuant to the UCPR and it is rejected by the other side, there may be an effect on any future costs orders made by the court. Each of these scenarios are discussed below:

1. The first scenario is where a Plaintiff makes an Offer of Compromise to a Defendant that is rejected, and then at the final hearing the Plaintiff obtains a judgement no less favourable to the Plaintiff than the offer. In this case, the costs incurred by the Plaintiff up to and including the date of the offer will be payable by the Defendant on an ordinary basis. The Plaintiff’s costs from the day after the date of the offer will be payable by the Defendant on an indemnity basis.
2. The second scenario is where a Defendant makes an Offer of Compromise to a Plaintiff that is rejected, and then at the final hearing the Plaintiff obtains a judgement no more favourable that the offer. In this case, the costs incurred by the Plaintiff up to and including the date of the offer will be payable by the Defendant on an ordinary basis. The Defendant’s costs from the day after the date of the offer will be payable by the Plaintiff on an indemnity basis.
3. The third scenario is where a Defendant makes an Offer of Compromise to a Plaintiff that is rejected, and then at the final hearing the Defendant obtains a judgement no less favourable than the offer. In this case, the costs incurred by the Defendant up to an including the date of the offer will be payable by the Plaintiff on an ordinary basis. The Defendant’s costs from the day after the date of the offer will be payable by the Plaintiff on an indemnity basis.

It is important to note that the court has some discretion when it comes to awarding indemnity payments. For instance, the judge will assess whether the offer of compromise made by either party was a genuine compromise to resolve the dispute or an attempt to receive the indemnity costs.

For the reasons outlined above, the rejection of an offer should be considered in great detail by whichever party receives an offer, as the consequences can be significant. It is recommended that the decision to reject an offer to settle litigation should be made on the basis of professional legal advice from an experienced litigation lawyer. The civil and commercial litigation legal team at Brander Smith McKnight lawyer Sydney have decades of experience negotiating litigation settlements and are aware of the significant potential outcomes to both parties.

The significance of Tickell v Trifleska

Notwithstanding the above prescribed rules and norms surrounding the making of costs orders following the rejection of Offers of Compromise, the case of Tickell v Trifleska Pty Ltd (1991) 25 NSWLR 353 confirmed the requirement that the offer involve a genuine compromise for it to be considered by the court in its determination of a costs order. Offers seemingly made purely to activate these costs orders, for example in an amount that is not an appropriate compromise, may be deemed invalid for the purpose of any cost order.

Calderbank Offers to settle Litigation

Deriving their name from the case of Calderbank v Calderbank [1975] All ER 333 (Calderbank), these types of offers are most commonly proposed in the form of a letter. Calderbank offers are not bound by a set of prescribed rules and can therefore be inclusive of costs, open for a shorter period of time, or in any form that the offeror considers appropriate. Given this flexibility and lack of formality, there is less certainty that the court would make an order for indemnity costs in the event the offer is rejected. When drafting a Calderbank offer, litigation lawyers must consider how the court will view the offer and whether the offer is intended to protect the client’s cost position. For example, an offer with an unreasonably short duration for acceptance may not be considered reasonable by the court and therefore, may not be effective in triggering a cost order against any party that does not accept the offer.

Cost Orders with Calderbank Offers and the Hazeldene case

The primary question that a court will deliberate on when making costs orders in relation to the rejection of a prior offer is whether it was unreasonable for the party to reject the offer. The legal case of Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298 outlined the following factors which have generally been accepted as the factors that the court will consider when making a costs order:

1. the step in the proceedings at which the offer was made;
2. the period of time allowed for acceptance of the offer;
3. the extent to which the amount proposed is a compromise;
4. the prospects of the party making the offer succeeding, as assessed at the date of the offer;
5. the clarity of the offer and its terms; and
6. whether the offer mentioned that there may be a subsequent application for indemnity costs should the offer be rejected.

Key Takeaways

Resolving a dispute prior to a hearing or during a hearing and before the judgement is handed down, can be beneficial to both parties with respect to time, cost and stress. It can also enable some control over the final decision. During settlement negotiations it is common for both parties to communicate multiple offers via their legal representatives. These offers generally fall into the category of either Calderbank or formal Offers of Compromise. These can be powerful tactical tools for the efficient management of any litigation. In addition knowing when and how to employ these offers as a tactic in settling litigation can have significant financial benefits. An experienced litigation lawyer is essential to achieve the best outcome.

How can BSM Sydney Lawyers assist you?

For the best possible strategic and financial outcomes when settling litigation it is essential to use a team of highly experienced litigation lawyers. Brander Smith McKnight law firm Sydney offers civil and commercial litigation lawyers with the tactical expertise to achieve the best possible outcome. We offer the legal and commercial expertise, knowledge and negotiation skills of a big city firm without the price tag. Our Sydney lawyers offer a personalised, highly responsive legal service with a fast turnaround time. Our litigation lawyers provide a free 20 minute consultation.

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BSM Lawyer Sydney has offices conveniently located in Sydney CBD, Sutherland, Parramatta, Shellharbour and Wollongong.