Understanding Calderbank Offers and Indemnity Costs
Parties involved in legal disputes often seek ways to avoid the time and expense of a trial. A key tool in this process is the “without prejudice” settlement offer. These documents allow litigants to propose a resolution without admitting fault or legal liability. Among these mechanisms, the Calderbank offer is a significant option. It provides the offeror with a chance to obtain costs protection if the opposing party rejects the proposal and fails to achieve a better outcome at trial.
There are two primary types of written offers. The first is the Offer of Compromise. The second is the Calderbank offer. Each serves a slightly different purpose within the litigation process, particularly regarding how costs are handled.
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Standard Offers of Compromise
These offers must align with court procedures. In New South Wales, r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) sets the standard. The offer needs to identify the specific claim involved. It must specify the orders the court should make, such as dismissing the case or entering a judgment for a specific amount. The document must also state that it is made under r 20.26 of the UCPR. Furthermore, the offer must be exclusive of costs, unless it specifies that the judgment be entered with no order as to costs. It must remain open for at least 28 days. Exceptions exist. If the offer is made within two months of the trial date, it must be open for a reasonable period instead.
Cost Implications
The UCPR prescribes specific cost consequences if a rejected offer results in a worse outcome for the offeree at trial. The consequences depend on who wins and whether the award is better than the offer.
If the plaintiff obtains a judgment no less favorable than the offer, the defendant pays ordinary costs. Yet, if the plaintiff achieves a result no more favorable than the proposal, the defendant pays indemnity costs. The opposite occurs if the defendant is the winner. When the defendant secures a result no less favorable than the offer, the plaintiff pays ordinary costs. When the defendant wins a result no more favorable than the offer, the plaintiff pays indemnity costs. These consequences hold even if the offer is made on the first day of trial, though indemnity costs usually begin from 11 a.m. the day after the offer is made.
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Genuine Compromise
While the rules are prescriptive, the court retains discretion. The court must be satisfied the offer involved a genuine compromise. If a plaintiff offers to settle a $100,000 claim for $99,999, the court is likely to view it as an attempt to trigger the indemnity cost provisions rather than a real proposal to settle. In the case of Tickell v Trifleska Pty Ltd, the court noted that such an offer indicates a tactical maneuver rather than a willingness to resolve the dispute.
Calderbank Offers
These offers derive their name from the 1975 case Calderbank v Calderbank [1975] All ER 333. They are typically made as a letter marked “without prejudice except as to costs.” Unlike Offers of Compromise, Calderbank offers offer greater flexibility. The terms can be inclusive of costs, and the offer can be open for a much shorter period. There are no strict rules governing their format. This flexibility, however, introduces less certainty regarding indemnity costs. Because there are fewer constraints, a court may find it harder to compare the offer to the eventual judgment.
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The legal system must balance the need for efficient dispute resolution with the reality that every case is unique. The distinction between strict procedural rules and flexible letters allows parties to handle their disputes based on their specific circumstances. While strict rules offer predictability, flexibility allows lawyers to tailor terms to capture fleeting moments in a case. This adaptability is essential because the practical realities of litigation—such as witness availability or the exact state of evidence—often change rapidly, and a rigid procedural form might not capture the nuance of a specific negotiation.
Evaluating Reasonableness
To determine if an indemnity costs order is appropriate, the court looks at several factors in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority. The court considers the stage of the proceeding, the time allowed for consideration, and the clarity of the terms. The offeror’s prospects of success are also assessed at the time of the offer. The court must decide if it was unreasonable for the offeree to reject the offer. The clarity of the terms and whether the offer foreshadowed an application for indemnity costs are also critical.
