Costs – the general principles
There is a longstanding principle that the costs of a legal dispute “follow the event”. What this means is that a successful party to legal proceedings will receive a costs order in their favour, so that the losing party has to pay not only their own legal costs but also a portion of the successful party’s legal costs.
The costs awarded by a Court will generally be on what is called an ordinary basis or party/party basis, being costs calculated by reference to a legal costs determination or scale. Party/party costs generally fall within the range of 50% to 75% of the actual legal costs incurred by that party.
However, in certain circumstances, a Court can award costs on either a solicitor-client basis or an indemnity basis, both of which allow a party to recover a greater portion of their actual costs incurred.
One such circumstance is when a party makes an offer to settle, the offer is rejected and they ultimately obtain a judgment that is at least as favourable as their offer. In this way, settlement offers are important tools which can provide parties with some costs protection when involved in legal proceedings.
Calderbank offers
A Calderbank offer is a written “without prejudice” settlement offer, that is made in full and final settlement of a claim, inclusive of legal costs.
The main benefit of making a Calderbank offer, aside from hopefully resolving the dispute, is that, if rejected, and the party which made the offer can show that, given the final result, it was unreasonable for the other party to reject the offer, it can seek an order that its costs be paid on an indemnity basis from the date of the offer, to the end of the litigation.
If the Court awards costs on an indemnity basis (as opposed to a regular costs order), the successful party can recover the reasonable costs they have incurred during the dispute from the unsuccessful party. In some cases, this can amount to 95% of the actual costs incurred.
In considering a potential award of costs when a Calderbank offer has been made, the Court will take into account whether:
- the terms of the offer were clear;
- the offer represented a genuine compromise and attempt to settle the litigation;
- the offer stated the intention of the offeror to bring the offer to the Court’s attention (by stating that the offer was made in accordance with the principles set out in Calderbank v Calderbank); and
- rejection of the offer was reasonable in the circumstances.
A Calderbank offer is a powerful tool that can provide parties with some costs protection when involved in legal proceedings.
Offers of compromise
A party can also make a formal offer to settle proceedings under the rules of the Court. The rules of the Court set out formal requirements which must be followed when making an offer of compromise. A failure to comply with the requirements can invalidate the offer for the purposes of costs.
When done correctly, a formal offer made pursuant to the rules of the Court, if rejected, may entitle the offeror to recover their legal costs on an indemnity basis or on a solicitor-client basis, as opposed to a party-party basis. The difference could be in the order of tens, if not hundreds, of thousands of dollars.
One of our experienced lawyers can help you ensure the correct procedure is followed if you are seeking to make an offer to settle under the rules of the Court.
Conclusion
If you are involved in a legal dispute, it is advisable that you should consider settlement as an option early in proceedings, and throughout the proceedings. Settlement can be an effective tool in facilitating an early resolution of a dispute, as well as providing a form of costs protection.
If you are currently in a dispute, one of our experienced lawyers can help you determine what a potential settlement offer could look like and help you to understand the process and ensure your rights are being protected.
This article contains general information only and does not take into account your specific circumstances. If you or someone you know wants more information or needs help or advice, please contact us.