Skip to content

Using an Offer of Compromise to Minimise Legal Costs Exposure

Personal injury lawyers Sydney

A key reason many people avoid going to court is the perceived cost of legal action.

There are two common ways by which injured people may reduce the cost of legal action. The first is through a formal offer of compromise. The second way is by making a ‘Calderbank letter’ to the opposing party.

Making an offer of compromise

In most civil cases, ‘costs follow the event’, which means that the party against whom the judgment is awarded must pay the successful party’s costs of bringing and prosecuting the case in court.

This practice by the court is known as awarding costs on an ordinary – or party/party costs – basis.

Orders for party/party costs usually only cover 60%  – 70% of the total legal costs of the successful party, and in certain cases, the amount recoverable will be capped.

In NSW, an offer of compromise is recognised under Uniform Civil Procedure Rules 2005 (UCPR) is a formal court document. Under those rules it must meet certain criteria to be valid:

  • The offer must be in writing;
  • it must identify the claim, or part of the claim, to which the offer relates;
  • it must be exclusive of costs (i.e. does not refer to costs);
  • must specify the period of time the offer is open for acceptance.

An offer of compromise must also represent an honest attempt to negotiate a settlement.

What is the rationale for an offer of compromise?

Ordinarily, after successful proceedings in court, the plaintiff will receive an order from the court that the defendant pays its costs on a party/party basis. In the vast majority of matters, a party/party costs order borne by a defendant will result in a defendant having to pay approximately 60% – 70% of the overall legal costs and disbursements that a plaintiff has to bear in relation to a matter.

Under the Uniform Civil Procedure Rules that apply to civil litigation in NSW, an Offer of Compromise can be served by any party to the litigation. The purpose of an Offer of Compromise is to seek to put pressure on the party upon whom the offer has been served should be in a position to advise their client as to the likely range of quantum (valuation) outcomes in a matter well before the matter would otherwise finalise by way of proceeding to mediation and trial.

If a plaintiff serves an Offer of Compromise pursuant to the Uniform Civil Procedure Rules, and the offer is not accepted by a defendant, some consequences follow. Firstly, the plaintiff will be in a position to make a special costs application that an order other than an ordinary party/party costs and disbursements order be binding upon the defendant or defendants in proceedings.

If an Offer of Compromise is served and is subsequently beaten by the plaintiff after not being accepted by the defendant within the 28 days within which the Offer of Compromise must be kept open, the plaintiff can seek an order that indemnity costs be awarded from the time of the service of the Offer of Compromise. This will ordinarily give rise to an order that the vast majority of the legal costs and disbursements accrued from that time are paid for by the defendant or defendants held liable in the proceedings.

Most recently, Beilby Poulden Costello Lawyers were successful in obtaining an order for payment of costs to their client on an indemnity basis in the Supreme Court of NSW matter of Metri v Nestle Australia Limited [2021] NSWC343. In that matter, an Offer of Compromise had been made in November 2017. The offer was not accepted by the defendant who was ultimately held liable for 2.9 million dollars (plus costs) after a trial in which judgment was entered on 7 April 2021.

The significance of the order is that the injured plaintiff will have a costs benefit in receiving indemnity costs from November 2017, following which significant preparatory work had to be undertaken in relation to complying with the court rules and procedures pertaining to the qualification and conclave of experts and of course preparation and presentation of a 10 day trial in the Supreme Court.

The timing of an Offer of Compromise has strategic significance and must also be considered in light of various precedent decisions of the courts in relation to matters that may render an Offer of Compromise invalid (if for example the Offer of Compromise is made prematurely ie at a time prior to which it is reasonable for the defendant or defendants to be in a position to properly assess their liability and the value of the plaintiff’s case).

What are Calderbank letters?

Taking its name from the English case of Calderbank v Calderbank, a Calderbank offer is an offer of settlement in writing made on a ‘without prejudice save as to costs’ basis.

Translation: the offer cannot later be used as evidence in court unless a party brings the offer to the notice of the court to determine the question of costs.

This type of offer is less formal than an offer of compromise but must have the same hallmarks to be considered a legitimate offer, with the terms expressed clearly and precisely, and a reasonable time provided for acceptance of the offer.

A Calderbank letter is generally sent prior to the parties going to court to encourage reasonable negotiations between the parties and to prevent the need for a trial.

Like a formal offer of compromise, a Calderbank letter can be the basis for the awarding of costs on an indemnity basis to the successful party if the person who received the letter rejected its terms.

Discuss with BPC Lawyers

The costs of legal action and how they are apportioned between the parties at the end of court action can be a complex and contentious area of the law.

In compensation matters, letters of compromise are common due to the length and complexity of many cases, which can encourage people to try and end the proceedings as soon as possible due to the costs involved.

As outlined above, offers of compromise and Calderbank letters can also help minimise your exposure to the other side’s legal costs depending on the strength of your case.

Discuss the issue of costs today with our Sydney personal injury lawyers at BPC Lawyers.