The Crucial Role of Offers to Settle in Litigation

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Offers to settle play a crucial role in litigation, whether it be way of bringing a dispute to a swift resolution or determining which party should be liable for an adverse costs order.

In litigation, there can be significant consequences if you unreasonably reject a reasonable offer made by another party, including, being liable for their legal costs on the standard or indemnity basis.

Don’t leave the uncertainty to chance and take the first step to protecting your interests by scheduling a free case evaluation consultation with our expert litigation lawyers today.

Execution Summary

An offer to settle is an offer by one party to the other/s to settle a dispute on the terms proposed within the offer. An offer to settle can be made prior to any legal proceedings being commenced or during legal proceedings up until a judgment has been made.

Offers to settle play a pivotal role in litigation, whether it is to bring the proceedings to a swift resolution or determining whether a party should be liable for the other parties’ legal costs.

Within this article, our expert litigation lawyers will particularise what an offer to settle is, what are the elements for a reasonable offer and the consequences of rejecting a reasonable offer.

What is an offer to settle?

An offer to settle is simply an offer by one party to the other/s to settle a dispute on the terms proposed within the offer. An offer to settle can be made prior to any legal proceedings being commenced or during legal proceedings up until a judgment has been made.

Offers to settle can be made:

1. by way of an informal, Calderbank, offer:

A Calderbank offer is an informal offer to settle made by one party to another. It was established in the case of Calderbank v Calderbank [1976] Fam 93, [1975] 3 All ER 333. Calderbank offers generally provide the offeror with greater flexibility than a formal offer and the terms can be completely discretionary to the offer.

A key element of Calderbank offers is that the correspondence is marked ‘Without Prejudice Save as to Costs’. Without Prejudice Save as to Costs (or Without Prejudice) means without prejudice to any of the offeror’s legal rights except for the issue of legal costs. This means that the other party is unable to present the correspondence to the Court as an admission of liability or as evidence. This provides the parties with the ability to engage in open and transparent communication to allow negotiations to prosper.

2. by way of a formal offer under the Uniform Civil Procedure Rules 1999 (UCPR):

a. Part 5 of Chapter 8 of the UCPR provides all parties to the proceeding with the ability to make a formal offer.

b. The requirements of a formal offer are stricter than a Calderbank offer, namely: 

i. Rule 353 – An offer must be in writing and must contain a statement that it is made under part 5 of the UCPR.

ii. Rule 355 – The offeror must specify in an offer a period, ending not less than 14 days after the day of service, during which the offer is open for acceptance and may not be withdrawn without the Court’s leave.

c. Rules 360, 361 & 361A of the UCPR sets out the consequences of not accepting a formal and the respective cost orders that may arise.

Offers to settle play a pivotal role in litigation, whether it is to bring the proceedings to a swift resolution or determining whether a party should be liable for the other parties’ legal costs.

Costs

Rule 681 of the UCPR, provides the general rule about costs:

‘(1) Costs of a proceeding, including an application in a proceeding, are in the discretion of the court but follow the event, unless the court orders otherwise.

(2) Subrule (1) applies unless these rules provide otherwise.’

This essentially means that the ‘successful’ party is entitled to recover their legal costs (costs order), unless the unsuccessful party (or parties) can demonstrate why an alternative order should be made.

Costs Orders

There are two (2) main form of cost orders, namely:

1. Standard Costs – This is the most common award and is made pursuant to the respective ‘Court Scale’. For Magistrate Court Proceedings, the Court Scale is contained within Schedule 2 of the UCPR. For District and Supreme Court Proceedings, the Court Scale is contained within Schedule 1 of the UCPR. The Court Scales provided guidance of the legal costs that may be claimed by a party.

NOTE: A Standard Costs Order can equate to approximately 70% – 80% of your legal costs. This means that even if you are successful and obtain a costs order against the other party, you could still be out of pocket.

2. Indemnity Costs – An Indemnity Costs Order is a discretionary order that is available to the Court. An Indemnity Costs Order can be for majority of your legal costs. The Courts have wide discretion as to whether an indemnity costs order is appropriate, taking into account any offers made by the parties, the timing of those offers, the conduct of the parties (i.e. if one party was acting unreasonably) and the strength of the claim.

Purposes of an Offer to Settle

The purposes of issuing an offer to settle includes (without limitation):

1. If the other party accepts the offer, then the dispute or proceedings will be finalised upon completion of any respective obligations; or

2. It may allow for negotiations to ensue, allowing the parties to resolve the dispute efficiently; or

3. If the other party (offeree) ‘unreasonably’ refuses a reasonable offer, then the offer can be used as grounds for the offeror to seek that the offeree be liable for their legal costs on an indemnity basis (if the offeror obtains a better result a Trial); or

4. Alternatively, if the offeree ‘unreasonably’ refuses a reasonable offer, then the offer can be used as grounds for the offeror to seek that the offeree be liable for their legal costs from the date of the offer (if the offeror is unsuccessful at Trial, but the offer is a better result than the offeree obtained).

NOTE: The principle is that if the offeree accepted the offer, they would have been in a better position. However, because they did not, they forced the offeror to incur unnecessary expenses in proceeding with the Trial and therefore, they should be liable for the offeror’s costs.

What Constitutes a Reasonable Offer?

As a Calderbank offer is considered an informal process, the UCPR does not provide any guidance on the requirements, or the elements required to establish a ‘reasonable’ offer.

There is otherwise no strict answer, and it is at the discretion of the Court when considering the relevant factors.

In Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435, the Court held that the following principles should be considered when determining whether to make an indemnity costs order:

1. the stage of the proceedings at which the offer was received;

2. the time allowed to the offeree to consider the offer;

3. the extent of compromise in the offer;

4. the offeree’s prospects of success, which are assessed at the date of the offer;

5. the clarity with which the terms of the offer are expressed; and

6. whether the offer foreshadowed an application for indemnity costs in the event of the offer being rejected.

Bearing in mind the above principles, a Calderbank offer should:

1. clearly set out the terms of the offer so that a reasonable person can understand them;

2. demonstrate a form of ‘genuine’ compromise – For a plaintiff, this can include a reduction in the amount being sought from the defendant (i.e. if you claimed $100k, then you may offer $98k);

3. allow the offeree a reasonable timeframe to consider the offer – A common timeframe is fourteen (14) days to be consistent with the formal offer, however, depending on the urgency, a shorter timeframe could be proposed.

4. clearly specify that the offer is made in accordance with the principles of Calderbank v Calderbank [1976] Fam 93, [1975] 3 All ER 333.

5. foreshadow that if the offer is not accepted and the offeror obtains a better result, then the offeror will rely upon the offer to apply for an indemnity costs order against the offeree.

6. specify why the offer is reasonable in the circumstances, having regard to the strength of the proceedings, evidence and the law (i.e ‘Why the Offer Should be Accepted’).

Once a reasonable offer has been made, the next step is to demonstrate to the Court that the offeree acted ‘unreasonably’ by rejecting the offer. The onus is on the party seeking the indemnity costs order (or an order that does not follow the event) that they are entitled to the award sought.

In considering whether a rejection is unreasonable, the Court will also refer to the principles set out above.

Recent Case Law

Below is some of the recent cases dealing with offers to settle and the issue of costs:

1. Brookfield v State of Queensland (No 2) [2024] QSC 246:

Parties

Plaintiff: Ian Walter Brookfield

Defendant: State of Queensland

Facts

The Court dismissed the Plaintiff’s claim, and the Defendant sought an order that the Plaintiff pay their costs of the proceeding, including reversed costs. The basis for this application was that the Defendant made a formal offer under the UCPR, which was rejected by the Plaintiff. If the Plaintiff had accepted the offer, then they would have been in a better position.

Issue in Contention 

Costs: The basis upon which the costs should be assessed - a standard basis or an indemnity basis.

Decision

Rule 361A(2) of the UCPR states:

‘361A Costs if offer by defendant—dismissal of plaintiff’s proceeding

(1) This rule applies if—

(a)  the defendant makes an offer that is not accepted by the plaintiff; and 

(b)  the plaintiff’s proceeding is dismissed; and

(c)   the court is satisfied that the defendant was at all material times willing and able to carry out what was proposed in the offer.

(2) Unless a party shows another order for costs is appropriate in the circumstances, the court must order the plaintiff to pay the defendant’s costs—

(a)  calculated on the standard basis, up to and including the day of service of the offer; and

(b)  calculated on the indemnity basis, after the day of service of the offer.’

In accordance with rule 361A(2) of the UCPR, the Plaintiff is to pay the Defendant’s costs of the proceeding (including any reserved costs relating to any application in the proceeding) to be assessed on the standard basis up to 3 April 2024 and on the indemnity basis from 4 April 2024 (date of offer) onwards.

2. Paladin Projects Pty Ltd v Visie Three Pty Ltd & Ors (No 2) [2024] QSC 244:

Relevant Parties

Applicant: Paladin Projects Pty Ltd

First Respondent: Visie Three Pty Ltd

Second Respondent: Nancy Alexander (Adjudication Registrar)

Third Respondent: Adjudicator

Facts

On 25 September 2024, the Court made orders that:

‘1. Pursuant to s 101(4) of the [BIF Act] and s 10 of the Civil Proceedings Act 2011 (Qld), it is declared that:

(a)  Paragraph 76 to 94 of the Adjudication Decision number 2512991 made by the Third Respondent on 7 May 2024 (Adjudicator’s Decision) concerning the Applicants Variation 62 is affected by jurisdictional error and void; and

(b)  the balance of the Adjudicator’s Decision remains binding on the parties to the proceeding.

2.  the “Adjudicated Amount” (as that term is defined by s. 88(1)(a) of the [BIF Act]) for the Adjudicator’s Decision is $ nil.”’

Further directions were made for the parties to file and serve submissions and affidavits on the issue of costs.

Issues in Contention

Costs: Whether the Plaintiff had unreasonably rejected a Calderbank offer from the Defendant that would have put it in a better position than the ultimate judgment.

Decision

The Calderbank offer by the First Respondent satisfied the requisite principles of a Calderbank offer. The Applicant’s rejection of the Calderbank offer was unreasonable and justifies a departure from the general [standard] costs rule in rule 681 of the UCPR.

The Applicant was required to pay the First Respondents costs in the proceeding until 12 June 2024 (date of offer) on the standard basis and the costs in the proceedings after 12 June 2024 on an indemnity basis.

Other notable cases include:

1. Wiggins Island Coal Export Terminal Pty Limited v Civil Mining & Construction Pty Ltd [2021] QCA 8;

2. Aklia Holdings Pty Ltd v The Carter Group Pty Ltd (in liq) & Others (No 2) [2017] QSC 266;

3. Seven Network Ltd & Anor v News Ltd & Ors (2007) 244 ALR 374;

4. J & D Rigging Pty Ltd v Agripower Australia Ltd [2014] QCA 23; and

5. S.H.A. Premier Constructions Pty Ltd v Niclin Constructions Pty Ltd (No 2) [2020] QSC 323.

Conclusion

The above cases (among others) demonstrate the crucial role that offers to settle play in litigation and emphasises the importance of appropriately obtaining legal advice surrounding an offer to settle and the potential consequences that may arise from those offers.

Free Case Evaluation Consultation

In litigation, there can be significant consequences if you unreasonably reject a reasonable offer made by another party, including, being liable for their legal costs on the standard or indemnity basis.

Don’t leave the uncertainty to chance and take the first step to protecting your interests by scheduling a free case evaluation consultation with our expert litigation lawyers today.