Settlement Offers and Costs in NSW Civil Disputes

Settlement offers and costs are central to any civil dispute in NSW, because most cases settle and the way an offer is made can change who pays the legal bill. This article explains the main types of settlement offers, including Calderbank offers, how mediation fits in and how costs usually work.

How costs work in NSW civil cases

The general rule in NSW civil proceedings is that costs follow the event. Under the Uniform Civil Procedure Rules 2005 (NSW), the court ordinarily orders the unsuccessful party to pay the successful party's costs, unless it orders otherwise. The court has wide discretion over costs under the Civil Procedure Act 2005 (NSW).

Even a winner rarely recovers everything. Costs are usually ordered on an ordinary basis, which generally covers only part of the legal fees actually incurred. In some situations the court may order costs on an indemnity basis, which is more generous to the party receiving them. Settlement offers are one of the main ways indemnity costs arise.

Why settlement offers matter

A settlement offer lets a party put a clear proposal on the table, such as payment of a sum, and shift costs risk to the other side. If the other party rejects a reasonable offer and later does no better at trial, the court can take that into account when deciding who pays costs. For that reason, a sensible offer should be considered carefully by both sides.

Offers of compromise under the court rules

The Uniform Civil Procedure Rules set out a formal process for offers of compromise (rule 20.26). To work as intended, a formal offer must follow the rules, including stating that it is made under the relevant rule and generally remaining open for at least 28 days. If the offer is not accepted and the judgment is no more favourable to the offeree than the offer, the Uniform Civil Procedure Rules (rules 42.14 and 42.15, depending on whether the offer came from the plaintiff or the defendant) generally limit the offeree to costs up to the date of the offer, and the offeror may be entitled to indemnity costs from that point.

The costs consequences are set by the rules, so formal offers give greater certainty. However, the rules are technical, and an offer that does not comply may not attract the same consequences.

What is a Calderbank offer?

A Calderbank offer is a settlement offer made in a letter marked "without prejudice except as to costs". The name comes from an English case, Calderbank v Calderbank. The letter cannot be used to prove liability at trial, but it can be shown to the court after judgment when costs are argued.

Calderbank offers are not governed by a prescribed set of rules, so they are more flexible. They can include terms the rules do not easily allow, such as non-monetary terms, or an offer that is inclusive of costs. The trade-off is less certainty. If the offer is rejected and the result is no better for the offeree, the court has a discretion to order indemnity costs, but the court will ask whether it was unreasonable to refuse the offer.

In deciding that, courts typically consider factors such as:

• the stage of the proceedings when the offer was made;
• the time allowed to consider it;
• the extent of the compromise offered;
• the offeree's prospects of success at that time;
• the clarity of the terms; and
• whether the letter warned that indemnity costs would be sought.

Tips for making or responding to an offer

• Be clear. State the amount, what is covered, whether costs are included, the deadline and the intended consequences if it is rejected.
• Make a genuine compromise. An offer that gives up little may not carry weight on costs.
• Respond in writing and keep a record of all correspondence.
• Get advice before rejecting an offer. Compare it with the realistic outcome at hearing, the likely costs and any recovery risk.

Mediation in NSW civil disputes

Mediation is a confidential, structured negotiation in which an independent mediator helps the parties try to reach agreement. The mediator does not decide the dispute. Under the Civil Procedure Act 2005 (NSW), the court can refer proceedings to mediation, with or without the parties' consent. Parties may also choose to mediate privately at any stage.

Mediation can save time and money and may preserve a business or personal relationship. It also gives the parties control over the outcome, which a judge's decision does not. Settlement offers are often made at or around mediation, and an agreement reached is usually recorded in a written settlement deed or in consent orders, which can be enforced if a party does not comply. Before attending, work out your realistic best and worst outcomes and bring someone with authority to settle.

Frequently Asked Questions

Is a Calderbank offer binding?

An offer does not bind the other side to accept it. If it is accepted, the terms become an agreement, and should be recorded in writing, often with consent orders to finalise the proceedings.

Can I make a Calderbank offer before starting court proceedings?

Yes. Calderbank letters can be sent at any stage, including before proceedings begin, although the court will consider whether the timing and information provided made the offer a reasonable one.

Do I have to attend mediation?

The court can order mediation even if a party is reluctant. Even where it is voluntary, refusing to consider settlement can be taken into account when costs are decided.

Will the other side pay all of my legal costs if I win?

Usually not. The losing party is ordinarily ordered to pay only part of the winner's costs, which is why careful use of settlement offers is important for managing risk.

This article is general information only and is not legal advice. Laws and processes change, and every situation is different. Speak to a lawyer about your circumstances before you act.