Litigation can be a costly exercise, and the allocation of costs is entirely in the discretion of the Court. Despite this discretion, the default position is that “costs follow the event”, meaning the unsuccessful party pays the successful party’s costs. These costs are generally awarded on a party/party basis where the unsuccessful party is required to pay the successful party’s costs necessary to enforce or defend their rights (usually 40-60% of their legal costs).

However, the default costs order position may be affected by the presence of a “Calderbank offer”. So, what is a “Calderbank offer” and how does it apply?

From the English case of Calderbank v Calderbank [1975] 3 All ER 333, a “Calderbank offer” is an offer headed with the words “without prejudice, save as to costs” and it is valid if it represents a genuine attempt to resolve the dispute. The acceptance of reasonable offers in the course of negotiations is in the interests of the parties and the public, as the costs to the parties are minimised and the Court can direct its resources to other matters. Therefore, the presence of a genuine offer and an unreasonable rejection of such an offer may result in adverse costs against the rejecting party.

Where a party has rejected a “Calderbank offer”, that offer can be supplied to the Court in an application for costs. A successful party who makes a valid “Calderbank offer” can use the rejection of that offer as a basis to obtain, not only party/party costs, but, costs on an indemnity basis in their (the other side pays 60-80% of their costs). Whereas, an unsuccessful party can use the rejection of a “Calderbank offer” as a basis to have costs awarded in their favour.

However, a “Claderbank offer” can only have such an effect if it complies with all of the requirements, and is made in a timely fashion with a view to genuinely resolve the dispute. From Financial Integrity Pty Ltd v Farmer (No4) [2014] ACTSC 145, these include:
o It must be marked with “without prejudice, save as to costs”;
o It must be a genuine compromise;
o The offer must be in clear terms and a final offer, not subject to any further negotiation;
o Generally should not be inclusive of costs (though authorities are not uniform on this);
o The offer must state that, if the offer is not accepted, then a special order, such as for indemnity costs, will not be sought;
o The offer must be open for a reasonable period (usually 14 days); and
o The offer must give the other party a reasonable chance to consider the strength of the offeror’s case;

However, it is important to keep in mind that when a Court is asked to take into consideration a “Calderbank offer”, it is not bound to make a special costs order and the Court will take into account:
o whether the judgment is more favourable than the offer made and to what extent it is more favourable; and
o whether in all the circumstances the rejection of the offer was reasonable.

In order to obtain the greatest benefit from a “Calderbank offer”, it is a matter of offering the right amount for settlement at the right time. This can be achieved by having an experienced dispute resolution practitioner act in the matter on your behalf.

Our Litigation & Risk Management team are experts and can assist in the resolution of your dispute. If you require any further assistance or any further information, contact our office on 02 6215 9100.