Rejection of a reasonable offer of settlement, what happens next?
At Hentys Lawyers, we often operate under a “no/win – no/fee basis”. What this effectively means is that the payment of our legal costs is conditional on a successful outcome.
In no/win – no/fee cases, a successful outcome is a lot more than just a “win” in your eyes. A successful outcome also includes “an offer of settlement which we recommend as acceptable and which, in our reasonable opinions, represents an appropriate conclusion or resolution of the matter”…the reason for this comes down to the repercussions which occur when a reasonable offer of settlement is rejected.
What is an offer of settlement?
In Wills and Dispute cases, if a settlement is not reached at mediation, it is then scheduled for trial where a judge makes a decision on the dispute. Trials can be costly and length, which is why in the interim between a failed mediation and the trial date, it is not uncommon for informal offers to be exchanged back and forth between both sides to try and settle before it reaches court.
These informal offers are known as ‘Calderbank Offers’, and are always made prior to judgement in a dispute, they can even be made prior to legal proceedings being commenced.
How do Calderbank offers work?
As established in the case of Calderbank v Calderbank, a ‘Calderbank Offer’ is an offer usually in writing that represents a genuine attempt to resolves the dispute. Importantly, the offer must state “without prejudice save as to costs”. This means that the offer cannot be used as evidence in any proceeding, and is without prejudice to the party’s right to continue litigation. The exception regarding costs means that if the offer is rejected and the case proceeds to judgement then the offer can be relied upon in court when determining who will pay the costs of the proceeding.
So, I rejected a reasonable offer to settle – now what?
Generally the party who “wins” or, receives judgement in their favour also has some, or all of their legal costs paid for by the unsuccessful party on a party/party basis (unsuccessful party is required to pay the successful party’s costs necessary to enforce or defend their rights – this is usually around 40-60% of their legal costs). However, the presence of an unreasonable rejection to a genuine offer can result in adverse costs against the rejecting party.
This has become precedent so to encourage parties to try and keep the matter out of Court in the interest of both each other, and the public. By settling, not only are the parties’ costs kept down, but the Court is able to direct its resources to other matters.
Offer made by unsuccessful party
An unsuccessful party whose reasonable offer was rejected by the successful party can use the offer as a basis to have costs awarded in their favour.
An example is if the Defendant makes a Calderbank offer that is rejected by Plaintiff, but at trial the Plaintiff obtains a judgement that is not better than the offer. The Defendant must then pay the Plaintiff’s costs up to the service of the offer (party/party costs as expected), but then the Plaintiff must pay the Defendant’s costs from the Calderbank offer onwards.
Offer made by successful party
On the other hand, a successful party whose reasonable offer was rejected by the unsuccessful party can use the offer as a basis not only to obtain party/party costs, but also costs on an indemnity basis (which includes solicitor and client costs).
An example is if the Plaintiff offers the Defendant an out of court settlement for $25,000. The Defendant rejects the offer, however at trial the Plaintiff wins the case and is awarded $26,000. The Defendant then has to pay not only the costs leading to judgement, but all the Plaintiff’s legal costs from the date the Plaintiff made the offer to settle.
The take away?
Accepting a reasonable Calderbank offer not only helps to quickly and effectively resolve the dispute but also protects the position on costs. So, if the offer is reasonable, always consider seriously whether it would be best to settle rather than risk it and proceed to trial…as it can make a loss sting just that much more.
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