Offers

Litigation is both stressful and expensive. It is for this reason that it is often recommended that parties engaged in litigation should make offers early and often.

Offers have a dual purpose.  The first purpose is to attempt to resolve the matter in a cost effective and rapid manner. The second purpose however is costs protection.

Offers are usually made on a “Without Prejudice” basis that is, that the contents of the offer do not prejudice the claim or defence currently before the Court. This is a well-established legal principle and means that at no time will contents of the offer jeopardise or compromise the claim or defence. Offers are not admissible and cannot be used as evidence in the proceedings as to liability or quantum.

Generally, offers made must clearly set out what the terms of the offers are. The offer must be capable of acceptance and must clearly state the time limit for the acceptance.

There are two types of offers that can be made:

  1. A Calderbank offer, that an offer made pursuant to the principle first established in an English Court of Appeal case, Calderbank v Calderbank [[1975] All ER 333; and
  2. An offer made pursuant to the rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW).

Offer only binding on acceptance

An offer is only binding on the parties when both parties agree to the terms of the offer. If parties have agreed to an offer and a party then decides to walk away, the offer can in those circumstances be used as evidence of the agreement reached between the parties and the terms of the offer can then be enforced: Masters v Cameron (1954) 91 CLR 353.

This however means that when making an offer, you should be prepared to follow through with it if the offer is accepted.

Cost Protection

As outlined above, the second reason why an offer is made is to provide costs protection.

Litigation is expensive. In most civil cases “costs follow the event”, which means that the party that is successful on the conclusion of the proceedings will ordinarily be entitled to an order that the losing party pay their fair and reasonable costs of the proceedings. These orders are known as ordinary costs or party/party costs.

If the parties cannot agree as to what these costs are, then the costs must be sent for assessment by a costs assessor. A costs assessor is usually a very experienced solicitor or barrister. Their role will be to go through all of the work that was performed and decide what would have been fair and reasonable in the circumstances. It is our experience that a costs assessor typically allows a cost recovery of between 60% to 70% of the total legal costs incurred by the successful party.

This means that, under ordinary costs orders, if a successful plaintiff incurs $100,000 of costs, they may be only entitled to recover between $60,000 to $70,000 from the unsuccessful defendant, which would leave them between $30,000 or $40,000 out of pocket.

This is where offers come in. The Court also has the power to make what is known as cost orders on an indemnity basis. These are costs orders that are meant to have a fuller recovery for the successful party, typically between 90% to 100% of the total legal costs.

In order for the Court to make an order for costs on an indemnity basis, the Court must be satisfied of the following:

  1. That a valid offer was made (whether as a Calderbank offer or under the rules);
  1. If the unsuccessful party had accepted that offer, they would be in a better position than what they ultimately achieved at Court; and
  1. It was not reasonable for the unsuccessful party to reject the offer that was made.

To simplify – the successful party must convince the Court that they gave the unsuccessful party a very good opportunity to get out and that they unreasonably refused that offer.

Ultimately, making an offer to resolve proceedings can help minimise exposure to legal costs and put pressure on parties to resolve proceedings prior to a contested court hearing.

If you need help or any assistance, please feel free to contact our lawyers at Adams & Partners Lawyers to discuss.

Written By Kenneth Ti

Kenneth

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