Commencing or responding to legal proceedings is inherently risky and costly. It is therefore vital to manage the dispute process, including settlement negotiations, in a smart and strategic way.
When deployed correctly, a Calderbank offer can be a highly effective tool for resolving disputes at a critical juncture, protecting a party’s cost position, should the matter proceed to hearing. However, deploying it correctly requires some mastery. While form and contents should be applied scientifically, timing a Calderbank offer to capture its strategic value, is more of an art.
In this article, Moulis Legal associate Lochlan Worrell revisits the tactical benefits of a Calderbank offer in litigation and provides a real-world example of the consequences of getting it wrong.
Before making or responding to a Calderbank offer, parties must carefully consider its form, contents, and timing, as well as the overall strength of their case. If you’re unsure, you should seek advice.
Partial compliance with the formal requirements of a Calderbank offer will mean it is unlikely to support an application for a special costs order.
What is a Calderbank offer?
A Calderbank offer proposes to settle a dispute on certain terms which, if unreasonably rejected by the other party, can result in the party making the offer to receive a more favourable costs order at a final hearing.
Named after the 1975 English Court of Appeal decision of Calderbank v Calderbank, Calderbank offers are commonly used in litigation as a strategic tool to motivate a party to settle. Its power lies in the consequences of not accepting an offer that represents a reasonable and genuine compromise.
In practice, where a successful party receives a more favourable outcome at trial than it would have under a Calderbank offer, the offer may be presented to the court in support of an application an indemnity costs order.
The rationale being that the unsuccessful party ought to have accepted a good settlement offer earlier when it had the chance, rather than proceed to a final hearing where everyone has had to incur further costs. The unsuccessful party is therefore required to pay a higher portion of the successful party’s costs.
When used correctly and strategically, a Calderbank offer is considered an invaluable tool in the resolution of litigation, given the potentially significant cost implications of refusal.
Unlike formal offers of compromise under the Uniform Civil Procedure Rules (“UCPR”), there are no legislatively prescribed rules for making Calderbank offers. Instead, the form, contents and timing conditions have been shaped by ongoing judicial consideration.
To be considered a valid, the Calderbank offer must (amongst other things):
- contain precise, clear and unambiguous terms;
- make reference to the offer being made in accordance with the principles outlined in Calderbank v Calderbank;
- state a reasonable timeframe for acceptance;
- demonstrate a genuine compromise of the offeror’s position; and
- provide a summary of the reasons why the offer should be accepted.
Partial compliance with the formal requirements will mean the Calderbank offer is unlikely to support an application for a special costs order.
The consequences of getting it wrong
The recent decision of Springfield City Group Pty Ltd v Pipe Networks Pty Ltd (No 2) serves as a timely illustration of the consequences of failing to meet each of the requirements of a Calderbank offer.
The judgment concerned an application by Pipe Networks Pty Ltd (“Pipe”) for an order requiring Springfield City Group (“SCG”) to pay Pipe’s cost on an indemnity basis, arguing that:
- Pipe had made and offer to SCG, pursuant to Chapter 9 Part 5 of the UCPR, to settle the proceeding for an amount plus costs to be agreed (“the Offer”);
- SCG was deemed to have rejected the Offer because it was not accepted within the 14 days that it was open;
- SCG subsequently failed on each of its grounds at trial, and so Pipe was the successful party; and
- despite the Offer being made pursuant to the UCPR, it should be treated as a Calderbank offer.
In response, SCG stated that not only did Pipe’s offer fail to meet the formal requirements to be treated as a Calderbank offer, but that its rejection was not unreasonable in all of the circumstances.
The Court agreed with SCG, finding that, despite the letter meeting some of the criteria, the letter could not be regarded as a Calderbank offer because:
- both the Offer and its covering letter clearly purported to be an offer made “under” and “pursuant to” Chapter 9 Part 5 of the UCPR, which does not apply where a plaintiff completely fails at trial;
- the Offer did not expressly foreshadow an application for indemnity costs or an intention to rely on the offer in relation to costs, other than to the effect provided in that part of the UCPR; and
- the mere use of the words “without prejudice except as to costs” or “[i]n the event that this Offer is not accepted, we will rely upon it on the issue of costs” were insufficient to imply an intention to seek indemnity costs.
Despite these findings, the Court proceeded to consider SCG’s second contention that, at the time the Offer was made, SCG’s decision to reject the offer was not unreasonable.
Once again, the Court agreed with SCG noting that even though the offer was made at a time when the parties should have been able to assess their prospects of success, the pleadings subsequently changed in ways that raised additional issues and had an impact on the trial.
The Court also noted that the Offer contained no explanation as to the basis for Pipe’s contention that SCG should accept the offer, and that SCG’s ultimate failure at trial did not in and of itself mean SCG’s decision to reject the offer was unreasonable.
The Court ultimately found that the Offer could not be relied upon for indemnity costs, and ordered that
Not all settlement offers will be suitable to be made into a Calderbank offer
Before making a Calderbank offer, parties must carefully consider the offer’s form, wording and timing.
Not all settlement offers will be suitable to be made into a Calderbank offer. Careful consideration of the timing and purpose of an offer is needed in the context of the overall legal proceedings. Offers made too early risk being deemed to have been reasonably rejected. Offers made too late in the proceedings will only provide limited protection to the parties’ costs position.
In other words, crafting a valid Calderbank offer that achieves its dual purpose of motivating settlement whilst providing costs protection is an art, not a science.
This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.
© Moulis Legal 2023
 Calderbank v Calderbank  Fam 93,  3 All ER 333
  QSC 299.
 Uniform Civil Procedure Rules 1999, r 361