In a recent article, we talked about how most Courts tend to discourage people from taking their disputes to trial because of the emotional and financial burden that trials tend to place on both litigants and on the public purse.

The most basic means of out-of-court dispute resolution which the justice system seeks to encourage is known as the Calderbank offer. A Calderbank offer is an offer to perform or accept certain terms of settlement (usually the payment of a sum of money) in full and final settlement of a legal dispute.

The general rule is that if the party receiving the offer rejects it in circumstances which make the rejection unreasonable, the Court will usually order that party to compensate the offering party for all reasonable legal costs incurred since making the offer. This represents a significant advantage because costs awards to successful litigants are usually limited to the amounts allowed by prescribed scales of fees which usually equate to about 50% to 70% of actual costs incurred.

The costs available to a party whose reasonable offer of compromise has been unreasonably rejected, however, may not be limited by the scales. In some cases, the offering party may be awarded the entire amount actually paid in legal fees from a certain point in time (usually but not necessarily the date the offer was made). Interestingly, in a recent case run by this office against a home builder for breaching its contract with our client, our client was awarded all her legal costs for the entire action (since she first sued the builder until the last day of trial) even though she had made her offer to compromise much later, because of how unreasonably the builder was found to have conducted itself in the action. The builder’s unreasonable conduct in that case was found to have included - but was not limited to - its repeated unreasonable refusal to accept reasonable Calderbank offers.

Now, the question is what makes it unreasonable to refuse to compromise on the terms? This question is often so difficult to answer that lawyers try to summarise it by saying that a party will get all their costs back from the date of the rejected offer if they get even $1.00 more than the amount offered at trial. But this answer is incomplete and in some cases misconceived. There are many cases where Courts have tried to answer this question in a more complete and accurate way. The most recent of these cases is the WA Court of Appeal’s decision in Ford Motor Company of Australia v Lo Presti [2009] WASCA 115.

The Court in that case gave some guidance as to the factors which should be taken into consideration in determining whether or not the rejection of an offer to compromise was reasonable. However, this judgment does not set down any universal rule for assessing offers of compromise in every case and in the end, the assessment needs to be made on a case by case basis, taking all relevant facts and circumstances into account. However, the Court did set out some basic considerations which should ordinarily be taken into account in making this assessment, namely:

- the stage of the proceeding at which the offer was received;

- the time allowed to the other party to consider the offer;

- the extent of the compromise offered (that is, how much less was a litigant willing to pay, or willilng to accept, to settle the action, than was ultimately awarded at trial?);

- the other party’s prospects of success, as they appeared to be at the time of the offer;

- how clear the proposed terms of settlement were; and

- whether the offering party made it clear that they would seek to be reimbursed for all their legal costs (at least from the date of the offer) if the offer was unreasonably refused.

It is part of the skill of a litigation lawyer to strike the right balance between these and all the other factors which will make you appear reasonable and your opponents unreasonable in the eyes of the Court. Come and see our team of litigation lawyers for advice on how you can use Calderbank principles to your advantage

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