Legal disputes will rarely go all the way through to trial. Much more commonly, parties to a dispute will be able to resolve the issue at an earlier stage. Often, parties will do so by offering a settlement via a Calderbank letter. A Calderbank letter is a tactic that parties can use to negotiate an outcome that satisfies both parties in the dispute. This article will explain:

  • what a Calderbank letter is; and 
  • how it works in the context of your dispute. 

What is a Calderbank Letter?

A Calderbank letter is a formal written offer of settlement.  It is made before taking a matter through to a hearing, also known as a trial. Trials are expensive and time-consuming. Often, your solicitor will suggest using a Calderbank letter to:

  • encourage reasonable negotiation with the other party; and 
  • avoid going to a trial. 

The name ‘Calderbank’ comes from the 1975 case Calderbank v Calderbank. This case established the legal principle that if a successful party does not accept an early settlement offer from the unsuccessful party, the successful party’s rejection of the offer can influence how the court determines who should pay costs.

When you make an offer through a Calderbank letter, you often express the offer as ‘without prejudice save as to costs’. This means that neither side can use the contents of the letter in court, except in relation to determining costs at the end of a trial. A Calderbank letter sets out:

  • the issues in the case;
  • your reasons for making the offer;
  • the offer itself; and 
  • why the offer is reasonable in the circumstances. 

What Happens if the Matter Proceeds to Court?

If the matter does proceed to trial, making an offer of settlement via a Calderbank letter can affect the costs you may have to pay at the end of the trial. This is because a Calderbank letter allows the successful party to seek an order for costs on an ‘indemnity basis’ (i.e. a higher percentage of their legal costs) from the date the offer was made until the end of the litigation.

For example, imagine you made a reasonable offer of settlement in a Calderbank letter to pay a percentage of the damages sought by the other side. The other side could reject the offer. However, if the judge later determined that you should not pay the damages at all during trial, the other party would likely be penalised when it came to determining costs. This is because they had an opportunity to settle the dispute for a reasonable amount of money. Instead, however, they chose to press on. Their decision to press on would have caused you to expend additional legal costs. As a result, the other side would likely need to pay a higher proportion of your costs from the time after you sent the Calderbank letter. 

The offer you make in a Calderbank letter can be inclusive of costs. Also, you may select different periods of time for the offer to be open. 

How Does a Calderbank Letter Work in Court? 

Courts will generally consider whether either side has made a Calderbank offer when the question of costs arises. Typically, the determination of who will pay what legal costs follows the outcome of the trial. Costs are usually paid on a ‘party’ or ‘party costs’ basis. This is the most common type of costs order a court can make at the end of a hearing. Usually, the unsuccessful party will need to pay the other party’s costs ‘as agreed or assessed’. This generally works out to be about 60-65% of a party’s actual legal costs. 

However, a court may award costs on an indemnity basis. This can be upwards to 90% of a party’s legal costs. The court will only award costs on an indemnity basis if there is a reason to do so. 

For example, a court could award indemnity costs if the other party refused to accept a reasonable settlement offer in a Calderbank letter before the hearing started. 

Therefore, a Calderbank letter can be a good way to motivate the other party to settle the dispute in order to avoid any possible indemnity costs following a trial. 

How Does a Court Determine Costs in Relation to a Calderbank Letter?  

The court will exercise its discretion in relation to assessing costs following a trial. If a Calderbank offer was previously on the table, the court will consider this in their assessment of costs. The court will take into consideration the following factors.

Terms of the Offer

The court will assess the terms of the Calderbank offer. It will determine whether the offer was clear, precise and able to be accepted. The court will not allow a penalty to the other side (i.e. additional costs) if the offer you made was unclear.  

Was There a Genuine Compromise?

The court will also assess whether there was a genuine compromise in the offer. 

For example, if your claim was for $100,000 and you made an offer to settle the proceedings for $99,990, the court would not consider this a genuine compromise.

Was the Offer in Relation to Costs?

It is important that the offer notes that you intend to bring the offer to the Court’s attention on the question of costs. This is usually the case where the letter clearly states that the offer is ‘without prejudice save as to costs’. 

Was the Rejection of the Offer Unreasonable?

The court will also need to assess whether the rejection of the offer was unreasonable in the circumstances. If you made the offer too early in the proceedings and did not allow the party a reasonable opportunity to weigh up the facts and consider their position, the rejection may not be considered unreasonable. The court will use its discretion when considering whether the rejection of the Calderbank offer was reasonable or not. 

Key Takeaways

A Calderbank letter is a formal written offer of settlement. Calderbank offers can prove a useful tool in negotiating a settlement and avoiding going to trial. If you are in a commercial legal dispute, it is a tactic you should consider to avoid expensive legal proceedings. If you would need assistance with your commercial legal dispute, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill in the form on this page.

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