There are many factors that parties must consider before commencing proceedings, during proceedings and when deciding whether to make an offer to resolve the dispute. For instance, courts actively encourage parties to engage in alternative dispute resolution (ADR) processes and provide an incentive to do so through legislation. This article explores these cost incentives and explains how parties can formally offer a compromise once court proceedings begin.
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What is a Formal Offer of Compromise?
In New South Wales, the Uniform Civil Procedure Rules (UCPR) requires a party to legal proceedings to make a formal offer of compromise to settle the dispute. Other States also provide a similar regime for such offers in their respective court rules.
Furthermore, an offer to compromise is a formal offer to settle proceedings per the relative court rules. It occurs on a ‘without prejudice’ basis, which means neither party can provide the offer as evidence in court except when determining the issue of costs.
Moreover, an offer of compromise is an alternative to a Calderbank offer, which also exists ‘without prejudice’ and reserves the right to only refer to the concerning costs.
The Purpose of a Formal Offer
The purpose of the formal offer of compromise is to provide cost consequences should a party make a genuine settlement offer that the other party rejects. Therefore, if a party makes a valid offer, so long as the party making the offer does not do worse than the offer at the hearing, they can receive indemnity costs from the date they make it.
Indemnity costs are a higher percentage of your legal costs.
Continue reading this article below the formTiming for an Offer
The plaintiff or the defendant can make an offer at any time during the proceedings. However, if a party makes the offer two months or more before the trial date, the offer must be open for acceptance by a party for at least 28 days or a reasonable time if made within two months of a hearing.
The actual timing of when it is appropriate in the proceedings to make an offer depends on each case’s circumstances. There must be sufficient information available to allow the offeree to assess the offer, such as after the parties have filed their evidence. Additionally, it would help if you made the offer at a time in the proceedings when there is a genuine incentive to settle. If the party has likely already expended the bulk of the costs preparing for the hearing, there is less incentive for the offeree to accept an offer.
Can the Offer Include Costs?
In short, an offer of compromise must not include an amount for the costs of the proceedings. That is, it can not include an offer inclusive of costs. Any offer to settle must be exclusive of costs.
What is a Valid Offer of Compromise?
An offer must involve a ‘real and genuine element of compromise’. Of course, this varies on a case-by-case basis. Some of the standard requirements are:
- it must be in writing;
- the offer does not include the party’s legal costs, nor can it be inclusive of the party’s costs of the proceedings;
- contain details of the offer to provide the other party with the opportunity to consider properly;
- must remain open to the other party for such time as is required by the specific court rules; and
- must clearly state that it is a formal offer of compromise.
Example of an Offer of Compromise
Consider a plaintiff who has a claim seeking damages for $750,000 and serves an offer of compromise to accept $250,000, but the defendant rejects it. Suppose the plaintiff is later awarded damages of $600,000. In this case, the offer would ‘kick in’. The plaintiff would receive indemnity costs from the date the offer was served. In other words, the offer by the plaintiff offered a genuine element of compromise.
Key Takeaways
Before commencing legal proceedings, you might consider resolving your dispute through an offer of compromise. A formal offer to settle pre-trial can be beneficial by providing cost consequences should a party make a genuine settlement offer that the other party rejects. Although there are some requirements you must fulfil for your offer to be valid, including:
- it must be in writing;
- the offer does not include the party’s legal costs, nor can it be inclusive of the party’s costs of the proceedings;
- contain details of the offer to provide the other party with the opportunity to consider properly;
- must remain open to the other party for such time as is required by the specific court rules; and
- must clearly state that it is a formal offer of compromise.
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Frequently Asked Questions
An offer to compromise is a formal offer made to settle proceedings per the relevant court rules.
The purpose of the formal offer of compromise is to provide cost consequences should a party make a genuine settlement offer that a party rejects. If a party makes a valid offer of compromise, so long as the party making the offer (offeror) doesn’t do worse than the offer at the hearing, they will be entitled to indemnity costs from the date the offer is made.
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