There are many factors that parties consider before commencing proceedings, during proceedings and when deciding whether to make an offer to resolve the dispute. These include:

  • What are your actual prospects of receiving a favorable judgment from the Court
  • What will it really take to settle a dispute?
  • The time and expense involved in pursuing a matter through to a hearing (importantly, not all your costs are recoverable).
  • Court proceedings are open to the public and the press. 

More often than not, parties are eager to explore settlement throughout the proceedings. Courts also actively encourage parties to engage in alternative dispute resolution processes and provide an incentive to do so through legislation. We consider these cost incentives below and explain how parties can make a formal offer of compromise.

What is the Purpose of a Formal Offer of Compromise?

New South Wales’s Uniform Civil Procedure Rules (UCPR) provide for a formal offer of compromise.  Other States also provide a similar regime for such offers. An offer of compromise is an alternative to a Calderbank offer, which is less formal and to a larger extent, less certain.

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 offeror doesn’t do worse than the offer at the hearing, then they will be entitled to indemnity costs from the date the offer is made. Indemnity costs are a higher percentage of your legal costs, for example instead of recovering 70-75% of your legal costs, you may instead get 80-90% of your legal costs from the date the offer is made.

Timing for an Offer of Compromise

The plaintiff or the defendant can make an offer of compromise at any time during the proceedings. 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 is considered an appropriate juncture in the proceedings to make an offer depends on each case’s circumstances. There must be sufficient information available to allow the offeree a proper opportunity to assess the offer. You also need to ensure that you make the offer at a time in the proceedings where there is actually an incentive to settle. If the party is likely to have 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 of Compromise Include Costs?

In short, yes but only in some instances. Offers of compromise can refer to specific costs such as no order as to costs, costs for a specific amount or costs up to a particular date. You cannot make an offer inclusive of costs. If you do wish to make an offer inclusive of costs, then you may consider a Calderbank offer instead.

What is a Valid Offer of Compromise?

An offer must involve a ‘real and genuine element of compromise’ and this, of course, varies on a case-by-case basis. 

If a plaintiff has a claim seeking damages for $750,000 and serves an offer of compromise for $250,000 (which the defendant rejects), and is then later awarded damages of $600,000, 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 real and genuine element of compromise. 

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Questions about resolving your dispute or making a valid offer of compromise? Let our disputes lawyers know. 

Emma George

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