If you are engaged in a dispute with another person or business, it may be in your interests to resolve the disagreement without going to court. The other side may share the same view, but coming to such an agreement through an alternative dispute resolution method is not always possible. If the matter does progress to court proceedings, both you and the other side may put forward a formal offer to resolve the dispute, with attached conditional payments and obligations. This offer will benefit the person making the offer and may cause detriment to the recipient if they refuse. This is known as an ‘offer of compromise’. This article will explore some of the key considerations to think about when making an offer of compromise.

Why Compromise?

Going to court is not nearly as exciting as modern media may make it seem. Legal proceedings (including a trial at the end of the proceedings) can be costly, lengthy, time-intensive and, of course, uncertain. In some unfortunate circumstances, participants in a trial eventually become unable to continue their case due to a lack of funds. This happens despite some claimants or defendants having a strong case. 

It is important to note that going to court is unavoidable in some instances. For example:

  • it may be the only way to right certain wrongdoings; or 
  • the other side may not be cooperating with your attempts to find a resolution. 

An early compromise between you and the other side that has some shared benefit and saves you both time and money could be worthwhile exploring. 

The court system encourages parties in a dispute to resolve matters outside the courtroom. However, if you make an offer, you will want to have a strategic advantage in case the other side rejects it and you end up in court anyway. This is where an offer of compromise may be useful. 

Making an Offer of Compromise

An offer of compromise is a defined concept under the law. An offer of compromise must meet key requirements in order for it to be valid. 

Generally, an offer of compromise must:

  • be made in writing;
  • propose a settlement that does not include legal costs, and must not be inclusive of costs;
  • state that it is an official letter of compromise and refer to the appropriate law;
  • contain sufficient detail about the offer; and
  • remain open for acceptance for a minimum period (according to the law).

An offer of compromise can propose that the offeror will pay costs “as agreed or assessed” up to the time that the offer was made, but cannot otherwise be made on terms that deal with the costs of the proceedings.

What About Making an Offer to ‘Walk Away’?

A ‘walk away’ offer is an offer by one party to the other that: 

  • the court dismisses the proceedings; or 
  • there be a verdict and judgment for the defendant, with no order as to costs or an order that each party bear its own costs. 

In this context, it means that the plaintiff effectively walks away from the dispute. 

In New South Wales, the concept of ‘walking away’ from a court proceeding is recognised under the law. The offer must not include an amount for costs and must not be inclusive of costs. However, where an offer proposes that judgment be entered in favour of the defendant:

  • a certain fixed amount may be payable; or 
  • costs as agreed or assessed up to the time the offer was made will be paid by the offeror.

Implications of an Offer of Compromise

The reason why offers of compromise involve strategy is that the final outcome can be very much influenced by the making, acceptance or rejection of an offer. This depends on whether the ultimate result is better or worse for the maker or the recipient of the offer.

The following examples show what possible outcomes can occur when you make an offer of compromise to the other side to resolve the dispute. Often, the key result is whether one side covers the legal costs of the other side, and how the court calculates costs. 

1. The Other Side Accepted and Complied With Your Offer

If you and the other side agree on an offer of compromise, that agreement can be considered legally binding. A popular way to document this is in a deed of settlement and release that clearly sets out the obligations of each side. So long as both sides comply with these obligations, the dispute should be resolved.

2. The Other Side Accepted but Did Not Comply With Your Offer

Being in breach of legal obligations can carry consequences. Signing a deed signals intention to comply with the legal terms set out in that document. If the other side does not fulfil their promises as set out in the document, then you will be able to use the document in court to claim damages (i.e. compensation) as well as cover some or all of your legal costs for having to enforce your rights under the deed.

3. The Other Side Rejected Your Offer and the Outcome was Worse for Them

If you make an offer of compromise to the other side, but they reject it, the case may then go to court. If you end up winning the case, the judge may grant you as good a result (or a better result) as that which you would have received if your offer had been accepted.

Generally, in this situation, the law suggests that the other side probably should have accepted the offer to save everyone time and money. Due to their refusal and the subsequent outcome, the court will generally require the other side to cover a higher proportion of your legal costs than usual.

For example, the other side may need to cover a proportion of costs before the offer was made, and all costs reasonably incurred since the offer was made. The latter are called indemnity costs.

Conversely, if you reject an offer made by the other side and the outcome leaves you worse off, you will likely have to pay higher legal costs to the other side.

4. The Other Side Rejected Your Offer and the Outcome was Worse for You

In this situation, there are not as many unique consequences, seeing as the court may view the other side’s rejection of the offer as valid and reasonable given that the end result was better than what you had offered.

5. A Unique Balancing Circumstance

If you are the one who brought legal proceedings and the other side made an offer of compromise, you may reject it in the belief that you will get a better outcome by continuing with the case. 

If the outcome is ultimately the same (or worse) for you than what the other side offered, you may:

  • receive a proportion of your costs covered up until the other party made their offer; and
  • be required to pay up to all of the other side’s costs since the offer was made.

Key Takeaways

Before deciding whether to make, accept or reject an offer of compromise, it is important to understand that there may be positive or negative implications of your decision. You can benefit by being strategically aware of your options and potential outcomes. If you have any questions about resolving a dispute with an offer of compromise, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.

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