By Andrew Behman, an Associate of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group
In our earlier post about settlement negotiations “Agreement in principle” – is it binding?“, we discussed the an offer that was agreed to “in principle” and what that means. The offer that we talked about was a Calderbank offer.
What is it?
A Calderbank offer is a type of settlement offer designed to put the offeror in a position to ask the court to make an indemnity costs order, if the offerer succeeds in the litigation beyond the amount offered. An indemnity costs order is an order that the less successful party pay a larger portion of the other party’s costs. Normally ‘costs follow the event’ – which means that an unsuccessful party will be ordered to pay the successful party’s costs of litigation. However normally, because of the way the costs assessment process works, only a portion of the successful party’s actual costs will be recoverable. However by making a Calderbank offer, a party to litigation can improve the chances of recovering a significantly higher proportion of those costs. These offers are based on the principles outlined in the English case of Calderbank v Calderbank [1975] 3 All ER 333.
Why use it?
Making a Calderbank offer is useful to protect your position regarding costs going forward. That is, it works from the date of the offer until the conclusion of the proceedings.
Calderbank offers are often relied upon in situations where Party B has made a reasonable offer that was rejected by Party A, and Party A ends up with a worse outcome than if it had accepted the offer. The intention is that Party B should not have to bear all of their further legal costs in that situation. However, a Calderbank offer (if rejected) does not guarantee that the Court will make an indemnity costs order – it allows you to show that offer to the Court when it is considering the question of costs.
A Calderbank offer can also be a great tool to encourage settlement of a dispute and thereby avoid costs in continuing to litigate proceedings. This is because the costs implications of a Calderbank offer carry more weight and risk than a regular settlement offer.
What does it look like?
The main features of Calderbank offers include that:
- it is made without prejudice save as to costs;
- it clearly states it is made in accordance with the principles of Calderbank v Calderbank [1975] 3 All ER 333;
- it contains a genuine element of compromise (i.e. the offer actually gives up something material);
- it would be unreasonable not to accept the offer.
What do I do if I receive a Calderbank offer?
You can make or receive a Calderbank offer at anytime – before legal proceedings are commenced or even on the day of the final hearing. If you receive a Calderbank offer, consider how reasonable the terms of the offer, whether you are prepared to bear the risk of possibly paying a larger portion of their legal costs (in addition to your legal costs) and, most importantly, obtain legal advice.
If you would like more information or advice in relation to insolvency, restructuring or debt recovery practice and procedure, contact Andrew Behman at abehman@matthewsfolbigg.com.au, or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au
