An ‘offer of settlement’ is a proposal made by one party to another, usually in writing, which sets out the terms on which the offeror is willing to resolve the dispute between the parties. An ‘offer of settlement’ can be made at any time during the dispute. An offer of settlement not only provides the parties with an opportunity to resolve the dispute and avoid the expense and uncertainty of a contested trial, but it may also provide tactical benefits in litigation.

The usual rule is that costs follow the event which means that, if you are the successful party at trial, the court will make an order that the other party pay your costs of the proceedings on an ordinary basis. If a party in litigation refuses an earlier settlement offer made by another party, the offering party may adduce the settlement offer as evidence about the appropriate costs order.

Offers of settlement generally take two forms: Calderbank offers and offers of compromise.

A tale of two Calderbanks

The term ‘Calderbank offer’ derives from a very famous English Court of Appeal case: Calderbank v Calderbank [1976] Fam 93, [1975] 3 All ER 333.

The Calderbanks were a married couple who filed for, and were granted, a divorce.

However, a dispute arose in relation to the division of the matrimonial assets. Prior to the trial Mrs Calderbank made an offer to settle, stating ‘I am willing, and have always been willing, to make over to the [husband] the house at Alderley Edge’. Mr Calderbank declined this offer, and the matter went to trial.

At first instance, the court decided that Mr Calderbank was entitled to a lump sum payment by Mrs Calderbank of £10,000.00 and court costs. To secure funds, Mrs Calderbank was directed to sell Alderley Edge and pay the lump sum out of the proceeds of sale.

Mrs Calderbank did not like the decision and appealed. On appeal Mrs Calderbank claimed that as Mr Calderbank had declined a reasonable pre-trial settlement offer, he should not be entitled to legal costs for unnecessarily prolonging the legal proceedings.

Ultimately, the Court agreed with Mrs Calderbank. It decided that if a party in litigation refuses an earlier settlement offer made by another party, the offering party may adduce the settlement offer as evidence about the appropriate costs order.

The Court found that Mr Calderbank unreasonably refused Mrs Calderbank’s settlement offer of Alderley Edge. Alderley Edge was worth £12,000.00, which was greater than the £10,000.00 Mr Calderbank was entitled to. Mr Calderbank ought to have accepted this more generous offer and by refusing needlessly prolonged the litigation and caused Mrs Calderbank to incur costs. Mrs Calderbank was required to pay Mr Calderbank’s legal costs up until the time the offer was refused, and Mr Calderbank was required to pay Mrs Calderbank’s costs thereafter.

Calderbank offers in practice

A Calderbank offer is made in a letter which sets out the terms of a proposed settlement.
To make a costs order based on a rejected Calderbank offer, the must be satisfied that it was unreasonable for the party to reject the offer. In deciding if it was unreasonable to reject the offer, the court will consider the following:

  1. the stage of the proceeding at which the offer was received;
  2. the time allowed to the offeree to consider the offer;
  3. the extent of compromise in the offer;
  4. the offerees prospects of success, which are assessed at the date of the offer;
  5. the clarity with which the terms of the offer were expressed; and
  6. whether the offer foreshadowed an application for costs in the event the offer was rejected.

With these principles in mind, a Calderbank offer should:

  1. be marked ‘without prejudice except as to costs’,
  2. set out the terms of the compromise clearly;
  3. explain why the offer is reasonable in the circumstances (e.g. having regard to the evidence or the law);
  4. allow the offeree a reasonable period in which to consider offer; and
  5. specify that the offer is made in accordance with the principles in Calderbank v Calderbank and foreshadow that if the offer is not accepted and the offeror obtains a better result in the litigation, the offeror will rely on the letter on the question of costs.

By marking the letter ‘without prejudice except as to costs’ the offeror makes it clear, that although the offer is made on a ‘without prejudice’ basis, as part of settlement negotiations and the letter cannot be used as evidence in court about the substantive dispute, it can be adduced as evidence about the appropriate costs order.

A valid Calderbank offer is a useful tactical tool in litigation. If a valid Calderbank offer is made, a party that rejects it faces significant costs consequences if they do not receive a better result in the litigation.

Offer of compromise

An offer of compromise is another form of settlement offer that can be used to resolve a dispute in a timely manner outside of Court. Similar to Calderbank offers, an offer of compromise is made to avoid litigation and forces parties to make an assessment of their chances of success in court.

Unlike Calderbank offers, which made in accordance with the common law, an offer of compromise is made in accordance with the court rules.

In the Australian Capital Territory, an offer of compromise is made in accordance with r1001 of the Court Procedure Rules 2006 (ACT) (CPR) which sets out that an offer must:

  1. dentify the claim to which it relates.
  2. Specify the orders for disposal of the proceedings (for example, judgment for a certain sum or dismissal).
  3. State that it is made under r1001 of the CPR.
  4. Remain open for acceptance for at least 28 days (unless it is made within two months of trial then it must be open for a reasonable period).

Also, the offer must be exclusive of costs unless it is proposed that judgment be entered with no order as to costs.

The CPR prescribes the costs consequences where an offer has been rejected and the offeree has failed to obtain a better result at trial:

Offeror Offeree Offer compared with outcome Costs up to and including date of offer Costs from the day after the offer is made CPR
Plaintiff Defendant Plaintiff obtains an order or judgment no less favourable to plaintiff than the offer Defendant pays Plaintiffs costs on ordinary basis Defendant pays Plaintiffs costs on a solicitor/client basis (i.e., legal fees) r1010
Defendant Plaintiff Plaintiff obtains order or judgment no more favourable than the offer Defendant pays Plaintiffs costs on ordinary basis Plaintiff pays defendants costs on an ordinary basis R1011
Defendant Plaintiff Defendant obtains order or judgment no less favourable than the offer Plaintiff pays Defendants costs on ordinary basis Plaintiff pays Defendants costs on a solicitor/client basis (i.e., legal fees) r1012

While the cost consequences in the rules are prescriptive, the court retains some discretion. The court will need to be satisfied that the offer involved a genuine compromise. The court may decline to apply the costs provisions of the CPR where it finds that the offer was not a genuine compromise.

Calderbank offer or offer of compromise: Which settlement offer should I pick?

There are pros and cons to each form of offer.

Calderbank offers have the advantage of flexibility. For instance, Calderbank offers can be made prior to commencement of proceedings, which is expressly forbidden for valid offers of compromise. Also, Calderbank offers, due to their informality, lack procedural requirements that must be strictly followed for enforceability. Rather, it is on the party making the offer to discharge the onus of persuading the Court to make a costs order. Calderbank offers are therefore more appropriate for instances where parties may be actively working with each other to resolve the dispute by making multiple offers and counteroffers in succession, even before proceedings have begun. This is also reflected in the fact that Calderbank offers can be withdrawn at any time before the offeree accepts. Finally, Calderbank offers are more suitable in instances where parties seek non-monetary remedies such as an apology or providing services to rectify faults.

In contrast, an offer of compromise involves greater court involvement and therefore should be regarded as more of a confrontational option than a Calderbank offer. Offers of compromise are more akin to ‘demands’ in that they contain a presumption in favour of the offeror, do not involve a ‘reasonableness of refusal’ test in the instance they are rejected, and must follow formal requirements under the applicable court rules that require careful drafting. Further, an offer of compromise cannot be withdrawn unless, within 14 days of the offer, leave of the court is obtained or a further and more favourable offer is made in place of the original offer.

MV Law’s role

Depending on your circumstances, utilising a Calderbank offer, offer of compromise, or continuing litigation may be the best option to resolve your dispute. If you are party to a dispute, we recommend that you obtain legal advice about the litigation strategy and procedure.

At MV Law, our dispute resolution team specialises in litigation and can assist you.


MV Law Canberra

Ph: (02) 6279 4444

Email: info@mvlaw.com.au