There is no doubt that litigation is expensive. Each party to a dispute can spend many thousands of dollars in an attempt to advance or defend their case. The costs consequences for the losing party can be significant. Costs orders by a court usually follow the event, meaning that that the successful party to litigation will receive a costs order in their favour so that the losing party has to pay the successful party’s legal costs (and their own). What a court orders generally as costs are called “ordinary” costs or “party and party” costs. In some rare instances a court may also order “indemnity” or “solicitor and client” costs. The differences between these are quite dramatic and a successful party who receives the benefit of a costs order may only expect to recover ½ to 2/3rds of what they actually pay their lawyer.
For this reason, there are steps that can be taken in an attempt to protect all the reasonable costs a person may pay their lawyers to receive an ‘indemnity’ costs orders through making offers to settle. They can either be formal offers to settle under the Uniform Civil Procedure Rules or what are known as “Calderbank” offers. This explores in a little detail what these are and the differences between them.
The rules of the court have been designed to encourage parties to make and accept reasonable offers to settle out of court. Accordingly, a party who fails to make or accept a reasonable out of court settlement can incur considerable legal cost penalties.
If a Plaintiff makes an offer that is not accepted by the Defendant but then ultimately obtains a judgment better than the offer, then the Defendant will be required to pay the judgment of the court plus the Plaintiff’s legal costs, which will include all costs reasonably incurred and of a reasonable amount (known as ‘indemnity’ costs).
An example is if a Plaintiff notifies the Defendant that they are willing to accept an out of court settlement of $10,000. The Defendant, however, rejects the offer and the matter proceeds to trial. If the Plaintiff subsequently wins the case and is awarded $11,000, the Defendant will be required to pay not only the judgment but all the Plaintiff’s reasonable legal costs as well from the date that the Plaintiff made the Offer to Settle. This is because the Defendant is effectively being punished for not accepting the Plaintiff’s reasonable Offer to Settle out of court.
Ordinarily, if at trial a Defendant is ordered to pay money to the Plaintiff, the Defendant will also be ordered to pay the legal fees incurred by Plaintiff in taking the matter to trial. The philosophy behind this is that the Plaintiff incurred costs in taking the matter to trial and, if the Defendant had rather paid initially the money that the Plaintiff was at court found to be owed, the Plaintiff would not have incur the legal fees associated with taking the matter to trial. Therefore if the Defendant is found at court to owe money to the Plaintiff, the Defendant will normally be ordered to pay - in addition to the money found to be owing - the Plaintiff’s legal fees.
However, if the Defendant makes an offer that is not accepted by the Plaintiff but then the Plaintiff ultimately obtains a judgement that is not better than the offer, then the Defendant must pay the Plaintiff’s costs up to and including the day of service of the Offer to Settle, but the Plaintiff must then pay the Defendant’s costs from after the day of service of the Offer to Settle.
An example of this is if the Defendant makes an offer of $10,000 to settle the matter but the Plaintiff rejects this offer. The matter proceeds to trial and the Plaintiff wins the case but is awarded $10,000 or less. The Defendant will have to pay the Plaintiff’s costs up to the date that the Defendant made the offer, whereas the Plaintiff will have to pay the Defendant’s reasonable costs from the date the Plaintiff received the Offer to Settle.
The effect of this cost consequence for an offer to settle delivered by a Defendant (“Offered Amount”) is that, if the Plaintiff rejects the offer and (later) at trial the Plaintiff is awarded a sum of money (“Trial Amount”) that is less than the Offered Amount:
A “Calderbank” offer is named after the decision in Calderbank v Calderbank  2 All ER 333. A Calderbank offer is essentially a written offer made on a without prejudice basis. It is made expressly reserving the right to bring the offer to the notice of the Court on the question of costs if the result for the party served with the offer is not more favourable than what has been offered.
A Calderbank offer is an “all-in” offer made inclusive of any claim for legal costs. It is a precise amount that is offered in full and final settlement of the claim. There is no need to guess what amount of legal costs will be assessed over and above the amount of a formal offer of compromise. If a more favourable result is achieved, the offer can be tendered to the court in support of a request for indemnity costs from the time the offer was made.
The court will consider a number of factors such as whether the offer was reasonable and a genuine attempt to settle the litigation, if the offer was clear in its terms, and if it was left open for a reasonable period of time for acceptance, such as, a period of say 14 to 28 days.
The use of either Calderbank offers or offers under the UCPR are useful tools that should be considered in all litigation in an attempt to bring the litigation to an end, due to the ‘stick’ that can be used by the court in an award of an indemnity costs order if not accepted.
Aitken Whyte Lawyers
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