Everyone of us is familiar with the suave lawyers in Suits or Boston Legal who win a lawsuit every day. Unlike the fictional world of television, however, you would have to think long and hard before litigating against someone. The costs of running a trial are extremely high, so high that courts can penalise parties with unnecessary or unreasonable demands.
The litigating parties are thus encouraged to pursue alternative forms of dispute resolution, or reach settlement, during various stages of litigation. One way to do this is via an Offer of Compromise. Based on Division 4 of the Uniform Civil Procedures 2005 (NSW) (‘UCPR’), either parties in a legal proceeding can make an offer before the judgment.
The other party must also carefully consider the offer. A party who unreasonably rejects a genuine offer might be liable to cost consequences (usually indemnity costs).
Requirements for an Offer of Compromise
Rule 20.26 of the UCPR governs the requirements for an offer. The offer therefore must:
- be in writing
- identify the claim to which it relates
- be made exclusive of costs
- bear a statement declaring that it is an offer of compromise, made in accordance with Rule 20.26 of the UCPR
- specify the period of time within which the offer is open for acceptance
- provide at least 28 days to the other party to evaluate the offer
If the receiving party does not accept the offer within the stipulated time frame, it will lapse. Alternatively, if the other party accepts it, it acts as a legally binding agreement on both parties.
Difference between an Offer of Compromise and a Calderbank Offer
A Calderbank offer is distinct from an Offer of Compromise in terms of the certainty it provides to parties. The Calderbank offers do not have to comply with the strict UCPR requirements. Additionally, they leave cost discretion to the Court. Rejecting a Calderbank offer does not automatically result in an indemnity cost order. The Court thus only awards a cost order if the offer contained a genuine compromise, and if the rejection was too unreasonable.
An Offer of Compromise, however has been more restricted due to strict UCPR compliance. However, the procedure following an offer of Compromise is fairly automatic and predictable, barring exceptional circumstances. The party rejecting the offer has the onus of proving that it was unreasonable and might suffer a cost order if they are unable to do so.
Example
You bring a litigation case against Adam and give an Offer of Compromise to him valued at $500,000 before the judgment which he rejects. If the court eventually decides the case in your favour and awards Adam to pay you $750,000, it will also include additional indemnity costs against him. Adam might be asked to pay the entirety of your legal fee from the date you sent him the offer.
Thus, this forces the parties to carefully consider all offers of Compromise and attempt to reach a settlement before the case reaches the court.
Bringing a litigation action against someone can be a complicated and costly affair. Make sure you hire an excellent dispute resolution lawyer to help save your legal costs and reach an amicable solution for both parties.
Not sure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.
