Calderbank Offers Explained: Reducing Litigation Risk, Time, and Costs
Court hearings can last weeks, and costs can quickly reach substantial sums. Unfortunately, many businesses cannot fund ongoing litigation and find that it does not make commercial sense to litigate a dispute in court. As a result, most commercial litigation matters settle outside of court. One way parties achieve this is by using Calderbank offers.
What is a Calderbank offer?
A Calderbank offer, also known as a Calderbank letter or Calderbank proposal, is an offer of settlement made by one party to another to resolve a legal dispute. It encourages parties to negotiate instead of going to trial. It must be a genuine compromise open for a reasonable period. An essential feature of a Calderbank offer is that it is made ‘without prejudice save as to costs’. The principles governing these offers have been frequently considered by the NSW Supreme Court in cases involving cost disputes. Such as recently in Alora Davies Developments 104 Pty Ltd (in liq) & Ors v Raphael & Anor [2024] NSWSC 735.
When Should a Business Use a Calderbank?
It encourages early settlement and can influence cost decisions, potentially leading to indemnity costs for the rejecting party if the court outcome is similar to the offer. Utilise Calderbank offers to promote early dispute resolution and potentially reduce litigation costs. They are particularly useful where formal offers under the Uniform Civil Procedure Rules 2005 (NSW) do not apply. If you are currently facing a dispute, our Commercial Litigation team can advise on whether this strategy is right for you.
Tips for Businesses:
- Ensure the offer is clear, reasonable, and documented in writing.
- Be aware that rejecting a reasonable offer may lead to higher costs if the court outcome is less favourable.
- Consult with legal professionals to craft effective offers and understand their implications
What Does “Save as to Costs” Mean?
The phrase “save as to costs” is the engine of the settlement letter. It means that while the offer cannot be presented as evidence during the trial, the court may be informed of it after proceedings conclude to determine which party must pay indemnity costs. This differs from a formal offer, as the protection offered by a Calderbank letter is ultimately subject to the court’s broad discretion under section 98 of the Civil Procedure Act 2005 (NSW).
What Are Indemnity Costs?
An indemnity cost refers to the reasonable legal costs incurred during court proceedings, including fees, charges, expenses, and remuneration. These offers play a role in informing the judge’s decision when reversing the burden of these costs. Under an indemnity cost order, the receiving party usually recovers a significantly higher proportion of their actual legal spend compared to “party-party” costs.
Why Is It Called A Calderbank Offer?
The terminology originates from the landmark case Calderbank v Calderbank [1975] EWCA Civ J0605-1. This decision established that if a successful party refuses a reasonable settlement offer, that rejection can be used as evidence when deciding who is responsible for financing the case’s legal costs. For this to apply, the offer must be reasonable and comparable to the final court award.
Protect Your Business from Litigation Costs
Understanding the mechanics of such cost-shifting proposals is the first step toward a smarter litigation strategy. By using these offers at the right time, you can create significant leverage and protect your business from the financial burden of a prolonged trial. However, the timing and phrasing of your offer are critical to ensuring it is recognised by the court.
If you are involved in a commercial dispute and need to protect your costs, contact us today to discuss how a tailored litigation strategy can work for you.
