Worked Estimates and Checklists
Offers of compromise and Calderbank offers: how settlement offers change who pays costs
How formal offers of compromise and Calderbank letters work in Australian courts, the indemnity costs consequences, and a worked example comparing accepting an offer with going to trial.
A settlement offer in an Australian civil case is not just about the money on the table; it can change who pays the legal costs. Under court rules on offers of compromise, if one party makes a formal offer and the other side rejects it and then does no better at trial, the court will generally order the rejecting party to pay the offeror's costs on the indemnity basis from the day after the offer. An informal Calderbank offer ("without prejudice save as to costs") can have a similar effect if the court finds that rejecting it was unreasonable. Because the gap between ordinary and indemnity costs can be tens of thousands of dollars, every offer you make or receive should be priced with costs included.
This guide is part of how to estimate legal costs. Figures are illustrative, and the precise rules differ between courts.
Formal offers versus Calderbank offers
| Feature | Offer of compromise (court rules) | Calderbank offer |
|---|---|---|
| Source | Rules of the court, such as Part 20 and Part 42 of the Uniform Civil Procedure Rules 2005 (NSW) or the equivalent rules in other courts | Case law, named after an English case and adopted in Australia |
| Form | Must follow the rule's requirements, for example time to accept | A letter marked "without prejudice save as to costs" |
| Costs effect | Presumptive: if the rule's conditions are met, the costs consequences usually follow | Discretionary: the court asks whether rejection was unreasonable |
| Flexibility | Strict | More flexible, can include non-money terms |
Rules differ between courts and states, so your lawyer should confirm the exact requirements before an offer is sent.
How the costs shift: the basic pattern
- Plaintiff's offer rejected, plaintiff then does at least as well at trial: the defendant usually pays the plaintiff's costs on the ordinary basis up to the offer, and on the indemnity basis after it.
- Defendant's offer rejected, plaintiff then does no better: the plaintiff usually gets ordinary costs up to the offer, but must pay the defendant's costs from the day after the offer.
The second case is where people get hurt. A plaintiff who wins less than an earlier offer can end up paying a large part of the costs of the trial.
Worked example (illustrative)
You are suing for $120,000. Twelve weeks before trial the defendant makes a formal offer of $70,000 plus costs. Your lawyer estimates:
- Your costs to the date of the offer: $40,000; recoverable on the ordinary basis at about 65%: $26,000
- Your further costs to the end of trial: $45,000
- The defendant's costs after the offer: $50,000
Option 1: accept
You receive $70,000 plus ordinary costs to the date of acceptance of about $26,000. You owe your lawyer $40,000. Net: $70,000 + $26,000 - $40,000 = $56,000.
Option 2: reject and win $100,000 at trial (more than the offer)
You get ordinary costs of the whole case. Total own costs: $40,000 + $45,000 = $85,000; recovery at 65%: $55,250. Net: $100,000 + $55,250 - $85,000 = $70,250.
Option 3: reject and win only $60,000 at trial (less than the offer)
You get ordinary costs up to the offer ($26,000) but pay your own further costs ($45,000) and the defendant's costs after the offer, here on the indemnity basis, say about 90% of $50,000 = $45,000.
Net: $60,000 + $26,000 - $40,000 - $45,000 - $45,000 = -$44,000.
Weighing it
If your lawyer thinks there is a 60% chance of beating $70,000 and a 40% chance of falling short, the rough expected value of rejecting is 0.6 x $70,250 + 0.4 x (-$44,000) = $42,150 - $17,600 = $24,550, against $56,000 for accepting. On these numbers, accepting is better, even though going to trial could produce a higher result.
Use the costs recovery gap calculator to check the ordinary-basis recovery figures in each option.
Making your own offer
A well-timed offer can protect you:
- Make it early enough that the costs it protects are worth having, but after you know enough to value the claim.
- Make it realistic: an offer the other side could reasonably accept is more likely to bring costs consequences.
- Use the correct form for the court, or a properly drafted Calderbank letter.
- Keep a copy and the date of service; the date the indemnity period runs from matters.
Responding to an offer
- Ask your lawyer for a written comparison like the one above, using your real estimates
- Check how long the offer is open and whether it can be withdrawn
- Consider making a counter-offer, which can also carry costs consequences
- Note that silence until the offer lapses counts as rejection for costs purposes
For no win no fee claims, compare offers on take-home, as in the settlement take-home example. For the general costs rules, read costs orders and who pays.
Frequently asked questions
Does an offer at mediation count?
Mediation discussions are usually confidential and cannot be used on costs. To get costs protection, make or repeat the offer in a formal offer of compromise or a Calderbank letter.
Is an offer that includes "plus costs" better than an all-in offer?
Not automatically. Compare the net amount in your pocket after your own costs.
Can a rejected offer be mentioned to the judge at trial?
Generally not before judgment on the merits. Offers are raised after judgment, when costs are argued.
Sources
- Supreme Court of NSW — civil procedure, offers of compromise and costs in NSW
- Supreme Court of Victoria — civil procedure and costs in Victoria
- Federal Court of Australia — offers to compromise and costs practice
- LawAccess NSW — free legal information about settling disputes
