Did you know? There are different types of offers than can be made in a claim, namely (i) an Offer of Compromise or (ii) a Calderbank-offer?
Offer of Compromise
An Offer of Compromise (also called a Formal Offer) is an offer made pursuant to the relevant Court rules. Although the court rules vary slightly from court to court and state to state, the following general principles apply:
- To be effective, the offer cannot be made pre-litigation. It can only be made once court proceedings have been commenced.
- The offer must meet the strict requirements under the relevant court rules (usually in writing and otherwise prepared in accordance with the requirements of the relevant rules).
- The offer must remain open for a minimum period as set out by the relevant court rules.
- The offer cannot be withdrawn during the time it is open to be accepted (unless with the leave of the Court).
- Achieving an outcome better than the offer following a Hearing or Trial entitles the party who made the offer to a cost advantage.
Calderbank-offer
In contrast, a Calderbank-offer can be made at any time, regardless of whether proceedings have been commenced or not, and can be withdrawn at any time, provided the other party has not yet accepted the offer. In some circumstances, a greater cost advantage can be achieved when making a Calderbank-offer. My colleague, Fred van Reede, discussed the requirements of making a valid Calderbank-offer in a previous WR Monday Bulletin.
Which offer to make
Given that Calderbank offers are more flexible and sometimes entitle the party who “beats” the offer to a greater cost advantage, you may be wondering why a party would make an Offer of Compromise rather than a Calderbank-offer. The answer lies in the reasonableness requirement that applies to Calderbank-offers!
When an Offer of Compromise is not accepted, and the party who made the offer achieves a better result than the offer, that party automatically becomes entitled to a cost advantage (subject to a few differences or exclusions that vary from Court to Court).
With a Calderbank-offer, however, the court will consider whether the rejection of the offer was unreasonable in the circumstances. If the court finds that it was not unreasonable for the other party to have rejected the offer, even if a better outcome is achieved by the party who made the offer, there would be no cost advantage to the party who made the offer. Because of this, the practical reality of Calderbank-offers is that the party that makes the offer must set out an explanation as to why the offer is reasonable, whereas an Offer of Compromise can be made without explanation.
An Offer of Compromise is therefore a great tool to use when you do not want to provide an explanation of why the offer is reasonable and should be accepted (as is required when making a Calderbank-offer) as by providing the explanation you may reveal some strategic advantage in your case.
About me (Vivien Jones) – I am an Associate in the Melbourne Insurance team. I have recently moved into the Insurance team full time from the Class Actions team and I have a broad legal background in Insurance, Class Actions and Personal Injury. On the weekends I play soccer for a local team.
