Alternative Dispute Resolution - Offers to settle
The Uniform Civil Procedure Rules 1999 (UCPR) encourage the parties to attempt to resolve civil cases before the need for a trial.
An offer to settle can either be made formally under the UCPR, or it can be made informally.
Offer to settle under the UCPR
Chapter 9 Part 5 of the UCPR allows any of the parties to a matter to make an offer to settle a case.
The UCPR encourages the parties to a case to reach a settlement, by potentially rewarding a party who makes a favourable offer (that is an offer that is better than the outcome at trial) that the other party rejects.
An offer to settle under the UCPR:
- Can be made by any party to the proceeding.
- Must be made in writing (rule 353(3)).
- Must say that it is made under Chapter 9 Part 5 of the UCPR (rule 353(3)).
- Can be served at any time before a verdict (in a jury trial) or judgment is given (354(1)), or if a judgment is conditional on an assessment of damages, before that assessment has taken place (rule 354(3)).
- Must specify how long the offer remains open, which must be at least 14 days (355(1)).
- Does not have a prescribed form.
- Is confidential. The fact that an offer is made or the terms of that offer should not be disclosed to the court unless the offer is accepted (rule 357(1)), or until after a final court decision is granted, at which time the offer becomes relevant to the issues of costs.
- Can be accepted by serving a written notice of acceptance on the party who made the offer (rule 358) within the time period for acceptance.
To encourage the parties to settle a dispute, communications between parties for the purposes of resolving a dispute, including offers to settle, can be made "without prejudice."
This means that the contents of those "without prejudice" letters and conversations cannot be put before the court hearing the case. "Without prejudice" communications may include admissions or offers to settle the proceedings, and the court considers that the parties should be able to negotiate openly without the risk of these discussions being disclosed to the court.
If you are writing a letter that makes an offer to settle you should write "without prejudice" at the top of the letter. If you are writing a "without prejudice" letter, you should not address any other issues or matters in that letter.
If you are having a discussion about settling the case with the lawyer for the other party or the other party, you should say at the beginning of the conversation that you are contacting them for a "without prejudice" discussion.
Failure to accept offer and costs
A failure by a party to litigation proceedings to accept an offer is relevant to costs. The consequences are set out in the UCPR and it is necessary to distinguish a plaintiff's offer from a defendant's offer.
Costs if made by the plaintiff (rule 360).
If the defendant does not accept an offer of compromise by the plaintiff, the plaintiff is entitled to indemnity costs if:
- judgment for the plaintiff is equal to or better than the offer;
- the plaintiff's offer has to be of a compromise: Jones v Millward  1 QdR 498;
- the plaintiff was ready willing and able to comply with the offer; and
- the court is not satisfied that another order would be more appropriate.
These costs extend from the commencement of proceedings until judgment.
On 1 June 2010, Paul sues Doris in the District Court for $200,000 for breach of contract. On 1 December 2010, Paul offers to settle the case for $150,000. Doris rejects the offer. On 1 June 2012, the District Court finds in Paul's favour, and awards him $160,000. Paul is entitled to his indemnity costs, which are $40,000.
On the other hand, if Paul offered to accept $175,000, his result at trial is worse than his offer to settle and he is only entitled to his standard costs which are $25,000.
Costs if offer made by the defendant (Rule 361).
Where the defendant makes an offer which the plaintiff does not accept, and the plaintiff obtains judgment that is not more favourable than the offer, it is necessary to separate the period before the offer from the period after it.
In that case, the usual position is that:
- the plaintiff is entitled to standard costs up to the date of service of the offer; but
- the plaintiff must pay the defendant's standard costs for the period after the offer was served.
If the offer is served during the trial, the position is altered. The Plaintiff remains entitled to standard costs up to the end of the day on which the offer is served, however, the Defendant is entitled to indemnity costs from the beginning of the next day.
Using the above scenario, on 1 August 2010, Doris offers to pay $165,000. Paul rejects this offer. On 1 June 2012, Paul obtains judgment for $160,000.
Because the offer Paul rejected was better than the judgment he received, Paul only gets his costs up to 1 August 2010, which are only $5,000. Paul then has to pay Doris' costs from 1 August 2010 to 1 June 2012, which are $20,000.
By giving the cost incentives to parties, the UCPR encourages them to make realistic offers that they feel have a good chance of being accepted.
Turning down an offer to settle can have serious cost consequences to a party. It is possible to obtain a favourable judgment from the court, but to essentially lose because of the cost consequences.
Informal settlement offers
In addition to a settlement offer under the UCPR, you can also make an informal settlement offer.
Such an offer should state either that it is "without prejudice save as to costs" or say that it is a "Calderbank v Calderbank" offer.
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