Even if you win your dispute, you will generally not be able to recover all of your legal fees and costs from the other party.
As a rule of thumb you are only allowed to recover approximately half to two-thirds of your legal fees and costs from the other party. These are known as “party/ party costs”, and are based on a statutory scale of legal costs.
Similarly, if you lose you will generally be required to pay approximately half to two-thirds of the other party’s legal fees and costs, in addition to your own costs.
However, you can protect your position on costs by making a formal offer to settle the matter, under the Court rules and/or by making a ‘Calderbank’ offer at common law. (Note that Court rules around Australia differ, and contain strict requirements which must be satisfied for a formal offer of settlement to attract the benefit of costs protection.)
These Court and common law rules are designed to encourage matters to settle out of Court, essentially by penalising a party via the payment of legal costs, if a formal offer to settle is not accepted in certain circumstances outlined below.
Formal settlement offers can therefore be used strategically to put pressure on the other party to resolve the dispute.
Here’s how it works if you’re a Defendant:
Let’s say you’re defending a claim of $100,000 for breach of contract, and you have a good defence. Now let’s assume you make a formal offer to settle for $10,000, which the Plaintiff does not accept.
If the Plaintiff wins but obtains judgment for less than $10,000, the Plaintiff will only be entitled to an order for its costs up until the day your offer was made, and will be required to pay half to two-thirds of YOUR costs after that date.
Further, if the Court considers that the Plaintiff’s refusal to accept your offer was unreasonable, the Plaintiff may be ordered to indemnify you for all, or almost all of your legal costs.
Here’s how it works if you’re a Plaintiff:
Let’s say you’ve made a claim of $100,000 for breach of contract, and you have a good case. Now let’s assume you make a formal offer to settle for $80,000, which the Defendant does not accept.
If you win but obtain judgment for more than $80,000, the Defendant will be required to pay half to two-thirds of your costs after the day your offer was made, in addition to half to two-thirds of your costs incurred prior to that day.
But if the Court considers that the Defendant’s refusal to accept your offer was unreasonable, the Defendant may be ordered to indemnify you for all, or almost all of your legal costs.
Whether you’re a Plaintiff or a Defendant, making a formal offer to settle can be a smart strategic move, because it will force the other party to realistically assess their prospects of success, and their potential costs liability in the event of failure.
Note that formal settlement offers must be carefully drafted to satisfy the requirements of the Court and common law rules, in order to attract the benefit of costs protection.
Please contact me if you require assistance.
Greg Carter is a freelance litigation lawyer based in Perth, specialising in fixed-fee commercial dispute resolution.
Greg offers a free consultation and a ‘no obligation’ quotation.
For more information please call Greg on 0422 406 929 or email email@example.com.
Or see his website www.gregcarter.com.au.