What is a Calderbank Letter?
A Calderbank letter is a settlement offer made during the course of a dispute that is accompanied by a threat of legal proceedings (or continued proceedings) and the recovery of indemnity costs if the offer is not accepted. The Calderbank Letter is named after the English Court of Appeal decision in the case of Calderbank v Calderbank [1975] 3 WLR 586, which established the principle of “without prejudice” letters in English law. An effective Calderbank offer refers to the principles enunciated set out in the case of Calderbank v Calderbank. In Australia, there are volumes of cases that refer to the Calderbank principles as authority to make a cost order.
Advantages for Owner’s to make a Calderbank Offer
Making a Calderbank offer can be an effective way to settle a dispute.
Settlement offers provide clear and concise proposal to resolve the matter. If the Builder accepts the offer then both parties have settled the dispute on terms acceptable to themselves.
If the Builder does not accept the offer and the Owner achieves an outcome better than the offer then it is possible for the Owner to be awarded indemnity costs from the date the offer expires or is rejected. Given the significant cost of litigation, this should encourage the Builder to turn their mind to the strength and weaknesses of their case.
Calderbank letters can provide a strong incentive for the Builder to accept the offer, as the Builder will be exposed to potentially significantly higher costs of the Owner.
Additionally, Calderbank letters encourage negotiation and can settle disputes without going to final hearing, saving both costs and time for both parties. Often starting the conversation about resolving the dispute encourages both the Builder and Owner to consider their commercial options against the backdrop of the usual stress of litigation.
Risks of Making a Calderbank Offer
However, there are also risks associated with making a Calderbank offer. If the Builder accepts the offer, then the Owner is bound by the terms of the agreement. The Owner would not be able to pursue their claim further.
There is a risk that the Builder will gain commercial advantage from the information in the offer. Some people are able to “read between the lines” and get a feel for the strength and weakness of their case.
Considerations for Homeowners in Making a Calderbank Offer
Considerations for Home Owners Receiving a Calderbank Offer
If you receive a Calderbank offer, there are several practical considerations that you should make.
- Review and Understand the offer. Carefully review the terms of the offer and make sure that you understand what is being proposed. You need to consider the strengths and weaknesses of your case and the Builder’s case.
- Consider the likelihood of a favourable outcome. If you are considering accepting the offer, consider the likelihood of achieving an outcome better than the offer and your commercial circumstance. This will help you determine whether the offer is a good deal for you.
- Consider the costs of proceeding to judgement. Before accepting a Calderbank offer, consider the costs of proceeding to judgement, including legal fees, expert witness fees, and other costs associated with taking a case to hearing. If you have incurred most of your costs already then you should factor this into your assessment.
- Consider a reasonable compromise. A reasonable compromise may involve a settlement that is less than what you had hoped for, but is still acceptable in light of the circumstances.
- Getting a Settlement Deed. Often the Calderbank letter identities the essential elements of the offer and there are often further details that need to be agreed to. You should consider having the terms of the settlement documented clearly in a settlement deed.
What Happens If You Reject a Calderbank Offer?
If you reject a Calderbank offer, the Builder may be entitled to claim indemnity costs from you.
If the Builder can prove that their prospects of success were significantly better than the terms of the offer, that the offer was a genuine attempt to settle the dispute, and that it was unreasonable for you to reject the offer then Tribunal may order you to pay their indemnity costs. This means that you could be liable for paying higher percentage of the Builder’s costs.
In summary, rejecting a Calderbank offer can have significant consequences. It is important to carefully consider the terms of the offer and seek legal advice before making a decision.
What Are The Wording and Requirements of a Calderbank Letter?
Genuine attempt to settle:
The offer must be a genuine attempt to settle the dispute and must be made in good faith. Giving a small discount may not be viewed as a genuine attempt to settle the dispute. What is considered to be small depends on the circumstances.
Clear and certain terms:
The offer must be clear and certain in its terms and must be capable of acceptance. The offer must set out the amount of the settlement (or works to be completed) and the terms of the agreement. Your construction lawyer will ensure that this is done.
Reasonable time frame for acceptance:
The offer must be left open for a reasonable period of time for acceptance, usually between 14 to 28 days. Much will depend on how close the hearing date is but Owners would be better off making their offer open for acceptance for 28 days.
“Without prejudice save as to Costs” designation:
The offer must be marked as an “Without Prejudice save as to Costs” and must be made within the principles set out in Calderbank v Calderbank. Any experienced solicitor will ensure the offer is clearly marked with this designation.
Explanation of why the offer should be accepted:
The offer would benefit by providing reasons as to why the offer should be accepted. This is not mandatory but it may be helpful to persuade the Builder.
Failure to accept will result in indemnity costs:
The offer must state that if not accepted within the time provided in the offer, the offer will be relied upon for an application to the Tribunal for indemnity costs order. This is important if you intend to rely on the Calderbank letter to make an application for indemnity costs.
Failure to accept will result in indemnity costs:
The offer must state that if not accepted within the time provided in the offer, the offer will be relied upon for an application to the Tribunal for indemnity costs order. This is important if you intend to rely on the Calderbank letter to make an application for indemnity costs.
It is important to note that a Calderbank letter that satisfies the above conditions will more likely be effective than one that fails to satisfy all of the above. If the letter meets these conditions, the Tribunal make an indemnity cost order.
When Should a Calderbank Offer Be Made?
A Calderbank offer can be made at any stage of a dispute but typically before the parties have gone to final hearing. The purpose of a Calderbank offer is to encourage the parties to settle the dispute without the need for litigation. The purpose of the offer is to save time and costs, and the usual stress and uncertainty that comes with litigation.
A Calderbank offer can be made by either party. The offer is intended to provide the other party with an opportunity to settle the dispute on terms that they can live with, rather than risking a potentially unfavourable outcome in final determination.
A Calderbank offer may be made prior to proceedings being commenced. An offer may be made after the hearing but prior to determination on costs. Much will turn on the circumstances of each matter.
It is important to consider the timing of a Calderbank offer, as the offer must be open for a reasonable period of time for acceptance. Ideally, the offer should also be made before either party has incurred significant legal costs, as this can impact the amount of indemnity costs that may be awarded. Also, the offer should be capable of being accepted. This includes giving the recipient sufficient time to properly consider the offer. This should be at least 14 days and ideally 28 days.
There is no limit on the number of calderbank offers a homeowner may make in Tribunal proceedings. However, it is worthwhile issuing a Calderbank letter after the parties have exchanged evidence and the experts have completed their joint report. Of course, it is beneficial to make offers as early into the dispute as possible.
What is a Calderbank Offer Without Prejudice Save As to Costs?
A Calderbank offer without prejudice save as to costs is a type of settlement offer that is made in an attempt to resolve a dispute. The term “without prejudice save as to costs” means that the offer cannot be used as evidence in the Tribunal proceedings, except when determining which party must pay indemnity costs and the amount of those costs.
Indemnity costs refer to the reasonable legal costs that a party incurs throughout the Tribunal proceedings, including solicitor fees, expert fees, barrister fees, printing and service fees, Tribunal fees, and other similar fees. If the party who made the Calderbank offer can prove that their prospects of success were significantly better than the terms of the offer, and that the offer was a genuine attempt to settle the dispute, the Tribunal may order the other party to pay their indemnity costs.
In other words, a Calderbank offer without prejudice save as to costs is a settlement offer that is intended to encourage the parties to settle the dispute without going to final hearing. If the offer is not accepted and proceeds to final hearing, the party who made the offer may be entitled to claim indemnity costs from the other party if they can prove that the offer should have reasonably been accepted.
It is important to note that a Calderbank offer without prejudice save as to costs must meet certain conditions in order to be considered valid and enforceable. These conditions include the offer being a genuine attempt to settle the dispute, the offer being clear and certain in its terms, and the offer being open for a reasonable period of time for acceptance.
Calderbank Offer Hypothetical Scenario
Owner makes Offer to Builder
The Owner and Builder are in a dispute in the NCAT over the construction of the Owner’s home. The Owner has spent $30,000 in costs in the proceedings, which includes legal costs and disbursements.
During the proceedings, the Owner made a Calderbank offer for the Builder to pay the Owner $50,000 to settle the dispute. The Builder rejected the offer and the dispute proceeded to final hearing.
The NCAT determines that the Builder is to pay the Owner $100,000 in damages. The Owner achieves an outcome that is better than the amount offered to settle the dispute in the Calderbank letter. The Owner is likely to be awarded an indemnity cost order from the date the offer was rejected by the Builder. Indemnity costs are about 70% to 85% of the Owner’s costs. The indemnity costs will apply from the date that the offer was rejected and ordinary costs will apply prior to that date.
If the Owner does not achieve an outcome better than their offer, the Owner would only be entitled to an ordinary cost order. The Ordinary costs are about 50% to 70% of the Owner’s costs.
This scenario demonstrates the difference between an ordinary cost order and an indemnity cost order and the potential financial impact of a Calderbank offer. By making a Calderbank offer, the Owner may be able to recover a significant portion of their legal costs and disbursements.
Builder makes Offer to Owner
Applying the same scenario, if the Builder makes the offer to pay the $100,000 to settle the dispute and the NCAT determines that the Builder is to pay $80,000 then the Builder has achieved an outcome better than the offer. This is because the Builder offered $20,000 more than the amount determined by the NCAT.
Despite the Owner “winning” in this scenario, that is being awarded $80,000, the Builder will likely be able to rely on the Calderbank letter to be awarded its costs from the date that the offer was rejected by the Owner.
So if the Builder’s costs prior to the offer is $10,000 and the Builder’s costs from the date of rejection of the offer is $40,000 then the Builder would be entitled to its costs on the latter. The Builder would possibly be liable to the Owner for the Owner’s cost up to the date of the offer being rejected.
Don't Face a Building Dispute Alone
A Calderbank Offers should be an important strategic consideration for homeowners.
By making or accepting a Calderbank offer, homeowners can save time and costs, and potentially resolve the dispute without going to final hearing. However, it is important to carefully consider the terms of the offer and the consequences of accepting or rejecting the offer.
Homeowners who are self-representing in NCAT proceedings should consider getting legal advice from an experienced construction lawyer before making or accepting a Calderbank offer. A construction lawyer can help you understand the risks and benefits associated with making or accepting a Calderbank offer. A construction lawyer can also prepare a settlement deed to ensure your rights and the settlement terms are properly documented.
If you are a homeowner facing a building dispute worth more than $30,000, we encourage you to contact John Dela Cruz, a specialist construction lawyer for a free 15 minute initial consult.
This article is general information. The law is complex and facts and circumstances of each particular matter must be considered. You should engage and rely on an appropriate professional adviser before acting on any information.
