When you're deep in a legal dispute, sometimes the smartest move isn't charging full-speed toward trial—it's making a calculated offer to settle.
That's where an offer of compromise comes in. It's a formal, court-sanctioned way to say, "Let's resolve this now, before things get even more costly."
In Australia, these offers are governed by specific rules—like Rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) or Rule 25.01 of the Federal Court Rules 2011.
These aren't just formalities.
They're designed to help parties resolve disputes early, keep court resources free for the matters that really need them, and—critically—provide cost incentives for acting reasonably.
Here's how it works :
If you make a valid offer and the other side knocks it back, only for you to end up with a better result at trial, they could be hit with indemnity costs.
That's legal speak for footing a bigger chunk of your bill—often 80–90% of what you've spent on legal fees from the date the offer was made.
But don't confuse this with a casual proposal or off-the-record chat.
Offers of compromise must meet strict criteria. They have to be in writing, follow the rulebook to the letter, and be served correctly. This isn't the place for guesswork.
At Unified Lawyers, we don't just tick boxes—we use these offers strategically. Whether you're facing a contract dispute, chasing a debt, or stuck in a business bust-up, a well-timed offer of compromise can completely change the dynamics. It's not just about ending the fight—it's about ending it on your terms.
When and Why to Use an Offer of Compromise
Offers of compromise are particularly valuable tools in civil litigation, especially in matters involving :
- Breach of contract
- Negligence and other tort claims
- Unpaid debts or loan disputes
- Commercial disagreements between businesses or shareholders
Strategic Benefits :
Offers of compromise don't just check a procedural box—they pack serious tactical punch when used correctly.
Here's why savvy litigants and their lawyers reach for them early in the game:
1. Cost Protection That Bites :
Say you put a fair offer on the table and the other side shrugs it off—only for you to get an even better result in court.
That rejection can cost them big.
We're talking indemnity costs—higher-than-usual legal costs that courts may order from the date of your offer. That's a huge financial lever that can shift the balance of power fast.
2. Negotiation Clout :
These offers are formal, rule-backed, and hard to ignore.
When done right, they send a clear signal : we're serious about settling, and we've thought this through. That kind of pressure often pushes the other side to rethink their position.
3. Points for Playing Fair :
Courts like it when parties try to settle.
If you've made a valid offer and the other side refused it unreasonably, it can influence how the judge sees cost issues down the track.
Showing you've been reasonable can mean the difference between paying costs and being awarded them.
Timing, as always, is everything. The earlier you make a solid offer—after the facts are fleshed out and your legal footing is firm—the more useful it becomes as a negotiation and risk-management tool.
That's why litigation professionals often suggest making a well-crafted offer of compromise once you've got a clear handle on the strengths and weaknesses of both sides.
Done right, it's not just a path to settlement—it's a statement of confidence that could save you time, stress, and a whole lot of money.
Cost Implications for Both Parties
The potential cost consequences of offers of compromise are what make them so influential.
If a party rejects a valid offer and fails to secure a better result at trial, the court can—and often does—award indemnity costs against the rejecting party.
Indemnity costs are significantly higher than standard party/party costs, often amounting to 80–90% of actual legal expenses.
This can represent tens of thousands of dollars, especially in protracted litigation.
Example Scenario :
Let's say a business owner is sued and offers $200,000 to settle before trial.
The other party refuses and pushes ahead.
At trial, they only walk away with $195,000.
Because they didn't beat the original offer, the court orders them to pay most of the business owner's legal costs from the date the offer was made.
A costly lesson in when to say yes.
Rules & Jurisdictional Variations
In Australia, civil litigation isn't one-size-fits-all.
While the concept of an offer of compromise is recognised nationwide, the exact rules and requirements can shift depending on which court you're dealing with.
That's why it's crucial to know the rules of the jurisdiction your case is in—or better yet, work with a lawyer who does.
Here's a closer look at how the rules differ between some of the main courts :
1. NSW Supreme and County Courts (Rule: UCPR r 20.26) :
- Offers must be made in writing.
- The terms need to be clearly stated.
- You must give a reasonable period for acceptance, typically 28 days.
- If the offer doesn't meet these requirements, it may not be valid.
2. Federal Court of Australia (Rule: FCR r 25.01) :
- The Federal Court rules impose similarly strict standards.
- Offers must comply fully with the rule's formal criteria.
- If the offer is rejected without good reason, the rejecting party may be ordered to pay indemnity costs.
3. Victorian County Court (Rule: 26.07) :
- This rule is closely aligned with the NSW approach.
- However, there are small but important differences around how offers must be timed, served, and potentially withdrawn.
- Getting these steps wrong can lead to significant cost consequences.
Even though all three courts aim to encourage early settlement and reduce costs, their specific procedures vary just enough to catch people out.
That's why it's critical to understand the nuances of your jurisdiction—or work with a lawyer who does.
While the underlying goal is the same—encourage early settlement and manage legal costs—each court has its own take on how that should be done.
Timing, notice, service, and even the way you word the offer can vary just enough to trip you up if you're not careful.
In other words, what flies in a Federal Court matter might fall flat in a state court if you don't adjust your approach. These small technicalities can have big cost consequences.
That's why legal advice isn't just helpful—it's essential.
A family lawyer who knows the jurisdictional quirks can ensure your offer is valid, strategic, and positioned to give you the best shot at either settling or coming out ahead on costs.
How to Make a Valid Offer of Compromise
Before an offer of compromise can carry weight in court, it needs to meet some strict legal checkpoints.
It's not enough to scribble down a settlement figure and call it a day—this is a formal step with real consequences, and the courts take the rules seriously.
Here's what a valid offer must include :
- Put it in Writing : No verbal nods or handshake deals—this offer needs to be clearly written down.
- Reference the Right Rule : You'll need to spell out that the offer is made under the relevant court rule (like UCPR 20.26 in NSW). It's your legal foundation, and without it, the offer doesn't count.
- Lay Out the Terms : Be crystal clear on what you're offering—whether it's a lump sum, an action to be taken, or a combination. Vague or wishy-washy wording could derail your position later.
- Give Them Time : The standard window is 28 days, giving the other side a fair shot to weigh up the deal. It shows you're acting reasonably and gives your offer strength.
- Serve It Properly : You can have the best offer in the world, but if it's not delivered the right way, it might as well not exist. Make sure it's served in line with court rules.
What it Looks Like in Practice :
Getting this part right isn't just about formality—it's about protecting your back.
An invalid offer could leave you exposed to unnecessary trial costs, even if your intentions were spot-on.
That's why it pays to work with lawyers who know exactly how to draft an offer that ticks all the boxes and gives you maximum strategic advantage.
Responding to an Offer
When that offer of compromise lands in your inbox, the clock starts ticking—and how you respond can have a serious impact on your case.
These aren't just polite proposals; they come with real legal and financial consequences.
How Long Do You Have to Respond?
Most offers of compromise stay open for 28 days unless the party making the offer sets a different deadline.
That gives you four weeks to decide whether to accept, reject, or negotiate. But don't sit on it—courts expect parties to respond within a reasonable time.
Waiting too long could backfire.
Accepting vs Rejecting offer
- Say Yes : Accept the offer in writing and within the deadline. This brings the matter to a close and avoids further costs.
- Say No : Reject it clearly, or simply do nothing and let the offer lapse. Either way, you're taking a risk.
- Propose a New Deal : You can counter with your own offer, but this resets the process and brings its own strategic implications.
What Happens If You Say No (or Say Nothing)?
Turning down—or ignoring—a solid offer can come back to bite you.
If the matter goes to trial and you don't beat the terms of that offer, the court may hit you with indemnity costs from the date the offer expired.
That means a much bigger bill than usual.
And if you stay silent?
In most cases, that's treated as a rejection. You can't avoid the fallout by simply not replying.
Why It Matters
Let's say you're offered $100,000 to settle.
You pass, thinking you'll do better in court.
But the judge awards you $95,000. Even though you technically "won," you didn't beat the offer—and that could mean paying thousands more in costs.
This is why every offer should be taken seriously.
Talk it over with your lawyer. Run the numbers. Understand the risk.
Because when it comes to offers of compromise, your response could shape the outcome of your case—and your final bill.
Common Mistakes to Avoid
- Ignoring the costs implications : Underestimating potential exposure to indemnity costs.
- Non-compliant language : Using vague or inconsistent terms that don't meet rule requirements.
- Incorrect service : Serving the offer incorrectly or to the wrong address can invalidate it.
- Missed deadlines : Failing to follow up or clarify timelines can render your offer useless.
- Lack of legal review : Always seek legal guidance to ensure compliance and strategic advantage.
Avoiding these errors is crucial to ensure your offer achieves its intended purpose and remains enforceable.
FAQ's
1. What is an offer of compromise?
An offer of compromise is a formal legal proposal to settle a dispute before it reaches trial.
It's a written offer that follows specific court rules—like Rule 20.26 in NSW or Rule 25.01 in the Federal Court—and it's designed to help resolve cases early and cut down legal costs.
Here's how it works :
One side puts forward a fair offer.
If the other party rejects it and then loses or gets a worse result in court, they could be hit with indemnity costs—that means paying a large chunk of the other party's legal fees, often 80–90% from the date of the offer.
This is the court's way of rewarding reasonable behaviour and discouraging unnecessary trials.
It helps both parties avoid long, expensive legal battles.
For the person making the offer, it's also a smart move. It pressures the other side to settle and strengthens your position if things do go to court.
If you're in a legal dispute—say over a contract, a loan, or a business deal—knowing when and how to make an offer of compromise can make all the difference.
It could be the key to saving time, money, and stress.
2. How do I draft one properly?
A valid offer of compromise needs to be carefully worded.
It must be in writing, clearly reference the applicable rule, detail the proposed terms (e.g. a payment amount or specific action), and allow a reasonable time for acceptance—usually 28 days.
It also must be served correctly according to the court's requirements. Many offers are invalidated because of technical slip-ups, which is why having a lawyer review your offer is crucial.
3. Can I change or withdraw the offer later?
Yes—but only if the other side hasn't accepted it yet.
An offer of compromise can be withdrawn at any time before acceptance, provided you communicate the withdrawal in writing and in accordance with court rules.
Timing matters here; once accepted, the offer becomes binding and cannot be revoked.
4. What's the difference between an offer of compromise and a
Calderbank offer?
The key difference lies in structure and formality.
An offer of compromise follows specific court rules and is generally not admissible in evidence, except on the question of costs.
Calderbank offers, on the other hand, are informal settlement offers made on a "without prejudice save as to costs" basis.
They allow more flexibility in terms and format but are more likely to be scrutinised by the court if there's a dispute about reasonableness later.
5. Do I need a lawyer to make an offer of compromise?
Technically, no—but practically, yes. Offers of compromise come with strict rules, and a misstep can mean losing out on cost protections or having your offer ignored entirely.
A lawyer can make sure your offer complies with court rules, protects your position, and is strategically sound. It's a small investment that could save you thousands down the track.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
