Lawyers often refer to an offer of settlement being a "Calderbank offer." The term originates from the English case of Calderbank v Calderbank  Fam Law 93;  3 All ER 333;  3 WLR 586;  Fam 93.
Calderbank was a case litigated under English family law legislation. In that case, the Court of Appeal ordered a husband to pay (see below) the wife her costs from the date she made an offer of compromise to the husband. The rationale for the court making this order was that the husband should have accepted that offer, thus obviating the need for a hearing on the merits of the case.
Costs in civil cases
In civil cases, the usual rule is that the losing party pays the costs of the winning party (see for example Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW).
Costs in criminal cases
In criminal cases, it is unusual for costs to be awarded. There are defined circumstances when costs may be ordered: see, for example, sections 116-118 and sections 212- 216 of the Criminal Procedure Act 1986 (NSW). 9
Costs in family law cases
In family law proceedings, the general rule is that each party bears its own costs – see section 117(1) of the Family Law Act.
However, section 117(2) of the Family Law Act gives a family court a wide discretion to award costs "...if the court is of the opinion that there are circumstances that justify it in doing so..." (see Penfold and Penfold (1980) 144 CLR 311; 5 Fam LR 579; In the Marriage of Collins (1985) 9 Fam LR 1123; FLC 91-603 FC).
Section 117 (2A) of the Family Law Act sets out the factors that a family court must have regard to when deciding whether or not to make a costs order.
Financial circumstances of each party
Under section 117(2A)(a), the court is to consider the financial circumstances of each party.
A disparity in the financial circumstances of the parties may justify an order for costs in favour of the financially weaker party (see In the Marriage of Kelly (No 2) (1981) 7 Fam LR 762).
This factor alone may be sufficient to trigger a costs order. However, the court must consider all the relevant factors before deciding whether a costs order should be made. If the weaker party has acted in an unjustifiable manner, then they will not receive the benefit of a costs order (see for example In the Marriage of Fisher (1990) 13 Fam LR 806; FLC 92-127).
The court must have regard to whether any party is legally aided and the terms of the legal aid grant – see section 117(2A)(b).
Conduct of the parties
Section 117(2A)(c) stipulates that the court must have regard to the conduct of the parties in relation to the proceedings.
This is a crucial factor which determines whether a costs order should be made.
Most commonly, costs orders are made pursuant to section 117(2A)(c) against a party if they have caused the proceedings to be unduly prolonged or have made the case overly expensive to the other side (see for example In the Marriage of Jensen (1982) 8 Fam LR 594; FLC 91-263).
The giving of false or misleading evidence whether orally or in writing may, in an appropriate case, be a circumstance which justifies an order for costs: see Penfold and Penfold (1980) 144 CLR 311; 5 Fam LR 579.
Has a party failed to comply with orders of the court?
Each party is required to comply with all orders of the court. This includes orders relating to disclosure, filing of documents and valuation of assets.
Where a party has failed to comply with a court order, section 117(2A)(d) empowers the court to make a costs orders against that party.
Has a party been wholly unsuccessful?
It is unlikely that the fact that a party has been wholly unsuccessful (see section 117(2A)(e)) will be sufficient, by itself, to ground a costs order. This is because this sub-section has to be interpreted together with section 117(1) which states the general rule that each party should bear their own costs.
An example of this factor in operation is Re Collins and the Victorian Legal Aid Commission (1984) FLC 91-508. In Collins, the court ordered the unsuccessful party to pay the other party's costs because the proceedings had no prospect of success and it was wrong for the other party "to be left with the pyrrhic victory in the litigation but with a substantial bill of costs which he never should have had to incur."
Did a party make a written offer to settle?
Section 117(2A)(f) requires the court to consider whether a party made a written offer to settle and the terms of that offer.
In Calderbank v Calderbank the wife had offered, on 10 August 1974, to transfer to the husband a house occupied by his mother, then worth about £12,000, in return for his vacating the family home which she intended to sell. The husband refused the offer.
The court ruled that the wife be declared the beneficial owner of the house and that the husband be paid £10,000 from the proceeds of the sale of the family home.
The offer made by the wife was thus better than what the court ultimately ordered.
On appeal, the Court of Appeal dealt with the issue of costs. Lord Justice Cairns stated:
I have reached the conclusion that that was an offer which in the circumstances of this case the husband ought to have accepted and that, as he persisted in these proceedings and recovered a lump sum of a smaller amount than the value of that house, the right order would be that he should have costs up to August 14 and thereafter the wife should have her costs of the proceedings in the court below.
The gravamen of Calderbank is thus:
- If party A makes an offer to party B; and
- The court ultimately makes an award against party B that is less favourable than the offer by party A;
- Then, party B should pay the costs of party A from the date of the offer.
The Calderbank principle applies in family law cases.
In Browne v Greene (2002) 29 Fam LR 428; FLC 93-115;  Fam CA 794, the Full Family Court observed: "...The failure to heed a reasonable offer in circumstances where there is adequate knowledge of the parties at the time the offer is made to give it a proper consideration, is something to which very significant weight indeed ought to normally be given..." See also Lad v Gittings (2014) 52 Fam LR 71;  FamCA 439; BC201451537.
Other relevant matters
Such other matters as the court considers relevant are also to be taken into account pursuant to section 117(2A) (g).
What is the meaning of the terms "indemnity costs," "solicitor/client costs" and "party/party costs"?
Solicitor/client costs are the costs that a lawyer charges a client for legal services. A solicitor/client costs order (or indemnity costs order) is an order made by a court against an unsuccessful party that is intended to reimburse (or indemnify) the successful party for their reasonable legal costs.
Party/party costs are the legal costs of the successful party that a court orders an unsuccessful party to pay. This amount is invariably less than an indemnity costs order.
In family law cases, the scales for party/party costs are set out in the following legislation:
- Schedule 3 of the Family Law Rules 2004 stipulates the costs scales for cases litigated in the Family Court.
- Schedule 1 of the Federal Circuit Court Rules 2001 sets out the costs scales for matters run in the Federal Circuit Court.
In what circumstances are indemnity costs awarded?
In Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225, Justice Sheppard summarised the law on indemnity costs. The principles that emerge are:
- The ordinary rule is that an order for payment of costs will be on a party and party basis.
- The circumstances of the case must be such as to warrant the court in departing from the usual course.
- The Court has a general and discretionary power to award costs as between solicitor and client "as and when the justice of the case might so require." There should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice.
- Are there any circumstances in the particular case which are present or absent that warrant a departure from the usual rule?
- The categories in which the discretion may be exercised are not closed.
Sheppard J provided the following examples of cases where orders for indemnity costs were made:
- Making allegations of fraud, knowing them to be false; and making irrelevant allegations of fraud.
- Evidence of particular misconduct that causes loss of time to the court and to other parties.
- The proceedings were commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law.
- Making allegations which ought never to have been made or the undue prolongation of a case by groundless contentions.
- An imprudent refusal of an offer to compromise.
- The party has committed contempt of court.
However, his honour warned that:
"...the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily obliged to exercise their discretion to make such an order. The costs are always in the discretion of the trial judge..."
At Opal Legal, we regularly appear and advise on costs disputes arising out of litigation as well as represent parties in costs assessments.
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.