USING LEGAL COSTS AS A WEAPON

August-September 2004
by Sam Recht
Litigation Partner
BALDWINS Australian Lawyers and Consultants
There are numerous tactics that can be used in civil disputes. A most effective pressure point is to instil in the other party a concern that a large claim for legal fees will need to be borne if the offer of settlement is not accepted. Let’s explore some of the possible cost-based strategies that might be instigated once proceedings have issued:

1. Offer of Compromise:
   There is a form called an Offer of Compromise for which the rules of court prescribe procedures for offer and acceptance. The lawyer for one of the parties can make a settlement offer under which his or her client bears the legal costs of the other party incurred up to the date of the Offer of Compromise but only if the other party is willing to accept the offered compromise.
   If the Offer of Compromise is not accepted by the recipient who subsequently obtains a judgment in its favour, but one which is less favourable than that Offer of Compromise, the legal costs from the date of the Offer of Compromise will be borne by that party. This is notwithstanding the fact that it has won the action. The sting is that it has lost out on recovering more in legal costs because it did not accept a better settlement under the Offer.
   When deciding to reject an Offer of Compromise, one must be confident that a judgment in Court will be higher than the amount being offered. This issue can place enormous pressure on the other party as to whether to proceed and risk a costs order against it.
   
2. Calderbank Offer:
   One type of offer is based on a tactic that was successful in an English 1975 case called Calderbank v Calderbank. A Calderbank offer is an offer made to settle the dispute which is “Without Prejudice Save as to Costs”. The fact that the offer made by the lawyer is without prejudice protects the party making the offer from being compromised legally by an admission made by that party in attempting to reach a settlement. Nevertheless, this type of “without prejudice” offer, if rejected, can be raised in court on the determination of the awarding of legal costs. When awarding costs, the court has the power to consider the earlier offer and to award legal costs in favour of the party who had made the settlement offer covering all legal costs from the date upon which the other party ought reasonably to have accepted it.
   A 2002 Victorian Supreme Court case (Court of Appeal), Madden v Singvongsa, involved a dispute over an estate: the lawyer for the plaintiff claimant made an offer to the executors that he would accept, in full settlement of his claim, one-quarter of the net estate plus his legal costs on a solicitor-client cost basis. This offer was rejected by the executors who allowed the matter to be determined by the court.
   The plaintiff’s tactic of making his offer was a clever one because when the matter went to court, he was awarded a bigger share of the estate than he had previously offered to accept. He was then able to obtain a court order to award him his full legal costs (i.e. legal costs on an indemnity basis – see below) because of the offer he had made to settle, which was expressed [in the Calderbank form] as being “without prejudice, save as to costs”.
   The Madden v Singvongsa case now stands as a precedent in the State of Victoria for a plaintiff to apply pressure on estate executors (where they are not also beneficiaries) to settle a claim for fear of incurring greater legal costs if the court ultimately were to award a bigger share of the estate to the claimant.
   
3. Indemnity Costs:
   When a party acts in a way that is considered by the Court to be either vexatious, unreasonable or amounts to misconduct, then the unsuccessful party may be ordered to reimburse the successful party’s “solicitor to client costs” rather than just “party to party costs”. Party to party costs are based on a court fixed scale whereas making the losing party pay “solicitor to client costs” means a larger amount. When a Court orders that the other side’s actual “solicitor to client” costs are to be met, this is known as an “indemnity costs” order. Generally, the misbehaviour in question must be connected with or occur in the lead up to the litigation. If a party is acting in this manner, pressure can be applied by the opposing lawyer intimating to that other party that continuation of such behaviour will lead to the client pursuing indemnity costs against that party.
   A wide range of other tactics is available to litigants both before and after proceedings are issued. Even when proceedings have not been issued, it is still possible to expressly reserve the right to produce a preliminary letter to the Court on the question of legal costs in the subsequent proceedings.
   

For further information, contact Joe Lederman at BALDWINS, Australian Lawyers & Consultants.
 http://www.baldwins.com.au/a_usinglegal.php

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