About the only things that can be guaranteed in a court process is that it will be expensive for both parties, and that someone will lose. The question of who might be the loser is often hotly debated in the lead up to the hearing, and frequently it can not be predicted with any degree of accuracy, despite the best legal advice.
Most sensible advisors will assist the parties to consider the prospect of a pre-hearing resolution of the issues between them. In the employment context this often happens at mediation, but can equally happen before or after with negotiations led by the parties or their advisors. The benefits of settling pre-hearing are at least two fold: saving on legal costs, and certainty of outcomes for both parties.
But settlement offers have a secondary purpose – and this is a very powerful tactic in litigation strategy. They can be used to modify the usual costs position by showing that one party has been responsible for the legal costs incurred. Each New Zealand Court has a specific costs regime. It is some variation on the rule the the losing party should pay a portion of the winning party’s legal costs. In the Employment Relations Authority, the usual costs ‘tariff’ is $4,500 for a 1-day hearing.
Generally, communications between the parties will be put before the Court or Authority to assist it in determining the issues in the litigation. However, to support the parties in attempting self-resolution, the law recognises a ‘privilege’ for communications seeking to resolve a dispute. It is usual practice to mark such communications “without prejudice”, and these communications can not be disclosed to the Court when it is deciding the issues between the parties – they might contain admissions of liability that the parties reserve the right to challenge before the Court.
The Courts have adopted an extension to this principle, known as the “Calderbank” rule – for the case in which it was first observed. A without prejudice communication can be used to determine the allocation of costs after resolution of the substantive issue between the parties. If it is your intention for a communication to be used in this way, it is usual practice to mark it “without prejudice save as to costs”.
Where a Calderbank offer is made pre-hearing, it can be shown to the Court post-hearing to support an argument that the usual costs principles should be modified. To illustrate with an example: you take a claim to the Employment Relations Authority alleging you have been unjustifiably dismissed. You win and are awarded three months lost wages and $20,000 as compensation for hurt. As a matter of usual practice you will also be awarded $4,500 as a contribution to costs.
However, two months before the hearing, you offered to settle your claim and withdraw the proceeding if the employer paid you three months lost wages and $20,000. The employer declined the offer. It may well be that for persisting with the proceedings, it will be ordered to pay additional costs – perhaps up to your full costs from the date of the offer.
Conversely, lets say your pre-hearing offer was three months lost wages and $100,000 as compensation for hurt. The employer rejected your offer, but made a counter offer of three months lost wages and $25,000. Because the employer’s offer was actually better than the outcome in the Authority, the usual costs position might be reversed – that is to say that although you won, you might be required to pay some of the employer’s costs, because you could have avoided that cost if you had accepted its reasonable offer.
There are a number of technical considerations when making, and later evaluating, a Calderbank offer, including the costs position of the parties at the time of the offer, and the value of other items included in the offer (for example a reference or a non-disparagement agreement, which can’t be awarded by the Authority), but the essential point is that settlement offers are not only vehicles for resolving matters pre-litigation, they are also an important tactic for producing the best possible outcome post-litigation. Any offers you consider making should be well thought out with both ends in mind.
