Cost Orders in Family Law Proceedings

In Australian family law cases, such as property settlements and parenting disputes, cost orders operate differently compared to other civil cases.

A focused lawyer diligently drafts a letter in court

Typically, in family law cases, each party is responsible for paying their own legal costs, regardless of the outcome. This principle is explicitly stated in the law, as per Section 117(1) of the Family Law Act 1975 (Cth), which generally requires each party to bear their own costs. The rationale behind this approach is not to discourage individuals from seeking legal action in important family matters. However, there are exceptions to this rule. The court can order one party to pay the other’s costs if it deems it justified (as per Section 117(2), which provides the court with broad discretion in special circumstances). When deciding on a costs order, the court must consider whether any party made a reasonable offer to settle and the terms of such offers.

Notably, Section 117(2A)(f) of the Family Law Act explicitly instructs the Court to take into account any written settlement offers made by either party. This is precisely where Calderbank offers come into play—they serve as a formal yet discreet means of making such settlement offers during the case proceedings.

The Federal Circuit and Family Court of Australia takes offers of settlement (also known as Calderbank offers) very seriously as a tool to encourage settlement. The Family Law Rules 2021 (the rules governing practice in the family courts) even mandate that parties in property division cases exchange at least one genuine offer of settlement during the proceedings. For instance, Rule 4.11 of the Federal Circuit and Family Court (Family Law) Rules 2021 (Cth) requires each party to make a genuine offer of settlement within 28 days after a conciliation conference or mediation, or if none occurred, within a timeframe prescribed by the court. This compulsory exchange of offers underscores the system’s emphasis on resolving disputes through agreement whenever possible.

So, what happens if you make a Calderbank offer in a family law case and it’s rejected? If the matter goes to a final hearing, the court will consider whether refusing the offer was unreasonable in the circumstances. Remember, since each side typically pays their own way in family law, obtaining a costs order is a bonus (or punishment, depending on your perspective). Courts will award costs against a party who unreasonably rejects a reasonable Calderbank settlement offer as a way to compensate the offering party for legal fees that should have been avoided.

For instance, in a recent family law case, a husband was ordered to pay his ex-wife $100,000 in indemnity costs (essentially almost all her legal fees) because he had rejected several reasonable Calderbank settlement offers from her. The judge found that if he had accepted any of those offers, the dispute would have been resolved much earlier and at significantly lower expense. This example demonstrates that even in family law, where cost orders are relatively rare, a party who rejects a fair deal and prolongs the case can face substantial costs orders.

It’s worth noting that indemnity costs in this context refer to the higher end of costs. Typically, when courts award costs, they are on a “party-party” basis, meaning only a portion of actual costs are covered. In contrast, indemnity costs cover almost all of the reasonable legal costs of the opposing party, resulting in a significantly heavier financial consequence. The Family Law Rules 2021 explicitly permit the court to order indemnity costs in appropriate cases, as outlined in Rule 12.17 of the Family Law Rules. Unreasonably refusing a Calderbank offer is one scenario that might justify indemnity costs. In essence, Calderbank offers play a crucial role in family lawbecause they introduce a risk. If you fail to settle when you’ve been offered a fair compromise, you not only risk losing out in the final judgment but also have to pay a substantial portion of the opposing party’s legal fees. This pressure on both sides encourages them to be sensible and realistic during negotiations, rather than resorting to a “see you in court at all costs” approach.

A Calderbank offer serves as a mechanism to shift the risk of costs and encourage settlement. The underlying principle is the following: if Party A makes a Calderbank offer and Party B refuses it, and later Party B fails to secure a better outcome at trial compared to the offered settlement, the court may impose a penalty on Party B by way of a cost order.

It should be noted that the Federal Circuit and Family Court of Australia restrains significant discretion whether or not to award costs even in the above situation. This discretion is guided by various factors, one of which is whether any offers to settle were unreasonably refused. It’s crucial to note that there is no automatic entitlement to indemnity costs simply because your Calderbank offer was better than the final judgment. In other words, the court doesn’t automatically make the refusing party pay additional costs just because the outcome was worse than the offer. The offeror (the party who made the Calderbank offer) must convince the Court that the other side’s refusal was unreasonable or imprudent in all the circumstances.

The court evaluates several factors to determine if a costs order should be made, including but not limited to the following:

1. Timing of the offer: Was it made at a sensible stage of the case? An offer made very early, before key evidence is available, or very late (on the courthouse steps) with minimal time to consider, might not carry as much weight. The courts consider whether the offeree (recipient) had enough information and time to properly evaluate the offer.

   
   

2. Time allowed to accept: A reasonable period is expected. Giving someone only a few hours or an impossibly short window (like expiring the offer the same day) is usually viewed as not genuine. What’s reasonable can vary, but the more complex the case, the more time should be given (often at least 28 days).

   
   

3. Whether the offer foreshadowed indemnity costs: Did the letter explicitly warn that if refused, the offeror would seek indemnity costs? Court often notes if the offeree was clearly alerted to the cost risk of saying “no”.

Our team at Surge Legal consistently employs Calderbank offers as a valuable litigation strategy to safeguard our clients’ interests. We invite you to schedule a complimentary consultation with our office to discuss this or any other issues relating to your family law matter.