In this post we take a look at how Australian product liability matters can be resolved through settlement agreements and how the mechanisms for settlement in Australian litigation differ from those in the United States.

As is the case in U.S. litigation, a product liability lawsuit can be resolved through an out-of-court settlement agreement or by way of a judgment. However, in Australian litigation, usually the unsuccessful party pays the costs of the successful party.

Offers to Settle

In Australia, at any time during the life of a lawsuit one party can make an offer to the other party to fully resolve the lawsuit. Such offers can take a variety of forms. However, in addition to achieving the primary purpose of settling a lawsuit between the parties, offers to settle can have varying cost consequences depending on how the offer is conveyed. Since litigation is an expensive exercise for all parties involved, protecting one’s client from an award of costs is a very important consideration.

Offers under Civil Procedure Rules

Each jurisdiction in Australia has its own set of civil procedure rules, which includes a process for making formal offers to settle.

In general, the consequences to a party who refuses the formal offer to settle are as follows:

• If an offer made by a Plaintiff is not accepted by a Defendant and the Plaintiff obtains a judgment in excess of the offer made at trial, then the Defendant will pay the judgment and the Plaintiff’s legal costs (e.g., attorneys’ fees and outlays including expert fees, transcript fees, filing fees).

• If an offer made by the Defendant is not accepted by the Plaintiff and the Plaintiff obtains a judgment that is less than the Defendant’s offer, then the Plaintiff is required to pay the Defendant’s legal costs (e.g., attorneys’ fees and outlays including expert fees, transcript fees, filing fees) from the date when the offer was made.

Calderbank Offer

Many informal offers that are made between the parties during proceedings or prior to proceedings being instituted are made as “without prejudice” offers such that the offer cannot be brought to the attention of the court for consideration with respect to costs at the finalization of litigation.

However, in some circumstances a party can make a “without prejudice” offer that can be brought before the court for the purpose of costs consideration. This offer is known as a Calderbank offer, named for the English decision Calderbank v. Calderbank [1975] 2 All ER 333. Essentially this is an offer that if it is rejected may result in an award for costs to the prevailing party. The amount of legal costs does not need to be determined or specifically outlined in the offer. Such offers are marked “without prejudice save as to costs” or “without prejudice except as to costs.”

There are a number of factors that a court can consider when faced with arguments on costs around a Calderbank offer, including whether the offer reflected a genuine and reasonable attempt to settle the claim, whether the offer was left open for a reasonable period of time and whether the terms of the offer were clear.

A valid Calderbank offer can often be relied on by the party who made it when making arguments regarding which party will pay costs in that proceeding.

Settlement Agreements

That being said, Australian litigation is similar to U.S. litigation in that a lawsuit can always be resolved among the parties through an out-of-court settlement agreement. The mechanisms as to how such agreements are consummated are very similar to those used in U.S. litigation.

Out-of-Court Settlement

Regardless of whether you are dealing with a personal injury claim in pre-court proceedings or a claim for property or personal injury damages where court proceedings have commenced, a matter can be settled and resolved between the parties at any time in Australian litigation. In such circumstances where the parties are able to reach an out-of-court settlement, the parties draw up a document that encapsulates the terms of that settlement. This document is commonly referred to as a Deed of Settlement and Release.

Common clauses in such agreements include the following:

• Recitals (which include the parties’ details)

• Settlement sum clauses

• Costs clauses

• Release and indemnity clauses

• Time and order of payment clauses, which may include details of any government charges that may need to be paid first, if the matter is a personal injury matter

• Bar to action/ further proceedings clauses

• Confidentiality clauses

• Own enquiries clauses ensuring legal advice has been obtained regarding the settlement

• Governing law clauses confirming the jurisdiction by which the deed is governed.

In circumstances where court proceedings have commenced but the matter is settled out of court and a settlement deed is drawn up, the parties will usually require the execution of a Consent Judgment or Notice of Discontinuance annexed to the Deed. These documents are signed on behalf of all parties confirming the matter has been resolved and filed in court. In circumstances where parties do not fulfill their obligations under the Deed, the affected party can seek remedy through the courts relying on the Consent Judgment or on the Deed.

In more complex cases, it may be necessary for the parties to draw up Heads of Agreement as a precursor to a more comprehensive, formal settlement document. Nonetheless, it must be made clear whether the parties intend for the Heads of Agreement to be legally binding, so that in circumstances where negotiations fail or a dispute arises after the Heads of Agreement have been executed, there is the possibility that a court may intervene and give effect to this preliminary settlement agreement.

Court Judgment

In circumstances where a matter has proceeded before the court and the court provides judgment, the court will make an order regarding any damages, costs or other penalties to be paid. If a party does not fulfill its obligations per the judgment or order, the affected party can seek an enforcement order to remedy this failure. As is the case in U.S. litigation, a prevailing party may be entitled to post-judgment interest that accrues until the judgment has been satisfied. In both Australian and U.S. litigation, the majority of product liability cases are resolved through settlement.

Bettina Sorbello of DibbsBarker, Australia, is co-author of this article.