Benefits Of Offers Of Settlement And Cost Implications For Unreasonable Spouses

In family law practice, it is a common enquiry whether a party can be compelled to pay the other party’s legal costs, particularly in situations where the opposing party is behaving unreasonably or adopting a highly litigious stance.

The prevailing position, however, is that each party is generally responsible for their own legal costs, as established by section 114UB of the Family Law Act 1975 (“the Act”), regardless of the conduct or unreasonableness of the other party. Nonetheless, the court retains discretion to order one party to pay the legal costs of the other where circumstances warrant such an order, as outlined in section 114UB(3) of the Act.

One relevant consideration is whether a party has made a written offer to settle the proceedings, and the specific terms of that offer.

Settlement offers play a pivotal role in the resolution of family law disputes in New South Wales. They not only facilitate early resolution but also have significant implications for the allocation of legal costs. Understanding the mechanisms and strategic use of settlement offers, particularly in the context of costs protection, is essential for practitioners and parties involved in family law proceedings.

Settlement offers are formal proposals made by one party to another with the aim of resolving some or all issues in dispute. In family law, these offers can relate to property division, parenting arrangements, spousal maintenance, or other ancillary matters. The Act and the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”) provide the framework for making and responding to such offers.

Settlement offers are a critical tool in family law practice, both for promoting early resolution and for protecting parties in relation to costs. Properly drafted and strategically timed offers can provide significant leverage and may influence the court’s approach to costs. Different types of settlement offers include:-

• Without Prejudice Offers: These are offers made on a “without prejudice” basis, meaning they cannot be disclosed to the court until after a determination on the merits, except in relation to costs.

• Calderbank Offers: Named after the English case Calderbank v Calderbank [1975] 3 All ER 333, these are written offers expressly made “without prejudice save as to costs.” They are admissible on the question of costs if the matter proceeds to a hearing.

• Offers of Settlement under the Rules: The Family Law Rules provide for formal offers of settlement (see Rule 4.11), which must comply with specific procedural requirements.

Despite the general rule in family law of each party bearing their own costs, the court also has discretion to make costs orders in certain circumstances, including where a party has unreasonably rejected a reasonable offer of settlement.

The timing of a settlement offer is a critical factor in determining whether a party will obtain costs protection in family law proceedings. The court’s discretion to award costs often turns on whether it was unreasonable for the offeree to reject the offer, which is closely linked to when the offer was made and the circumstances at that time. The likelihood of receiving costs protection in family law proceedings is significantly enhanced when a settlement offer is made at a stage where the offeree can reasonably assess its merits, after sufficient disclosure and with adequate time for consideration. Offers made too early, or with insufficient information or time, are less likely to result in costs protection if rejected.

An example of where a costs order was recently made was by Justice Schonell in the matter of Schultheiss & Schultheiss (No 2) [2025] FedCFamC1F 181.

In this case, the wife sought costs from the husband based on offers of settlement made during the proceedings, which were not accepted by him. The court determined that the husband’s rejection of these offers justified a costs order against him.

The court ordered the husband to pay the wife’s costs of the proceedings in the sum of $165,000 and the costs of the application for costs fixed at $9,000.

The court emphasised that rejecting reasonable settlement offers carries significant risk and that the wife’s offers represented genuine compromises. The husband’s financial position, while considered, did not preclude the making of a costs order.

Has this article created questions for you in relation to your family law matter? Reach out to our experienced Sutherland Shire Solicitors today on 8525 2700 or click on the Book Now button below. Our experienced Family Law Solicitors include Riccarda Stock, Nicole Quirk, Shweta Kumar, Nikita Ward, and Mia Doncevski.

Article by Nikita Ward
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This article was correct at the time of writing.