Reject at Your Peril: The Real Cost of Late Settlements and Unreasonable Counter-Offers in Family Law

Whenever I step into a family law property case, I always start my analysis with a fundamental question: "does our position hold weight, and is it within the scope of what the Court will order if this went to trial." Because the reality is, family law litigation can be painfully expensive, and we should proceed through each stage of the litigation with the end in mind - a costly trial. But if we were all able to adopt a position of 'reasonable' and 'fair', and those concepts were all appreciated by the same measure, then we wouldn't have a family law system.

In the day-to-day realities of family law litigation, it's frustratingly common to present 'reasonable' offers that are repeatedly refused, or met with equally unreasonable counter-offers, only for the matter to settle on the courthouse steps for substantially the same terms as your original offer, after weeks of costly trial preparation. This is not only unbelievably frustrating, it can be the difference between whether your client recovers a fair share of costs or is left substantially out of pocket. The law has developed clear guidance on this point: where one party persistently rejects reasonable offers or responds with wholly unreasonable counter-offers, and later accepts or proposes substantially the same terms, costs will likely follow.

Three decisions explain this evolution and its practical application: Penfold v Penfold (1980) 144 CLR 311, Browne v Green [2002] FamCA 791, and Schultheiss & Schultheiss (No 2) [2025] FedCFamC1F 181.

The Equitable Foundation – Penfold v Penfold

The High Court’s judgment in Penfold v Penfold remains the cornerstone of the costs discretion in family law. The husband’s deliberate concealment of assets forced the wife into unnecessary litigation. The trial judge ordered him to pay her costs; the Full Court set that order aside; and the High Court restored it, holding that section 117(2) of the Family Law Act 1975 (Cth) confers a broad and equitable discretion to award costs wherever “circumstances justify it.”

Mason J was clear that “justifying circumstances” do not need to be exceptional or rare. They exist whenever fairness demands that one party not bear the financial consequences of the other’s misconduct or lack of merit. As his Honour put it, there is “nothing which imposes any additional or special onus on an applicant.”

The principle extends well beyond deception. The modern view is that a party who persists with a case that lacks merit or utility, whether by dishonesty, denial, or obstinacy, stands in the same position as Mr Penfold. Continuing to litigate when the likely outcome is obvious, or when a reasonable settlement offer has been ignored, is conduct that wastes resources and therefore falls squarely within the Penfold principle.

From Fairness to Settlement Offers – Browne v Green

The Full Court in Browne v Green [2002] FamCA 791 transformed Penfold’s broad notion of fairness into a specific rule about settlement conduct. The wife had rejected the husband’s offer of $15,000 and pressed on to trial, only to receive nothing. The trial judge made no order as to costs, but the Full Court overturned that decision, finding that her refusal of a plainly reasonable offer - made at a time when she had sufficient information to assess it - was unjustified.

The Court’s now-famous statement remains the governing test:

“The failure to heed a reasonable offer in circumstances where there is adequate knowledge of the parties at the time the offer is made to give it proper consideration is something to which very significant weight indeed ought normally be given.”

The principle is simple: a party must engage genuinely and promptly with reasonable offers. Reasonableness is assessed objectively, in light of what each party knew (or ought to have known) at the time. It is not judged by hindsight or by the offeree’s subjective view of fairness.

Equally significant was the Court’s treatment of “success.”  It held that the wife was “wholly unsuccessful” because her eventual outcome was no better than what she could have secured months earlier. The test is practical, not mathematical: success is measured against the reality of offers rejected, not against minor adjustments in the trial result.

The Modern Warning – Schultheiss & Schultheiss (No 2)

In Schultheiss & Schultheiss (No 2) [2025] FedCFamC1F 181, Schonell J confronted the all-too-common scenario where parties engage in superficial negotiations until the eve of trial. The wife had made several fair and detailed offers; the husband ignored them or responded with minor “counter-offers” differing by one per cent. Only after full trial preparation did he attempt to settle on terms virtually identical to those earlier offers.

Schonell J found that this conduct warranted a costs order, warning:

“It is incumbent upon a party who receives an offer of settlement to give careful, serious and thoughtful consideration to the offer. A party who rejects an offer of settlement or makes such a counter-offer does so at their peril.”

The Court held that a counter-offer that differs only trivially from the original offer is not a genuine engagement but “a position adopted to negotiate.” The husband’s approach was described as perfunctory and tactical, not sincere. Because he had delayed acceptance until the brink of trial, the wife had incurred substantial, avoidable preparation costs - brief fees, trial bundles, and witness preparation - which constituted “costs thrown away.”

The principle emerging from Schultheiss is decisive: a wholly unreasonable counter-offer is treated as an outright rejection for the purposes of costs.

Wholly Unreasonable Counter-Offers and Tactical Extremes

Both Browne v Green and Schultheiss recognise that unreasonableness is not confined to silence. A party may respond, but do so in a way that is so disproportionate or unrealistic that it amounts to non-engagement. This often takes the form of:

• token or trivial counter-offers (for example, shaving one or two per cent off an already fair offer);

• extreme or bad-faith positions (such as insisting on 100% of property or claiming additional superannuation equalisation without legal foundation); or

• tactical refusals made in the hope of extracting concessions at the last minute.

Such conduct does not insulate the party from costs; it exposes them. The Family Law Courts have repeatedly stressed that “reasonableness” is judged objectively, by what a properly advised litigant would have done. A party whose counter-offers bear no rational connection to the evidence or to the likely range of outcomes is not negotiating - they are obstructing.

If that party ultimately settles close to the terms they previously rejected, their interim unreasonableness remains relevant. As Schultheiss demonstrates, late convergence on the same figure is not redemption - it is confirmation of wasted opportunity and avoidable cost.

Late Acceptance and the “Wholly Unsuccessful” Litigant

Even if a party finally moves toward reasonableness - say, shifting from an untenable 100% claim to an offer of 25% at the courthouse steps - the Court will still consider their overall conduct in determining costs. The Full Court in Browne v Green made clear that success is measured against the offers refused, not against the last-minute compromise. If the earlier offers were objectively reasonable and would have saved significant cost, then the party who forced the matter to trial preparation is likely to be deemed “wholly unsuccessful” for the purposes of s 117(2A)(e) of the Family Law Act.

Put simply, partial movement late in the day does not erase the earlier unreasonableness. A litigant who refuses to engage until compelled by proximity to trial is still the architect of unnecessary expense. The discretion exists to correct that imbalance.

The Courthouse-Steps Trap

Settlement on the courthouse steps, even on reasonable terms, often arrives too late. By then, the other party has incurred sunk costs that cannot be recovered: trial brief fees, preparation of affidavits and exhibits, subpoenas, and days or weeks of lost professional time. As Penfold illustrates in principle and Schultheiss confirms in practice, fairness requires that those wasted costs not fall on the party who was ready to settle earlier.

The Courts view late settlement not as a mitigating factor, but as the very conduct that justifies a costs order. The message is consistent: the law rewards early, sensible resolution and penalises needless delay.

Practical Guidance for Practitioners

• Keep a clear offer chronology.  Record all proposals and responses in writing. A well-documented offer history is the best evidence of reasonableness.

• Advise early and bluntly.  Once valuations and disclosure are complete, the margin for rejecting a fair offer narrows sharply.

• Identify unreasonable counter-offers.  A counter-offer that is wholly disconnected from the factual or legal realities of the case should be treated as equivalent to rejection.

• Quantify thrown-away costs.  Maintain evidence of counsel’s brief fees and preparation costs for use in a costs application if settlement comes late.

• Explain “wholly unsuccessful.”  Even a modest win at trial will not save a client if the final result is worse than an offer they refused.

Conclusion

The trajectory from Penfold through Browne v Green to Schultheiss maps a single, consistent rule: costs discretion is the court’s safeguard against waste and unreasonableness.  Whether a party rejects a fair offer outright, responds with an implausible counter-offer, or waits until the eve of trial to accept terms that were long on the table, the principle is the same.

Reasonableness is not measured by hindsight; it is measured by opportunity. Once a reasonable offer exists, the time to act is now, not after the trial brief has been delivered. Those who persist in untenable positions, whether demanding the impossible or quibbling over the immaterial, risk being found wholly unsuccessful and liable for the costs their delay has caused.

In family law, fairness is the guiding principle - but reasonableness is its price.

By Ashleigh Morris, Family Law Barrister at Victorian Bar.

For briefing enquiries, please email a.morris@vicbar.com.au or contact Patterson's List on 03 9225 7888.