Summary and implications

It is important for litigants to appreciate the tactical advantages to making a without prejudice settlement offer.

A well placed without prejudice offer can put the recipient under real pressure to settle a dispute.

Recent changes to the Civil Procedure Rules (CPR), which govern commercial litigation, have served to increase the pressure that can be applied to a defendant to accept an offer to settle. The rules on settlement offers are found in Part 36 of the CPR, which has recently been revised.

The potency of the revised Part 36 is likely to make this the go-to way to make a without prejudice settlement offer. But, does this mean that Calderbank letters are likely to become a thing of the past?

Changes to Part 36 from 1 April 2013

From 1 April 2013 an additional costs sanction was added to Part 36, in order to provide claimants with an extra incentive to make Part 36 offers in order to settle disputes. Under the revised rules, defendants who do not accept a claimant's Part 36 offer, with the result that the claimant goes on to obtain a judgment that is equal to or more advantageous than its offer, may be ordered to pay a sum in addition to the claimant's costs.

Calculating the additional sum

The additional sum is calculated as follows:

  • In money claims or mixed claims, for amounts awarded of up to £500,000: 10 per cent of the amount awarded.
  • In money claims or mixed claims, for amounts awarded of £500,000 up to £1,000,000: 10 per cent of the first £500,000 and five per cent of any figure above that figure.
  • In non-monetary claims, for costs awarded up to £500,000: 10 per cent of the amount of costs awarded.
  • In non-monetary claims, for costs awarded of £500,000 up to £1,000,000: 10 per cent of the first £500,000 of costs awarded and five per cent of any amount of costs awarded above that figure.

The additional sum is limited to £75,000 in all cases.

Effect of the new rules: is there still a place for Calderbank letters?

A Calderbank letter is simply a letter containing a settlement offer which is made on a "without prejudice save as to costs" basis.

Calderbanks can offer more flexibility that Part 36 offers

In contrast with an offer made under Part 36, there are no restrictions as to the terms of an offer that can be made by way of a Calderbank letter.

However, whereas a Part 36 offer carries clear costs consequences, a Calderbank letter is merely persuasive. When considering costs following a trial, the court has the discretion to decide how much weight to give to the fact that a Calderbank offer has not been accepted.

The certainty provided by Part 36, in addition to the added bite given to Part 36 offers by the revised rules, will mean that offers made under Part 36 are often a more attractive option than Calderbank letters. However, there are still circumstances where a Calderbank letter may be a useful option.

When to use a Calderbank letter

A Calderbank letter can still be an effective option in some circumstances. For instance:

  • where a party wants to make the terms in relation to costs in a settlement offer on a basis which differs from the cost consequences of Part 36;
  • where a party wishes to make an offer with a limited time for acceptance; and
  • where a defendant wishes to make a settlement offer, but does not believe that it will be able to pay the amount offered within 14 days (as required by Part 36).

Calderbank offers are therefore unlikely to disappear altogether, but it is probable that an offer letter sent in accordance with Part 36 will be used as the primary method for a party wishing to make a tactical settlement offer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.