Offers in Settlement

When an attempt is made to resolve a dispute, lawyers refer to two kinds of offers in settlement: Calderbank and Part 36.

Both offers are made ‘without prejudice save as to costs’, meaning that it is the intention of the party making the offer to disclose its content to the court only when an order a decision is to be made as to which side should pay costs.

In Calderbank v Calderbank [1976] Fam. 93 a sum in settlement of a claim was offered by one party but not accepted by the other. At the trial, the court ordered that the party making the claim receive a lesser sum than had been offered.  When the offer was disclosed, the court ordered the party who had made the successful claim to pay the costs of the party who had made the offer, from the date that the offer had been made.

The advantage of a Calderbank offer is that it can include any term in settlement and does not have to include an offer to pays costs. However, the disadvantage is that the court may not take it into account when deciding which party should pay the costs, particularly when it is difficult to measure success against the offer made.

A Part 36 offer refers to Part 36 of the Civil Procedure Rules which is a code of practice used by the court to manage cases. As with a Calderbank offer, either party can make a Part 36 offer.  A Part 36 offer seeks to resolve the disadvantages of a Calderbank offer by containing required terms and will be considered by the court when deciding which party should pay the costs of the other.

A defendant’s Part 36 offer has to offer to pay the costs of the claimant.  A Part 36 offer must remain open for acceptance for 21 days during which it cannot be withdrawn or modified.  If the offer is not accepted within 21 days, it can only be accepted afterwards if the parties can agree on who is to pay the additional costs. Otherwise, the court decides.  Upon acceptance, a sum to be paid in settlement of a claim must be paid within 14 days.  Costs are determined by agreement between the parties or assessed by the court on the standard basis, either immediately or by a separate procedure.

As court resources are limited, there are penal consequences if a party rejects a Part 36 offer that in hindsight should have been accepted.

Where a judgment is obtained against a defendant that is at least as advantageous to a claimant as the proposals contained in the claimant’s Part 36 offer, the claimant is likely to recover (a) an additional sum either as a proportion of any compensation sought or costs claimed; (b) a greater rate of interest on any compensation payable; (c) costs assessed on the indemnity basis (a  greater contribution) from the 22nd day after the offer was made; and, (d) a greater rate of interest on those costs.

Conversely, where a claimant fails to obtain a judgment against the defendant that is more advantageous than the defendant’s Part 36 offer, the defendant is likely to recover costs assessed on the standard basis from the 22nd day after the offer was made with interest on those costs. There is only the possibility that the defendant may obtain indemnity costs and a greater rate of interest on those costs.

There are two reasons for making a Calderbank or Part 36 offer. The first is to try and resolve the dispute before the costs of the case become a bar to settlement. The second is tactical.

Although it may not always be possible or prudent to make an early offer in settlement, an early offer has greater prospects of success when the costs incurred by each side are low. When a tactical offer is made, the party making the offer will wish to increase an opponent’s litigation risk by making the highest offer that the opponent is unlikely to accept.

If you need advice about any matter, please contact us by phone on 0800 015 0340 or e-mail info@chadlaw.co.uk.

If you have a dispute that involves either a business or residential lease or land and buildings – including ownership, boundaries and rights of way – please e-mail newenquiries-proplit@chadlaw.co.uk.  Alternatively, if you have a dispute that relates to a will or inheritance please e-mail  newenquiries-inheritancelit@chadlaw.co.uk.  Otherwise, please e-mail newenquiries-litigation@chadlaw.co.uk.