Offers to Settle Commercial Litigation: Exploring the Options

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Offers to Settle Commercial Litigation: Exploring the Options

When facing litigation, understanding your options for settlement is vital. Settlement offers can potentially bring a dispute to an early resolution, saving time, costs, and the uncertainties of going to trial. In some situations, your commercial litigation solicitor will advise you to make an offer, in an attempt to settle your dispute as efficiently as possible.

Broadly, there are three main types of settlement offer: the Part 36 offer, the Calderbank offer, or an offer on an open basis. Each type serves different strategic purposes and comes with its own set of rules and potential consequences, and understanding these can make it easier to decide which option will work best for your circumstances.

In this guide, we will explore each of these offer types, helping you understand how they work, their advantages and disadvantages, and how they might fit into your litigation strategy.

Part 36 Offer

What is a Part 36 offer?

Civil litigation is governed by the Civil Procedure Rules, or CPR. CPR Part 36 makes provision for parties involved in litigation to make formal offers to settle all or part of a claim, counterclaim or additional claim, and provides a framework for such offers to be made and responded to.

The Part 36 offer is an important tool, as it sets out the costs consequences of offers to settle if they are made in accordance with Part 36. Such offers can be made by either or both parties before or during the court proceedings in an attempt to settle the claim, at any point prior to the conclusion of a trial. Due to its costs consequences, this can help to focus minds on the need for a resolution. Part 36 offers do not apply to small claims of less than £10,000.

How is a Part 36 offer made?

A Part 36 offer must fulfil the following criteria:

  • It must be made in writing
  • It must be clearly stated that the offer is a Part 36 offer
  • The offer must be available for acceptance for a period of 21 days or more, known as the “relevant period”
  • It must be clear whether the offer is to settle part of the claim or the whole claim, and state whether it takes into account any counterclaim

If the above requirements are not strictly adhered to, the receiving party may argue that the Part 36 offer has not been validly made, and that the associated costs consequences do not apply.

How is a Part 36 offer accepted?

The party accepting the offer must confirm their acceptance in writing and serve it to the other party’s solicitors. The party paying the settlement sum is then required to make payment in one lump sum within a specified period, which is usually 14 days. The date of acceptance of an offer is the date on which it was served on the other party’s solicitors.

Costs consequences of a Part 36 offer

When dealing with a Part 36 offer, the court has the power to penalise parties through legal costs, and therefore parties should be mindful of their conduct throughout litigation to avoid being penalised in costs.

The basis of the court’s assessment of legal costs is either on the standard basis, or on an indemnity basis. When costs are decided on a standard basis, this means that the court will award a party a reasonable sum in respect of their legal costs, to the extent that such costs were reasonably incurred and proportionate to the sums in dispute.

Costs awarded on an indemnity basis will generally result in a higher level of costs being awarded to the successful party at the court’s discretion. This usually happens when the losing party’s conduct has been particularly poor during the course of the proceedings.

The costs consequences of a Part 36 offer will depend upon a number of factors, as summarised below:

  • If a Part 36 offer was made and accepted within the relevant period: the defendant pays the claimant’s reasonable costs, including pre-action costs, up to the date the offer was accepted and formal notice was served. Such costs will be assessed by the court, if the amount of costs cannot be agreed between the parties.
  • If a Part 36 offer was made and accepted after the relevant period has expired: the defendant pays the claimant’s reasonable costs up to the expiry of the relevant period, including pre-action costs, together with the costs from the expiry of the relevant period until acceptance of the offer

The costs associated with the claim will also vary depending on whether the Part 36 offer was made by the claimant or the defendant:

  • When the defendant’s offer is not accepted:
    • If the claimant fails to obtain a better outcome than the level of offer made at trial, the court will order the claimant to pay the defendant’s costs, including any pre-action costs, together with interest on those costs
    • If the claimant obtains a better outcome at trial than the level of offer made at trial, the court will assess the costs.
  • When the claimant’s offer is not accepted:
    • If the claimant fails to equal or beat their own offer at trial, the costs will be assessed by the court.
    • If the claimant matches or beats their offer at trial, the defendant must pay:
    • The claimant’s reasonable costs from the start of the matter up to the date the relevant period expired
    • The claimant’s costs on the indemnity basis from the date the relevant period expired together, with interest on those costs up to 10% above base rate
    • Interest on all or part of the sum awarded to the claimant, at up to 10% above base rate.
    • An additional amount calculated as 10% of the judgement amount, capped at £75,000.

In summary, Part 36 offers can be an effective tool in encouraging parties to settle their dispute, as the cost consequences are automatic and can provide a degree of financial protection to parties making realistic offers of settlement. However, a Part 36 offer may not be appropriate for every case, and other forms of offer may be more suitable.

If a Part 36 offer is made, it is essential that offer is made in compliance with the rules to avoid it being defective. Speak to JMW’s commercial litigation team to guide you if you are unsure about any aspect of the process.

Calderbank offer

What is a Calderbank offer?

A Calderbank offer is an offer to settle a dispute that is made on the basis of being ‘without prejudice, save as to costs’ (WP). A WP basis means that the judge would not normally be made aware of the existence of the offer until after the outcome of the case has been decided, at the point when the issue of costs is to be considered by the court.

Are Calderbank offers time limited?

Unlike Part 36 offers, there are no strict rules around the timeframe to accept a Calderbank offer. A Calderbank offer may be made on a time-limited basis (for example, with a deadline of 14 or 21 days), or it can be made on an open-ended basis. It is important to keep open-ended offers under review, in the event that additional costs are incurred that are not reflected in the offer.

What are the advantages of a Calderbank offer?

A Calderbank offer can be made at any time, and is much more informal than a Part 36 offer. There are no strict rules around the format - for example, such an offer can be made in writing, face-to-face or over the telephone. The party receiving the offer will be able to decide whether accepting the offer is more attractive than the risk of going to trial, where the judge might not agree with their position.

Additionally, the timescales for making payment of settlement monies can be negotiated. For example, a defendant who wishes to pay by instalments or over a long period of time would be able to do this with a Calderbank offer - whereas a Part 36 offer would require a lump sum payment to be made in 14 days.

What are the disadvantages of a Calderbank offer?

With a Calderbank offer, the costs implications are not as rigid as a Part 36 offer, and therefore there is less certainty of the level of costs which a party may recover.

Is there room for negotiation?

A Calderbank offer represents an inexpensive form of alternative dispute resolution, because there is no requirement to pay an independent third party to help facilitate a resolution, and the offer can be made in writing or orally over the telephone. On some occasions, the opposing side may make a counter-offer, and this may signal an appetite to settle the dispute without the costs and uncertainty of a trial at court.

Open offer

An open offer is very similar to a Calderbank offer; however, it is made on an open basis, which means the offer could be brought to the court’s attention at any time. A party may wish to make an open offer if they feel they have a particularly strong claim, and where the other party is being unreasonable or unrealistic with regard to settlement.

As with the Calderbank offer, an open offer can be made by either party, is informal and can be made in correspondence, face-to-face or during a telephone call.

Find out more

Choosing the right type of offer can be the difference between a protracted legal battle and a swift conclusion to the satisfaction of all parties involved. As such, getting the right legal advice at the right time is important.

If you are facing a dispute and need guidance on your options for settlement, or if you require assistance with any aspect of commercial litigation, JMW is here to help. Contact our commercial litigation solicitors on 0345 872 6666 or fill in our online contact form, and we will be able to answer your questions and guide you on the next steps to take.

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