Summary and implications

Without prejudice offers may help parties to save time and costs in settling disputes. The two main types of offer used in property disputes are Part 36 offers and Calderbank letters.

  • A Part 36 offer has defined cost consequences.
  • A Calderbank letter will be taken into account by the court or arbitrator in deciding costs but the court or arbitrator can decide what weight to give it.

Advantages and Disadvantages of Part 36 Offers

Advantages

  • The cost consequences of Part 36 offers are clearly defined by the Civil Procedure Rules and are summarised below (see box).

Disadvantages

  • The parties cannot specify alternative terms for payment of any sum of money offered, i.e. payment in instalments.
  • The parties cannot specify that it is a term of the offer that each party bears its own costs of the proceedings.
  • In certain types of property disputes Part 36 either cannot be used or is particularly disadvantageous to a particular party (see below).

Advantages and Disadvantages of Calderbank Letters

Advantages

  • In certain types of property disputes (such as rent review arbitrations) Calderbank letters are the only form of offer with potential cost consequences available.
  • In certain other types of property disputes, Calderbank letters are more advantageous for a particular party (see below).
  • Can be used if:
    • a defendant intends to make an offer to pay a sum of money but is not certain it will be able to pay the amount offered within 14 days of the claimant's acceptance or wishes to pay in instalments (in contrast to the usual situation with Part 36 offers which is that payment of the whole sum is to be made within 14 days of acceptance of the offer); and/or
    • the offeror wishes to settle on the basis of a cost consequence other than that automatically provided for with a Part 36 offer, i.e. settlement on the basis of each party bearing its own costs.

Disadvantages

  • The costs consequences of Calderbank letters are not defined. Whilst the letter may be an important consideration for the court or arbitrator in deciding costs, the court or arbitrator can decide what weight to give it.
  • In light of this (and the fact that a defendant no longer has to follow up a Part 36 offer with a Part 36 payment) Calderbank letters are being used less and less frequently.

Offers to settle in lease renewal proceedings

The general rule in lease renewal proceedings is that each party bears its own costs. However, it is still appropriate to consider whether to make offers to settle either single issues or the whole claim in order to attempt to reach early settlement and/or for cost protection.

Calderbank letters in lease renewal proceedings have potential cost advantages over Part 36 offers for defendant landlords. This is because, as a general rule, acceptance of a Part 36 offer made by the claimant tenant or defendant landlord will result in the defendant landlord incurring liability for the claimant tenant's costs of the proceedings. Claimant fails to equal or beat its own Part 36 offer, i.e. the defendant does not accept the Part 36 offer and the claimant obtains a less advantageous judgment than the Part 36 offer. The costs will be decided by the court using its discretion under the Civil Procedure Rules.

Furthermore, as mentioned above, the Calderbank letter can specify alternative cost consequences, for example that the offer will be accepted on the basis that each party bears its own costs, which is the more usual situation in lease renewals.

Offerors should be wary of the fact that there are frequently multiple issues in dispute in lease renewals. Accordingly, if an offer is not accepted and the claim proceeds to trial, when it comes to the question of costs it may be difficult for the court to ascertain whether or not the offer has been equalled or beaten. This will be a matter for the court's discretion. Offerors should therefore consider whether it is appropriate to make a number of separate offers to settle single issues or one offer to settle multiple issues.

Offers to settle in dilapidations proceedings

It is more usual for a landlord to be claimant in dilapidations proceedings and there will not therefore be the same disadvantage for landlords in using Part 36 offers.

As with lease renewal proceedings, there may be single or multiple issues in dispute and therefore careful consideration should be given to the structuring of an offer or offers to ensure that they give as much cost protection as possible.

Offers to settle in rent review arbitrations

The Civil Procedure Rules do not apply to arbitrations. Accordingly Part 36 offers cannot be made and Calderbank letters are commonly used to attempt to obtain costs protection in this context.