Written by Alternative Dispute Resolution – settlement – costs
A settlement letter is not a Part 36 offer merely because it proposes a compromise and warns about costs. Open offers and offers made “without prejudice save as to costs” can still matter, but the court’s general costs discretion replaces the assumption that Part 36’s prescribed consequences will follow.
The distinction in one paragraph
First identify the procedural route; then decide who may see the letter and when; only then assess its possible costs effect. A rejected offer outside Part 36 can still matter on costs, but it does not trigger Part 36 simply because the sender used forceful costs language. Keep the original wording, the response and a chronology of what each party knew at the time.
Start with the route, not the label
Part 36 is not the whole law of settlement offers. It contains a self-contained procedural code, but it does not prevent a party from making an offer in another way; an offer that does not comply with rule 36.5 does not receive the consequences specified in Section I of Part 36. The proposal may still become relevant to costs. What changes is the mechanism by which costs are argued.
That makes classification a documentary exercise, not an impressionistic one. Rule 36.5 requires a Part 36 offer to be in writing, to make clear that it is made under Part 36, and to address matters including the relevant acceptance period, the scope of the offer and any counterclaim. A heading such as “settlement offer”, a proposed payment or a threat to seek costs does not, by itself, answer the Part 36 question.
Read the whole offer. The operative terms matter more than the subject line. Check the express procedural basis, what is being compromised, how costs are treated and any time limit for responding. Do not convert an uncertain letter into a Part 36 offer by assumption.
What three common labels are doing
The labels answer different questions. “Open” is principally about presentation: the sender is not using a without-prejudice reservation, although the absence of that label is not conclusive of the communication’s status. “Without prejudice save as to costs” reserves a later costs use. “Without prejudice” alone should not be treated as though it contained that express reservation. None of these phrases, on its own, tells you that the offer complies with Part 36.
Open offer
The proposal is expressed without a without-prejudice reservation. If an open offer outside Part 36 is relied upon on costs, rule 44.2 still requires it to be an admissible offer drawn to the court’s attention; the label supplies no separate costs entitlement. Record the terms and the response rather than assuming that openness increases its weight.
Without prejudice save as to costs
This is sometimes called a Calderbank offer. The Supreme Court has described a Calderbank offer outside Part 36 as one made “without prejudice save as to costs” which, unless accepted, would be available when the trial judge considers costs at the end of a trial. The reservation creates an opportunity to argue; it does not predetermine the order.
Without prejudice
A communication marked simply “without prejudice” should not be assumed to be available on costs, and without-prejudice material is not generally admissible on the merits merely because a party wishes to rely on it. Privilege and admissibility can be contested. Keep the document separate and take advice before deploying it.
Mixed correspondence deserves particular care. A letter can contain an offer, assertions about the merits and a proposed costs argument in the same document. Adding a preferred label after the event does not resolve uncertainty about its original status. Preserve the exact version sent, including attachments and the covering message.
What rejection does—and does not—do
Outside Part 36, rejection is evidence to be evaluated, not a switch that turns on a fixed sanction. Under rule 44.2 the court has discretion over whether costs are payable, their amount and when they must be paid; although the general rule is that the unsuccessful party pays the successful party’s costs, the court may make a different order. A party should therefore avoid promising that a rejected compromise will automatically transfer costs, produce indemnity costs or create an additional award.
When deciding what costs order to make, the court must have regard to all the circumstances, including the parties’ conduct, partial success and any admissible non-Part 36 settlement offer drawn to its attention. The offer’s terms, timing and the information then available may all form part of the argument. So may the reasonableness of the response. There is no responsible shortcut from “the offer was rejected” to a particular outcome.
That discretion also disciplines the correspondent. A costs warning should identify a genuine basis for the argument rather than recite Part 36 language that the offer does not satisfy. Equally, the recipient should not dismiss a serious proposal merely because it sits outside Part 36. The safer response addresses the proposal itself and reserves the parties’ respective costs positions without exaggeration.
When the judge may see the offer
The practical dividing line is between deciding the substantive dispute and deciding costs. An open document is presented without a without-prejudice reservation, but the absence of that label is not conclusive of its status. A costs-reserved offer, by contrast, is preserved for the costs stage rather than deployed as ordinary merits evidence. That is the function the Supreme Court identified when it described a Calderbank offer as available to the trial judge when costs come to be considered at the end of the trial.
Do not attach a costs-reserved offer to a trial bundle or witness statement as though it were ordinary evidence. Keep it in a separate settlement-correspondence file, together with proof of sending and receipt, and be ready to explain its relevance when costs are addressed. Follow any order or direction about the stage and format for costs submissions. If there is a dispute about admissibility, identify it rather than assuming that the label settles it.
Timing alone is not enough. Rule 44.2 calls for an admissible offer that is drawn to the court’s attention and requires the court to consider it alongside all the circumstances. The costs submission should therefore connect the offer to a reasoned request: what was proposed, when, on what information, what response followed and why the court’s discretion should be exercised in a particular way.
A safe decision sequence
A disciplined file makes a better costs argument than a dramatic heading. It also reduces the risk that settlement correspondence is disclosed at the wrong stage. Use the same sequence whether you are making or receiving the offer.
Save the dated offer, every attachment, the covering email and evidence of delivery. Record any response deadline without assuming that silence has a particular legal effect.
Note whether the letter expressly invokes Part 36 and check its terms against rule 36.5. Separately record whether it is open, costs-reserved or marked only “without prejudice”.
Keep settlement material out of the ordinary merits file unless its status permits disclosure. Maintain a distinct costs-reserved bundle rather than relying on memory at the end of the case.
Address acceptance, rejection or a counter-proposal on the actual terms. Explain information gaps and reserve costs arguments accurately; a reservation does not manufacture admissibility or a costs penalty.
Update the chronology when evidence, pleaded issues or the value of the claim changes. Record why an offer remains reasonable, needs revision or should now be accepted.
The chronology should show more than the amounts proposed. Note what documents had been disclosed, which issues remained live and what each party said in response. That record allows a later costs submission to explain conduct rather than simply exhibit a sequence of figures.
Negotiation must not be allowed to obscure limitation: the Practice Direction on Pre-Action Conduct states that it does not alter statutory time limits for starting proceedings. Any agreed standstill, protective issue or other step needs its own careful consideration; an exchange of offers is not, by itself, a limitation strategy.
Keep settlement and pre-action conduct together
An offer does not exist in isolation from the way the dispute has been conducted. The Practice Direction says litigation should be a last resort, asks parties to consider negotiation or another form of ADR, and says the possibility of settlement should continue to be considered after proceedings begin; rule 44.2 also treats pre-action conduct and unreasonable failure to engage in ADR as relevant conduct. A reasonable settlement record therefore includes engagement with the issues, not merely the dispatch of an offer.
The Practice Direction provides that the court takes non-compliance into account when managing proceedings and making costs orders, and identifies possible sanctions including costs and, in appropriate circumstances, indemnity costs or adjustments to interest. That is another reason to keep a balanced record of information exchanged, invitations to negotiate and reasons for any refusal.
The safe lesson is not “always accept” or “always make an offer”. It is to make the decision visible: identify the proposal, assess it on the material then available, respond without misstating the procedural regime, and preserve a coherent account for the judge who will later exercise discretion.
Source anchors
These primary sources establish the procedural framework discussed above. They do not predict the costs order in an individual case.
Rules 36.1, 36.2 and 36.5 distinguish the Part 36 code from other ways of making settlement offers.
The court’s costs discretion includes consideration of admissible offers outside Part 36 and the parties’ conduct.
Paragraphs 8 to 11 address settlement and ADR. Paragraphs 13 to 16 address the costs consequences of non-compliance. Paragraph 17 addresses limitation.
At paragraph 54, the Supreme Court explains the costs-stage function of a Calderbank offer outside Part 36.
The judgment examines without-prejudice protection and why such material is not ordinarily admitted on the merits.
The closing point
A settlement proposal outside Part 36 is not procedurally weightless. It is an invitation to resolve the dispute and, if admissible and brought to the court’s attention, part of the material available on costs. But its force lies in its terms, timing and context—not in an assumed Part 36 penalty. Preserve the letter, respect its disclosure status and make the costs argument with precision.
Settlement and costs decision point
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