UK COURT DIARY

Saving as to Costs How to Win Either Way in an Offer to Mediate

The next time you write a “without prejudice” letter to opposing counsel, think twice about whether you might want to show it later to the judge or tribunal when costs are assessed. If so, it may be appropriate to write it under the former Calderbank rules as expressly “without prejudice, save as to costs.”

It is of course established law that “without prejudice” letters are privileged from disclosure in the course of legal proceedings. Because such vehicles for settlement could become relevant in costs assessments, such as where offers to settle were made but rejected, however, the Calderbank principle of writing letters which were “without prejudice, save as to costs” evolved. Such letters were privileged from disclosure throughout the proceedings, except on costs assessment where they could be taken into account.

It has long been recognised that a letter can be “without prejudice” even where it is not so marked. However, in Reed Executive plc and Others v. Reed Business Information Ltd. and Others [2004] EWCA (Civ) 887, the Court of Appeal in July held that the same principle does not extend to allow letters marked “without prejudice” to be construed as “without prejudice, save as to costs.”

On the costs assessment in that case, Reed Executive claimed to have expressed a willingness to submit the dispute to ADR which was unreasonably rejected out of hand by Reed Business. Reed Executive argued that Reed Business ought therefore to be deprived of some of its costs in accordance with the principle outlined in the Court of Appeal’s ruling in Halsey v. Milton Keynes General NHS Trust [2004] EWCA (Civ) 576. Reed Business rejoined that the reasonableness of its attitude could only be demonstrated by reference to “without prejudice” correspondence, which it was not prepared to disclose. The Court of Appeal declined to order it to do so, finding that the parties were well aware of the Calderbank rules and, having chosen not to use them, Reed Executive could not now claim that the correspondence had been “without prejudice, save as to costs.”

Comment

This decision emphasises the importance of ensuring that settlement letters are written with an eye on costs, and styled accordingly. Unreasonable refusal to participate in ADR can reduce an unsuccessful litigant’s burden of costs, but only where the unreasonableness of the winning party’s refusal can be shown. Where a party seeks to show that unreasonableness through “without prejudice” letters, the court is unlikely to look at them unless they were expressly marked, “without prejudice, save as to costs.”

Where offers to mediate are made, due consideration should be made to proposing ADR in open correspondence, or in correspondence specifically marked, “without prejudice, save as to costs.” The saving could indeed prove significant.