Cutts v Head [1983] EWCA Civ 8

Plaintiff sought to rely on a 'without prejudice' letter containing a settlement offer on the question of costs after trial. The Court of Appeal held that a 'Calderbank letter' (without prejudice save as to costs) is admissible on the issue of costs in all civil proceedings, not just matrimonial cases.

Facts

The plaintiff brought an action concerning rights of access over the defendant’s land to the plaintiff’s fishery. After a 35-day trial, the plaintiff substantially succeeded in establishing his rights of access. Before trial, on 15th December 1980, the plaintiff’s solicitors wrote to the defendant’s solicitors a letter headed ‘without prejudice’ offering settlement terms that would have been more beneficial to the defendant than the eventual trial outcome. The letter concluded with a reservation that the plaintiff could bring the letter to the judge’s attention on the question of costs if the offer was not accepted.

The Offer

The plaintiff offered to continue the access as limited by undertakings in an earlier consent order, pay the defendant £500 in damages, and have each side pay their own costs. The defendant rejected this offer. At trial, the damages awarded to each party cancelled each other out, meaning the defendant received less than what had been offered.

Issues

The central issue was whether the judge was correct in refusing to consider the ‘without prejudice’ letter on the question of costs after judgment had been given on liability. Specifically, whether a letter marked ‘without prejudice’ but reserving the right to refer to it on costs (a ‘Calderbank letter’) could be admitted in non-matrimonial proceedings.

Judgment

The Court of Appeal allowed the appeal. Lord Justice Oliver, delivering the leading judgment, held that the Calderbank procedure is not restricted to matrimonial proceedings but is available in all cases where what is in issue is something more than a simple money claim.

“I think that it must now be taken to be established that the Calderbank formula suggested by Cairns L.J. is not restricted to matrimonial proceedings but is available in all cases where what is in issue is something more than a simple money claim in respect of which a payment into court would be the appropriate way of proceeding.”

Basis of the Without Prejudice Rule

Oliver LJ explained that the protection from disclosure rests partly upon public policy (encouraging settlement) and partly upon convention (implied agreement that negotiations shall be protected):

“The public policy justification, in truth, essentially rests on the desirability of preventing statements or offers made in the course of negotiations for settlement being brought before the court of trial as admissions on the question of liability.”

Modification of the Convention

The court held that since the protection after judgment on liability rests on convention rather than public policy, there is no reason why it cannot be modified by express reservation:

“Once, however, the trial of the issues in the action is at an end and the matter of costs comes to be argued, this can have no further application for there are no further issues of fact to be determined upon which admissions could be relevant.”

Lord Justice Fox agreed, noting that widespread practice in all divisions of the High Court demonstrated that the conventional meaning of ‘without prejudice’ had become capable of modification where express reservation is made.

Implications

This decision significantly extended the availability of Calderbank offers beyond matrimonial proceedings to all civil litigation where payment into court is not appropriate. The court emphasised that such offers encourage settlement by exposing parties who unreasonably refuse reasonable offers to costs consequences.

However, Oliver LJ added an important caveat:

“It should not be thought that this involves the consequence that such a letter can now be used as a substitute for a payment into court, where a payment into court is appropriate. In the case of the simple money claim, a defendant who wishes to avail himself of the protection afforded by an offer must, in the ordinary way, back his offer with cash by making a payment in.”

The case established the general principle that parties may make settlement offers ‘without prejudice save as to costs’ in any appropriate civil proceedings, thereby protecting negotiations while preserving the ability to rely on such offers when costs are determined.

Verdict: Appeal allowed. The order as to costs was varied so that the plaintiff received half his costs of the action up to 31st December 1980 and the whole of his costs thereafter. Leave to appeal to the House of Lords was refused.

Source: Cutts v Head [1983] EWCA Civ 8