Encouragement to settlement of litigation: Chocolade correspondence
In Calderbank v Calderbank  Fam 93,  3 WLR 586, (1975) FLR Rep 123, CA a far from light-weight Court of Appeal consisting of Cairns and Scarman LJJ and Sir Gordon Willmer held that, on costs, if a party has negotiated – albeit under the shield of ‘without prejudice, which means their correspondence cannot be placed before the court before there is a determination – then if any correspondence is said to be ‘without prejudice save as to costs’ then the correspondence can be referred to in support of a costs claim where a party considers that that party has done better than others on costs.
This – the ‘Calderbank rule’ – applies in all civil proceedings; save that since 2006 the Family Procedure Rules Committee (FPRC) have taken it upon themselves to alter the costs rules which apply to family financial relief proceedings by saying that: (1) save in defined circumstances only, there will be no order for costs (Family Procedure Rules 2010 r 28.3(5)) and (2) on any claims for costs the court can take no account of any ‘Calderbank rule’ material (r 28.3(8)). This is probably unlawful (a rule cannot change the law: see eg Dunhill v Burgin (Nos 1 and 2)  UKSC 18,  1 WLR 933) and can be challenged on a Boddington application (Boddington v British Transport Police  UKHL 13;  2 AC 143: all of which is a subject for another day).
First, what is the position in civil proceedings generally? Three possibilities are: (1) ‘Without prejudice’, (2) ‘without prejudice save as to costs’ or (3) negotiations on settlement with reference to neither. What is the position on production of the correspondence in each situation at trial (if it can be produced to the court) or, after trial, on the issue costs?
- If a letter is marked ‘without prejudice’ it is always covered by privilege (subject to the exceptions in Unilever plc v The Procter & Gamble Co  1 WLR 2436, CA); and it cannot be referred to either at trial or afterwards, save by agreement of the parties to it.
- If a negotiation takes place and there is no reference to ‘without prejudice’, but also none specifically making the correspondence ‘open’ (ie so it can be referred to in court as part of any hearing) then the fact of negotiation – whether in correspondence, in meetings or in court – makes the discussion privileged. Any correspondence or other material on the issue cannot be referred to (Chocoladefabriken Lindt & Sprungli AG v The Nestlé Co Ltd RPC 287, Sir Robert Megarry V-C).
- If a proposal letter is marked ‘without prejudice save as to costs’ it can be referred to after a judgment on the issue of costs (Calderbank v Calderbank  Fam 93,  3 WLR 586, (1975) FLR Rep 123, CA).
Chocolade, costs and Mr Harrison
But what is the position of that the exchange (correspondence etc) which is not marked ‘without prejudice’: let us say, Chocolade correspondence. It cannot be referred to in the hearing. But on costs? The present position on costs at common law is that, yes it can. In Sternberg Reed Solicitors v Andrew Paul Harrison  EWHC 2065 (Ch) (2 July 2019), HHJ Hodge QC (as a High Court judge) considered an arbitrator’s award where, on review of his original decision on costs (that Mr Harrison should pay a substantial proportion of the costs), the arbitrator had said there should be no order for costs. He felt was entitled to say that Mr Harrison had to an extent done better than an offer he had made early in the arbitration. His loss on a further issue balanced that. HHJ Hodge QC agreed with the arbitrator. He refused permission to appeal.
The moral of the story is that if a party (A) wants to argue that A’s offer is ‘open’ A must say so in terms in any correspondence or other discussion about the offer. Otherwise as a matter of law it will be said to be covered by without prejudice privilege (see Chocoladefabriken (above)). And, of course, anyone taking this subject seriously must take account of CPR 1998 and its rules under Part 36 on ‘Offers to Settle’).
The subject of Calderbank correspondence is up for review by FPRC under ‘Consultation in relation to the treatment of Calderbank offers when determining issues relating to costs’ (July 2019). I do not know where the consultation has reached and I do not know if the FPRC will take note of Mr Harrison’s case?