What is a ‘without prejudice save as to costs’ letter?
If you see a letter from a lawyer headed — ‘without prejudice save as to costs,’ there’s no need to panic. You’re no doubt in litigation with another party, and their lawyer is trying to make what they consider a reasonable offer in an attempt to save both parties the legal costs involved in going to Court.
If you decide not to accept the offer, and the matter goes to Court, you risk having to pay the other side’s costs even if you win, provided that what the Court awards you is less than you were offered in the letter.
How does a ‘without prejudice save as to costs letter’ work?
In New Zealand, the courts generally follow a ‘loser pays’ system where the losing party makes a reasonable contribution towards the successful party’s legal costs. For example, in the Employment Relations Authority, $4,500 per day is awarded as costs to the successful party for a one-day hearing.
However, when a party has done everything they can to save legal costs (making a reasonable offer to settle), the courts have decided to take notice of this.
The concept came from an English decision – Calderbank v Calderbank – where Mrs Calderbank wrote a letter offering to settle the dispute with Mr Calderbank. Mr Calderbank refused, and litigation continued. In the end, Mr Calderbank was successful but awarded far less than he would have received if he had accepted Mrs Calderbank’s offer. Realising that both parties had unnecessarily incurred legal costs, the court decided to take notice of the written offer made by Mrs Calderbank and made Mr Calderbank pay Mrs Calderbank’s legal fees from the time of the letter. In essence, the letter reversed the flow of the costs, costing Mr Calderbank for not accepting the reasonable offer put to him.
Because Calderbank letters carry this financial ‘kick’, parties are forced to take them seriously.
The Court of Appeal in Bluestar Print Group (NZ) Ltd v Mitchell made this crystal clear when they said, “It has been repeatedly emphasised that the scarce resources of the Courts should not be burdened by litigants who choose to reject a reasonable settlement.”
The requirements of a “without prejudice save as to costs letter”
As these letters are weighty, the courts require a few conditions to be met (Ogilvie & Mather (NZ) Ltd v Darroch.)
Firstly, the letters require very little form, but they do require the title ‘without prejudice save as to costs.’
Secondly, there should be enough time for the receiving party to calmly reflect and take advice on the offer.
Thirdly, the offer must be transparent — It should be clear that it’s an offer and could affect costs if not accepted.
The effect of a ‘without prejudice save as to costs letter’
Where a reasonable Calderbank offer has been made, and the receiver has done worse than they would have if they had accepted the offer, the court may use its discretion to uplift, reduce, or reverse the direction of costs.
Mokaraka v Department of Corrections makes clear the Employment Relations Authority will consider the following when deciding how to use this power:
- What the Authority and the Court have done in similar cases.
- The additional costs incurred by the party offering settlement that could have been avoided if the offer was accepted, and the reasonableness of those costs taking into account the nature of this case.
- That Authority costs should be modest and not impose substantial cost burdens on unsuccessful litigants.
If you would like to discuss your situation further, please get in touch with the Watermark team directly. We are happy to advise you.
Geraldine Crudge (Associate) and Isaac Proctor (Law Clerk)