Settlement strategy is an important part of any litigator’s arsenal but in real estate litigation, Part 36 does not neatly fit with the types of disputes that pass across our desks. The costs judgment in Cooper & others v Ludgate House Limited (2025) (the Bankside Decision), is a salient reminder of the potential pitfalls of using Part 36 in property disputes.
The Bankside Decision
The issue at trial was whether to grant the Claimants an injunction restraining the infringement of their rights to light by the developer of the Arbor building, making up part of a wider development. The Court exercised its discretion not to grant an injunction, instead awarding damages in lieu: £350,000 to Mr Cooper and £500,000 to Mr and Mrs Powell. After what had been a hotly contested trial on the substantive issues, the parties returned to Court on the question of costs.
A central question was who should be treated as the "successful party." The developer argued resisting the injunction made it the “winner” but the Court disagreed. The Court considered that because liability had been contested throughout the trial, the Claimants were the overall successful parties, albeit they had only been partially successful. As the issue on which they did not succeed was significant, the Court awarded them only a proportion of their costs.
The Court also considered two Part 36 offers made by the developer in November 2024, each for £500,000. There were arguments over the validity of the offers because they sought to settle wider disputes beyond the pleaded claim. Although ultimately the Court considered the offers to be valid, the way in which they had been drafted presented the Judge with difficulties in determining whether one of the Claimants had beaten the developer’s offer.
Mr and Mrs Powell were awarded damages and interest in excess of £500,000 so they had beaten the offer and recovered two-thirds of their costs. For Mr Cooper, the comparison was more difficult, and it could not be established that he had beaten the offer. Mr Cooper had also responded with a counteroffer of £7 million, a figure the Court considered to be an unrealistic negotiating position that went beyond a genuine attempt to settle. Accordingly, his costs recovery was reduced to one third of his overall costs.
How the Courts Assess the Reasonableness of Offers
This decision reinforces several cost assessment principles.
- Definition of ‘success’: Whilst the general principle is that the loser pays the winner, it is not always straightforward – particularly in property cases – to ascertain who has won and who has lost. This may require the Court to look at the matter on an issue basis.
- Genuine attempts to settle: The Court disapproved of Mr Cooper’s £7 million counteroffer. Settlement offers should constitute a genuine attempt to resolve the dispute.
- Timing of offers: Pre-action offers based on book valuations are common in rights of light cases. However, they are unlikely to provide meaningful costs protection unless they reflect a realistic assessment of likely damages.
Part 36 Offers and Offers Without Prejudice Save as to Costs
There are important distinctions between Part 36 offers and without prejudice save as to costs offers (also known as “Calderbank” offers).
Part 36 offers are a specific type of offer governed by the Civil Procedure Rules (CPR) which carry automatic costs consequences if the offer is not beaten at trial. Part 36 offers must strictly comply with the CPR to be valid. Calderbank offers are less prescriptive but do not offer the same automatic cost protection. They can, however, be taken into account by the Court when exercising its overall discretion as to costs.
When advising a party on making, accepting or rejecting a Part 36 offer, practitioners should bear in mind the following.
- Are you advising a (potential or actual) claimant or defendant? If a claimant’s offer is not beaten at trial, the costs consequences for the defendant are more severe, so those acting for defendants should carefully consider the offer received. On the other side of the coin, an offer made by a defendant means accepting an immediate, potentially uncertain, costs liability and so a Calderbank offer might be preferable.
- What is the claim about and what outcome is your client seeking? Part 36 may be less attractive if the claim is not purely about money. If your client is seeking some other remedy such as an injunction, a termination order in respect of an opposed lease renewal or a claim for rescission, determining whether an offer has been “beaten” under Part 36 may prove tricky.
- Does the offer relate to a single claim or issue? Is there a counterclaim? Keeping offers simple makes it easier to determine whether they have been "beaten" and as the Bankside decision illustrates, bundling multiple matters into one offer can make this more difficult.
- Is there an ongoing landlord and tenant (or other) relationship? Is there something else that your client or its opponent wants out of this litigation? Given the strict consequences under Part 36 as well as the fact that you cannot include anything bespoke in that offer in terms of costs, a Part 36 offer may need to be pitched more conservatively.
At any given point, there may be good reasons for favouring one type of offer over another and there are also circumstances when making both offers at the same time, without prejudice to one another, would be advantageous. For example, doing this would illustrate to the defendant the difference in cost position in relation to both offers, particularly where the claimant is prepared to accept a lower offer on costs than the defendant would be liable to pay under the Part 36 regime.
The parties and their advisers should think carefully about settlement strategy and keep it under review. This is particularly important where Part 36 offers are in play as these offers remain open indefinitely until withdrawn. The fact that an offer has been rejected is irrelevant. An offer may be pitched perfectly in the early stages of litigation but may be less so following disclosure, for example.
Conduct During Negotiations and Its Effect on Costs
Under CPR 44.2, the court has broad discretion to consider all circumstances when determining the outcome on costs, including party conduct before and during proceedings. In Bankside, the treatment of Mr Cooper's counter-offer illustrates how negotiating conduct can materially affect costs outcomes. A party advancing a potentially unrealistic position risks undermining its costs recovery later down the line. Conversely, well-evidenced, clearly reasoned offers may strengthen a party’s position when the court comes to consider costs.
Checklist: Settlement Offers
- Decide whether an offer will be made under Part 36 and/or as a Calderbank offer taking into account the considerations above.
- Consider costs incurred to date and likely costs to trial.
- Set a realistic figure reflecting professional advice on likely damages, not necessarily the book value in rights of light claims. It might be necessary to obtain up-to-date valuation and expert advice before accepting or rejecting an offer.
- Compare offers against a realistic range of trial outcomes, not a best-case scenario.
- Assess the risk that rejection will appear unreasonable and keep contemporaneous notes setting out the rationale for accepting, rejecting or countering any offer.
- Keep a clear record of any Part 36 offers made or received and review these at each litigation milestone as the evidential picture develops and the case progresses. Consider whether any Part 36 offers should be withdrawn. If in doubt, withdraw the offer expressly in writing.
Conclusion
Settlement offers are very important because not only can they lead to settlement, but they can also provide crucial costs protection where matters proceed to a fully contested trial. It is vital for all litigators to keep offers and counter-offers under review and provide appropriate advice to their clients.
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