The effect of the letter is that the court is unable to refer to the offer except when dealing with the question of costs at the end of the proceedings. The court has complete discretion to decide what weight should be given to the offer when considering costs.

A Calderbank offer provides greater flexibility than a Part 36 offer because it is not governed by strict court rules. This is advantageous because it allows the ‘offeror’ to be creative when making their offer, especially when putting forward terms about the length of time the offer remains open for acceptance, costs and not to mention payment terms.

However the quid pro quo for flexibility is that Calderbank offers, if accepted, create a legally binding contract between the parties.

That said a Calderbank offer can be a useful tool to settle disputes where Part 36 (see below) does not apply, for example in cases allocated to the small claims track or arbitration proceedings.

A “Part 36 offer” on the other hand is an offer under Part 36 of the Civil Procedure Rules 1999 (as amended) to settle a claim.

These offers carry specific costs consequences which make them tactically a very significant tool in a litigant’s armoury to assist in settling litigation.

Even some lawyers do not appreciate that Part 36 offers can be made even before court proceedings are issued and can in their own right can be a useful mechanism to prevent formal proceedings altogether.

If as a claimant you are thinking of making a Part 36 offer, or as a defendant you are in receipt of one, you should contact a solicitor with specialist knowledge straight away.

He or she should be aware that the consequences have changed for offers made by claimants on or after 1 April 2013.

Where a claimant makes a Part 36 offer which relates to a claim for money and the defendant does not accept and fails to ‘beat’ in court, the defendant can be made by the court to pay what is in effect a ‘penalty’ equal to 10% of the claimant’s damages (subject to a limit of £75,000).

This is in addition to the existing sanction of having to pay the claimant’s costs of proceedings on an indemnity basis plus interest of up to 10% above base rate.

This new penalty has been seen by some as a device designed to encourage claimants to make Part 36 offers, and will mean that defendants will have to carefully consider the risk of having to pay a potentially significant additional sum if they do not accept the offer and are subsequently unsuccessful in court.

If as a claimant (or potential claimant) you are thinking of making a Part 36 offer, or as a defendant (or potential defendant) you are in receipt of one, you should as we say contact a specialist litigation firm such as Summit Law LLP urgently.