Without Prejudice Save As To Costs: What Does It Actually Mean?

Without Prejudice Save As To Costs: What Does It Actually Mean?

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In legal proceedings, settlement negotiations often involve “without prejudice” communications. This protection ensures any discussions or offers made cannot be used as evidence in court, should the matter proceed to trial.

However, a crucial variation of this rule, “without prejudice save as to costs”, can have significant implications on the outcome of litigation, particularly when determining legal fees.

In this guide, we explore what “without prejudice save as to costs” means, how it is used in legal practice, and why it is essential for ensuring fair and strategic settlement negotiations.

What does without prejudice save as to costs mean?

In England and Wales, if a dispute gets to court, the losing party generally pays the legal costs of the winning party. 

  • Without prejudice allows parties to have private settlement discussions that cannot be used in court if the case goes to trial.
  • Without prejudice save as to costs means, while settlement talks stay off-limits during the trial, this confidentiality is lifted when the court decides who should pay legal fees. 

Essentially, the costs exception means, if a without prejudice settlement is made and rejected, the court can consider the offer when determining who should pay solicitor fees, court costs, and other legal expenses.

This rule helps encourage reasonable settlements and discourages unnecessary litigation.

The court only considers the offer when determining costs, not liability or other case details.

Examples of without prejudice save as to costs

Example one: defendant offer
Imagine a defendant offers to settle a dispute for £100,000 under without prejudice save as to costs. The claimant rejects the offer, and the case goes to trial. Subsequently, the court awards the claimant £75,000.

At this point, the defendant can reveal the earlier settlement offer, showing the claimant could have avoided the trial and the associated legal costs by accepting the reasonable offer.

The court may order the claimant to pay a portion of the defendants fees, as the claimant achieved a worse outcome at trial than they would have done if they accepted the offer on the table. 

Example two: claimant offer
Imagine a claimant offers to settle a breach of contract dispute for £100,000, marking the offer without prejudice save as to costs. The defendant rejects the offer, and the case proceeds to trial. The court subsequently awards the claimant £125,000, which is more than the offer made by the claimant.

At this point, the claimant can reveal the earlier settlement offer to show that the defendant could have avoided the trial and its associated legal costs by accepting the reasonable offer of £100,000. Since the defendant rejected the offer, the court may find they acted unreasonably by refusing the settlement.

The importance of without prejudice save as to costs

This variation of the without prejudice rule is an essential tool in settlement negotiations because it encourages parties to make and seriously consider reasonable suggestions and offers. It effectively penalises those who refuse reasonable terms only to achieve a similar or worse outcome in court.

Benefits of without prejudice save as to costs include: 

Encourages early settlement
One of the primary purposes of without prejudice save as to costs is to encourage early resolution in disputes. Litigation is often expensive, time-consuming, and emotionally draining. By introducing potential financial consequences for rejecting a reasonable settlement, this rule prompts parties to evaluate offers carefully, thereby reducing the number of cases that end up going to trial.

Provides protection for both sides
The rule protects both the party making the offer and the one considering it. For the offering party, it ensures their efforts to settle the matter are taken seriously, and they won’t be penalised for trying to avoid litigation. For the party considering the offer, the without prejudice save as to costs rule allows them to reject it if genuinely unreasonable, knowing it will only affect their potential costs, not their liability.

How without prejudice save as to costs works in practice

Without prejudice save as to costs communication is usually made in writing, either via a letter or email. This communication should clearly state that the offer is made on a without prejudice save as to costs basis.

This ensures both parties understand the terms of the offer and the implications for legal fees should it proceed to trial.

Key elements include:

  • Clear labelling: The offer must be clearly labelled as “without prejudice save as to costs”. Without this label, it may not be protected or have the intended impact on fees.
  • Genuine attempt to settle: The offer must be a realistic and genuine attempt to resolve the dispute. Courts will not consider it if it is purely symbolic.
  • Reasonableness: Courts decide if an offer was reasonable by comparing it to the final result at trial. If the party who made the offer gets a better outcome at trial than what they offered, the other party could face cost penalties for rejecting it.
  • Documentation: Whether all communications are properly documented. This can be crucial if an offer is later relied upon in the determination of costs.

Rejection of genuine offers
If a party genuinely believes a settlement proposal is too low or unreasonable, they have the right to reject it, even if it carries the without prejudice save as to costs label. Courts will carefully assess the reasonableness of both the offer and the decision to reject it.

When the court considers the without prejudice communications

After the trial concludes and a judgement is made, the court will determine which party should bear the legal costs. If a without prejudice save as to costs offer was made, the party that made the offer can disclose this to the court at this stage. When deciding whether to apply cost penalties, the court takes into account several factors:
  • Timing of the offer: Was the offer made early enough in the process to give the other party a reasonable chance to consider it?
  • Clarity of the offer: Was the offer clear and easy to understand, with all key terms set out?
  • Reasonableness of the outcome: Did the rejecting party achieve a better result at trial than the offer they rejected?
If the offer was reasonable, and the rejecting party failed to achieve a better outcome at trial, the court may order them to pay their own costs and a larger portion of the offering party’s costs.

Limitations of without prejudice save as to costs

While without prejudice save as to costs communications are a valuable negotiation tool, they are not without limitations. Ultimately, the court has discretion over how costs are awarded, and just because an offer was made under the rule does not guarantee a favourable financial outcome.

The role of Part 36 Offers

A Part 36 offer is a formal settlement offer with automatic cost consequences if it’s rejected.  Part 36 offers are made on a without prejudice save as to costs basis, meaning the court won’t know about the offer until after it gives a judgement.

If the claimant makes a Part 36 offer and the defendant rejects it, but the court awards the claimant equal to or more than the offer:

  • The defendant must pay the claimant’s costs from the date the offer expired 
  • The claimant can get interest on damages, starting from when the offer expired.
  • The defendant may also need to pay enhanced interest on costs
  • The claimant might get an extra penalty payment called the “Part 36 uplift”, which can be up to 10% of the awarded damages or a capped amount.

If the defendant makes a Part 36 offer and the claimant rejects it, but the court awards the claimant less than the offer:

  • The claimant must pay the defendant’s legal costs from the time the offer expired.
  • The claimant may also have to pay interest on the defendant’s costs
  • The claimant might get no costs or reduced costs after the offer’s expiry.

Although these consequences are automatic, the court can make exceptions in rare cases, such as if the offer was unclear or if the rejection was justified.

Leveraging without prejudice save as to costs for a successful outcome

Without prejudice save as to costs strikes a balance between keeping settlement discussions confidential and incentivising parties to resolve disputes early to avoid the financial strain of going to trial.

For parties engaged in commercial litigation, understanding how to use without prejudice save as to costs effectively can be the difference between a costly trial and a favourable, negotiated settlement.

Here at Summit Law, our litigation solicitors are experts in using without prejudice save as to cost to protect our clients’ interests. We can help you navigate settlement discussions, ensure confidentiality is maintained, and make sure you achieve the best possible outcome.

For your free consultation, contact our commercial litigation lawyers today on 020 7467 3980 or complete the enquiry form on this page.