A Comparative Review of Offers To Settle

A Comparative Review of Offers to
SettleWould an Emerging Settlement

Culture Pave the Way for their
Adoption in Continental Europe?
Pablo Corts
Licenciado, LLM, PhD, CSET Lecturer in Civil Justice, University

of Leicester
Civil law; Comparative law; Costs; Ireland; Part 36 offers; Settlement; Spain;
United States
Abstract
The imposition of legal costs on litigants who have refused a reasonable offer (i.e.
one that has not been improved by a final judgment) is increasingly used as a
successful leverage to contain costs and expedite the resolution of civil disputes.
This is perceived to be an effective technique, which is particular to common law
jurisdictions, for encouraging settlements between two litigants. This article
compares the English Pt 36 of the Civil Procedure Rules (CPR) on offers to settle
with the equivalent rules employed in Ireland and United States, and it poses the
question of why such rules are absent from the civil procedures in continental
Europe. Accordingly, it examines how these procedures can operate, if at all, in
arbitration and in civil law jurisdictions; this analysis is primarily undertaken
with reference to the Spanish civil procedure. It is the contention of the article
that while higher costs in litigation and a culture of court settlements have only
triggered their adoption in common law jurisdictions, the emerging practice of
Alternative Dispute Resolution (ADR) techniques may pave the way for embracing
cost sanctions in continental Europe.
Introduction
In common law jurisdictions settlement is perceived to be the best possible outcome
of a dispute, where the recourse to the civil courts often represents not only a more
costly and time-consuming option, but also the failure of social, commercial or
public relations and mechanisms.1 Accordingly, one of the roles of the civil
procedure is to provide incentives for parties to reach an amicable agreement; this
*
Some of the latter research for this article was made possible by the support given by the University of Leicester
in granting study leave during the 201112 academic year, for which I am most thankful. I am also grateful to my
colleagues Dr Carla Crif and Professor Robin White for reading a draft of this article and commenting on it. Any
errors or oversights remain, of course, my responsibility.
1
N. Andrews, English Civil Procedure, Fundamentals of the New Civil Justice System (Oxford: Oxford University
Press, 2003), p.132. Also, N. Andrews, The Modern Civil Process, (Mohr Siebeck, 2008) p.193.
42
(2012) 32 C.J.Q., Issue 1 2012 Thomson Reuters (Professional) UK Limited
43
role is self-evident in the fact that the immense majority of civil disputes are settled
without the need for a trial.2 The encouragement for settlement has been accentuated
in England and Wales with the Woolf Reforms, which reshuffled the civil process
changing its goal from preparing parties for trial to directing them towards
settlement.3 Amongst the incentives employed by the courts in most common law
jurisdictions are the encouragement of ADR, the cost-shifting rule by which the
losing party is liable to pay the legal costs of the winning party, and offers to settle.
This paper focuses on the last one.
Offers to settle were introduced in many common law jurisdictions with the
purpose of encouraging early settlements, thus speeding up the resolution of
disputes and reducing the crippling legal costs of litigation. In money claims, offers
to settle are considered formal economic settlement proposals; these are frequently
made by one of the parties after a legal action has started with the purpose of
reaching an agreement, resulting in the stay of the claim.4 These offers have an
additional incentive; if the offeree refuses to accept the offer to settle, and the case
continues all the way to a judgment which ends up being less favourable than the
previous offer; in such an event the offeree will have to pay the legal costs of the
offeror from the moment the offer was made. As to non-monetary claims, the trial
judge must compare the terms of the offer with the judgment and decide whether
the claimant has achieved a more favourable result than what was stipulated in the
offer.
If the offer is accepted, the claimant generally recovers his costs from the
defendant up to the date the offer was made. Importantly, in England as well as
in many other common law jurisdictions with the notable exception of United
States, these offers are not an admission of liability and they are not communicated
to the trial judge until all issues of liability and quantum have been decided.5 Thus,
once an offer to settle is made, it cannot be presented as evidence to the judge,
unless within a proceeding to determine the costs. This is to prevent trial judges
from believing that the defendant has admitted the claim. If this requirement is
not respected the judge has discretion to recuse himself and order a new trial, yet
this may not happen if the premature disclosure could only operate against the
party who has disclosed the offer.6
This article aims to provide an analytical overview of offers to settle in a number
of common law jurisdictions, particularly in England and Wales, which have
recently experienced important developments. The article first examines how Pt
36 of the CPR is employed in England and Wales with particular attention to the
impact made by Jackson Report on Costs and the new amendments.7 Secondly,
2
M. Galanter and M. Cahill Most Cases Settle: Judicial Promotion and Regulation of Settlements (1996) 46
Stan. L. Rev. 1339.
3
Interim Report, Access to Justice (HMSO, London, 1995) II, pp.5, 16. See also M. Cappelletti, Alternative
Dispute Resolution Processes within the Framework of the World-Wide Access-to-Justice Movement (1993) 56(3)
M. L. R. 287 ff. Cf. H. Genn, The Hamlyn Lectures 2008: Judging Civil Justice (Cambridge: Cambridge University
Press, 2010) criticising settlement at all costs and arguing that access to justice can only be achieved by the courts
allocation of legal rights. See also E. Thornburg, Reaping What We Sow: Anti-Litigation Rhetoric, Limited Budgets,
and Declining Support for Civil Courts (2011) 30 C.J.Q. 74.
4
Civil Procedure Rules (England and Wales) 1999 (CPR) r.36.15.
5
See, e.g. CPR r.36.12(2).
6
Other factors are the delay and the cost that a new trial may cause to the parties. See Garratt v Saxby (Practice
Note) [2004] EWCA Civ 341; [2004] 1 W.L.R. 2152.
7
R. Jackson L.J., Review of Civil Litigation Costs: Preliminary Report, May 8, 2009; and R. Jackson L.J., Review
of Civil Litigation Costs: Final Report, December 21, 2009.
44 Civil Justice Quarterly

the English Rules are compared with the equivalent procedures operating in Ireland
and the United States, and it considers how offers to settle could be employed in
arbitration and in Continental Europe, using the Spanish civil procedure as a case
study. Thirdly, the paper argues that high litigation costs and an established culture
of settlementcardinal features of common law traditionshave provoked the
development of costs sanctions in their procedures. The article further argues that
currently a settlement culture is being promoted in many civil law jurisdictions as
a matter of policy; this new approach to dispute resolution paves the way for the
adoption of offers to settle, in particular for those cases where settlement would
be more desirable than final judgments, for instance in cross-border litigation. The
ultimate goal of this paper is therefore to share a comparative approximation on
offers to settle that could spark the discussion amongst proceduralists on the
desirability of employing offers to settle in continental Europe and in international
litigation.
I. Offers to settle in England and Wales

From payments into court and Calderbank letters to offers to settle
Judges have generally the obligation, or at least the prerogative, to encourage
settlements between the parties during the proceedings. In so doing, common law
jurisdictions first introduced payments into court, which besides the additional
requirement of lodging the money in the court, had the same costs consequences
as offers to settle. The Court of Appeal later allowed parties to obtain the same
cost protection with the use of offers when the payment into court was considered
inappropriate. This was decided in the case of Calderbank v Calderbank,8 a divorce
case, where the Court of Appeal decided to confer the same effects as the payment
into court to a without prejudice letter save as to costs. When an offer is made
without prejudice save as to costs, it means that the offer ceases to be confidential
once the judge rules on the substantive issues, which allow parties to introduce
the offer as evidence in front of the judge in order to sway his decision on the
allocation of costs. The purpose of Calderbank offers and payments into court is
to encourage the settlement of disputes in a faster and cost-efficient manner. This
is achieved by putting at a financial risk the party who refuses to accept an adequate
offer; as that party will be penalised by restricting the recovery of their legal costs
or to pay the legal costs of the other party.
Originally offers to settle were only available to one party, the defendant, but
the CPR was introduced with the aim of bringing greater substantive equality to
civil procedure. Indeed, offers to settle gained teeth once they were codified in Pt
36 of the CPR 1998. The previous rules limited the discretion of the judge by
making presumptive the allocation of costs when a Pt 36 payment was lodged in
the court. Hence, the main difference between Pt 36 offers and other offers is the
discretion given to the judges at the time of allocating costs. Zuckerman observes
that:
Calderbank v Calderbank [1975] 3 All E.R. 333.

45
Failure to improve on a CPR 36 offer will result in certain adverse costs
consequences, unless the court decides that these consequences would be
unjust. Failure to improve on an offer that is outside CPR 36 will not have
the CPR 36 consequences unless the court decides that it is just to impose
them.9
While r.44.1 gives discretion to the court when deciding costs, Pt 36 limits that
discretion allowing the court to depart from the cost sanctions only in the
eventuality of causing an unjust outcomea high bar to jump.10 Conversely, even
when the trial judges discretion is unlikely to be reviewed,11 the Court of Appeal
has recently stated that under normal circumstances courts should not grant the
same cost sanctions as laid down by Pt 36 to offers that do not comply with the
strict terms set in Pt 36an equal high bar requirement.12
When Pt 36 cost consequences apply in favour of defendants, they are entitled
to costs on the standard basis13 together with interest; while when Pt 36 applies in
favour of claimants, as they would already be entitled to recover their standard
basis costs for succeeding in the claim, Pt 36 entitles the claimant to receive in
addition indemnity basis costs,14 and additional interest up to 10 per cent above
the base rate on both the damages and the legal costs;15 hence the rule of
proportionality of costs is here displaced.
Offers to settle were introduced in the fast-track and in the multi-track with the
purpose of encouraging early settlements. They can be made at any time, including
before the commencement of legal proceedings and during the course of an appeal.16
A major amendment to Pt 36 occurred in 2007 as a response to the criticism on
Zuckerman on Civil Procedure Principles of Practice, 2nd edn (London: Sweet & Maxwell, 2006), p.961.
The courts would take into consideration when making this assessment the terms of the offers, the stage in the
proceedings when the offer was made, the information available to the parties, and the conduct of the parties in
facilitating information in order to make or evaluate the offer. See CPR r.36.14(4) and LG Blower v Reeves [2010]
EWCA Civ 726; [2010] 1 W.L.R. 2081. It should be noted that English courts have significant discretion when
awarding legal costs; according to r.44 CPR courts need only to consider two issues: the success of the partys
contentions and their conduct during the proceedings. Although, the first issue may sometimes be more complicated
to assess when there are counterclaims and where litigants succeed only in part of their contentions, the courts often
resolve the conundrum by considering who must pay the outstanding balance and whether any of the claims was
exaggerated. See Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd (No.7) [2008] EWHC 2280 (TCC);
122 Con. L.R. 88 at [72]. The second issue consists mainly about examining the behaviour of the parties in following
the directions of the court, and when appropriate in resolving amicably their dispute before (with the pre-action
protocols) and during the proceedings.
11
Factortame Ltd v Secretary of State for the Environment, Transport and the Regions [2002] EWCA Civ 932;
[2002] 3 W.L.R. 1104 at [28]. See also Andrews (2003) supra p. 570.
12
In F&C Alternative Investment (Holdings) Ltd v Barthelemy [2012] EWCA Civ 843 Davis L.J. stated that the
courts should treat Pt 36 as a self-contained code and offers made outside Pt 36 should not be entitled to costs
consequences by analogy.
13
Costs on a standard basis are pre-determined on a scale of costs set in the procedural rules. Normally, the loser
party pays the successful party standard costs, which on average are around 75 per cent of the actual cost incurred
by the successful party. See University of Oxford Questionnaire on Funding, Costs and Proportionality (2009) p. 5.
Available at: http://www.csls.ox.ac.uk/documents/ENGLAND.DOC [Accessed October 28, 2012).
14
Indemnity costs are imposed by the courts as a punishment to one of the parties for bringing forward a vexatious
or frivolous claim and are also applied under certain circumstances when offers to settle have been rejected. If
indemnity costs are awarded the loser pays all or nearly all of the costs incurred by the successful party. See Excelsior
Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson Unreported June 12, 2002 CA.
15
CPR r.36.14. See also Diageo North America Inc v Intercontinental Brands (ICB) Ltd (Costs) [2010] EWHC
172 (Pat). Other common law jurisdictions have similar rules. See e.g. the claimants recovery on an indemnity basis
in personal injury cases in the State of Victoria, Australia. Supreme Court General Civil Procedure Rules 2005
r.26.08(2).
16
The same cost penalties may apply when mediation is unreasonably refused by the other party. See Burchell NF
V Mr & Mrs Bullard [2005] EWCA Civ 358; [2005] C.P. Rep. 36. See also D. Cornes Commercial Mediation: The
Impact of the Courts (2007) 73(1) Arbitration 17.
10

the requirement of lodging the money in court.17 Criticisms had come mainly from
solvent entities (particularly insurance and public bodies) that were dealing with
many legal actions at any given time having to tie up large amounts of money for
months in the courts. The Court of Appeal then decided to take a more flexible
approach to Pt 36 by removing the requirement to deposit the money in court as
long as the offeror was considered to be solvent.18 In order to reduce legal
uncertainty and satellite litigation in matters related to the new Pt 36, the
Government issued a consultation paper which resulted in the reform of April
200719; the main change was the removal of the requirement to make the payment
in the court, as already foreseen in the first Woolf Report, thus changing from a
system of payments into court to a system of offers to settle.20 Under the new rules
offers were deemed to be inclusive of interest, and a standard form21 was created
to assist offerors in ensuring that they include the necessary information for
achieving the desired cost consequences.
Part 36 offers must be open for acceptance for at least during 21 days (the
so-called relevant period) designed to stop undue pressure being imposed on the
offeree. Once made, the offeror cannot withdraw the offer, during the relevant
period of 21 days, unless the offeror proposes better terms for the offeree or the
court gives its permission.22 To obtain court permission without informing the trial
judge, the offeror must make an application under Pt 23 to another judge (if made
after the commencement of proceedings) unless both parties agree that the same
judge should deal with the application. After the expiry of the relevant period the
offeror may withdraw the offer or propose a less advantageous offer without the
permission of the court by serving a notice to the offeree or his legal representative.
This may happen after expert reports are released and the strength of the case is
elucidated. If a Pt 36 offer is withdrawn, then it will not have its automatic cost
consequences. However, if a Pt 36 offer is rejected by the offeree and the offeror
does not expressly withdraw the offer in writing, then according to the Court of
Appeal in Gibbon v Manchester, the offer can still be accepted, even contrary to
the wishes of the offeror, anytime before the commencement of the trial.23 Courts
17
Civil Procedure (Amendment No.3) Rules 2006. This is a requirement still existing in most common law
jurisdictions, such as Ireland, US and Australia.
18
In The Maersk Columbo the Court of Appeal decided in 2001 that a Pt 36 offer does not have to be followed by
a payment in court, providing the eventual payment could be warranted. See Southampton Container Terminals Ltd
v Hansa Schiffahrts GmbH [2001] EWCA Civ 717; [2001] 2 Lloyds Rep. 275. The Court of Appeal developed this
proposition in the 2004 case of Crouch v Kings Healthcare NHS Trust. In this case the court stated that the NHS
Trust did not need to make the payment in court before acceptance because the NHS Trust was bound to be good
for the money. See Crouch v Kings Healthcare NHS Trust [2004] EWCA Civ 1332; [2005] 1 W.L.R. 2015.
Furthermore, the court recognised that it was in the public interest not to retain valuable public resources in court for
long periods of time if they could meanwhile be better employed. Subsequently, in 2005 the Court of Appeal in The
Trustees of Stokes Pension Fund v Western Power Distribution gave four conditions for recognising a Pt 36 offer
made by a defendant to have the desired cost consequences. These conditions applied even when the defendant has
not made the payment to the court. See Stokes Pension Fund Trustees v Western Power Distribution (South West)
Plc [2005] EWCA Civ 854; [2005] 1 W.L.R. 3595. The four conditions were as follow: The offer must be expressed
in clear terms; it cannot be a sham; it must be opened for acceptance for at least 21 days; and the defendant must be
good for the money at the time when the offer was made. Cf. D. Ward, New Carrots and Sticks: Proposals for Reform
of CPR Part 36 (2007) 70 M. L. R. 293.
19
Part 36 of the Civil Procedure Rules: Offer to Settle Payments into CourtCivil Procedure (Amendment No.3)
Rules 2006 (SI 2006/3132).
20
Civil Procedure News, June 6, 2008, p.6.
21
See form N242A available at: http://www.hmcourts-service.gov.uk [Accessed October 28, 2012].
22
CPR r.36.3(5).
23
Gibbon v Manchester City Council [2010] EWCA Civ 726; [2010] 1 W.L.R. 2081. See commentary by D. Regan,
Is it or isnt it (2012) 162 N.L.J. 7501.
47
thus regain their own discretion for deciding the allocation of costs only when
offers are withdrawn.24 Initially there was some concern on whether this could lead
to tactical offers being made and promptly withdrawn;25 the practice has however
shown that this is not often the case. Once the offer is accepted the proceedings
will be stayed and the court will issue a Consent Order under the terms of the
agreed settlement.26
The acceptance of the offer generally commits the defendant to pay the claimants
costs.27 If the defendant wishes to avoid the costs consequences and expressly
excludes the offer from having some of the effects of Pt 36, then he risks losing
also its benefits.28 The terms of the offer may remain confidential if one of the
parties requests a Tomlin Order.29 If payment is not made within the 14 days after
the acceptance, then the claimant may request a judgment for the amount offered,
and the defendant will automatically lose the costs protection contained in Pt 36.30
The Carver case and the impact of Jackson on Pt 36

The courts and the legislature have developed the interpretation of this rule through
time. The 2007 amendment introduced a new wording stating that cost
consequences will be triggered when the offeree fails to obtain a more
advantageous judgment. In Carver v BAA Plc the claimant beat marginally the
defendants Pt 36 offer, which was 51 below the court decision, and yet the Court
of Appeal ordered the claimant to pay defendants costs.31 According to the court
the construction of the new provision must take into account, not only hard
numbers, but a more wide-review of all the facts and circumstances of the case
in deciding whether the judgment, which is the fruit of the litigation, was worth
the fight.32 It would be expected that if on the contrary, the offer to settle were
nominally higher than the amount awarded in the judgment, then the judge would
not have hesitated in granting legal costs in favour of the offeror.33 The result would
be however different if the circumstances have changed since the moment the offer
was made. In Jones v Associated Newspapers Ltd the claimant obtained 1 more
than his Pt 36 offer, but the court held that he was not entitled to the costs benefits
in Pt 36 because, according to the court, the circumstances of the case were different
(and less advantageous to the claimant) at the precise moment the Pt 36 offer was
made.34 Furthermore, in LG Blower the Court of Appeal decided to narrow the
ratio decidendi in Carver by refusing to weigh the emotional burden of litigation
24
CPR rr.36.14(6) and 44.3. See Johnsey Estates 1990 Ltd v Secretary of State for Environment, Transport and
the Regions [2001] EWCA Civ 535; [2001] L. & T.R. 32; Straker v Tudor Rose (A Firm) [2007] EWCA Civ 368;
[2007] C.P. Rep. 32; and Aspin v Metric Group [2007] EWCA Civ 922; [2008] 2 Costs L.R. 259.
25
S. Atherton, Dispute Resolution: Part 36 Offers New Provisions College of Law of England and Wales,
LNTV times, Programme 1292, May 25, 2007, p.17.
26
CPR r.36.11. In a Consent Order, as opposed to a judgment, parties may agree not to establish liability, but just
compensation to the claimant in exchange for putting an end to a civil suit.
27
CPR r.36.10.
28
F&C Alternative Investment [2012] EWCA Civ 843.
29
See the origin in Dashwood v Dashwood [1927] W.N. 276; 64 L.J.N.C. 431; 71 Sol. Jo. 911 and Practice Direction
Judgments and Orders (2001), PD 40B para.3.
30
CPR r.36.11(7).
31
J. Sorabji, Costs: CPR Part 36 When Success is not to Your Advantage Carver v BAA Plc and Multiplex
Construction (UK) Ltd v Cleveland Bridge UK Ltd (2009) 28 C.J.Q. 15.
32
Carver v BAA Plc [2008] EWCA Civ 412; [2009] 1 W.L.R. 113 at [30][31]. Cf. Morgan v Ups [2008] EWCA
Civ 1476; [2009] 3 Costs L.R. 384.
33
CPR rr.36.10 and 36.14(6)(a).
34
Jones v Associated Newspapers Ltd [2007] EWHC 1489 (QB); [2008] 1 All E.R. 240 at [16].

with the additional amount recovered (661).35 Although, this interpretation of Pt
36 encouraged courts to be unsympathetic to those who refused an offer for
technical or other trivial reasonsencouraging settlements and greater
proportionality of costs36it introduced a higher degree of uncertainty by
empowering courts with greater discretion in the allocation of costs.
Sir Rupert Jackson in his Report on Costs highlighted Pt 36 as a key element
to promote settlement, reduce costs, and one of the most successful changes brought
forward by the Woolf Reforms.37 It however recommended that Carver should be
reversed because it had put too much pressure on claimants to settle with offers
that may not be high enough.38 This view was shared by many practitioners who
since Carver had found it more difficult to advise their clients on whether to accept
an offer to settle, as it was not enough to achieve a judgment which is economically
more advantageous, but it had to be in the eyes of the court sufficiently more
advantageous than the offer to settle.
It is debatable whether settlements occur because there is simply an offer or due
to the fear of having to pay the costs of the other party. In commercial disputes, it
may well be that offers to settle provide a neutral forum for parties to put forward
offers without the initiating party appearing weak.39 Nonetheless, when there is
inequality of economic power between the parties, the risk of having to pay the
costs may be too burdensome for a less affluent offeree, who may be left with too
little choice, but to accept the offer.40 Conversely, it can be argued that this
additional pressure aims to avoid disproportional results that may not be justified
by a nominal difference.41 This goal may have been in the mind of the court in
Carver when Ward L.J. stated:
This was a small claim in which the defendants admitted liability within
months of the accident. To have incurred about 80,000 in costs to contest a
claim under 5,000 fills one with despair.42
Proponents of court discretion argue that courts should take into account the parties
attempts to negotiate. For instance, if there is an offer which in the eyes of the
offeree is close to a reasonable settlement, then the offeree would be expected to
respond with a counteroffer.43 Notwithstanding, in certain types of disputes, such
as personal injury claims, it may be too difficult to assess the value of the
compensation before the claimants evidence and experts reports are produced.
35
See LG Blower v Reeves [2010] EWCA Civ 726; [2010] 1 W.L.R. 2081. Cf. K. OSullivan, Winning at What
Cost? (2010) 160 N.L.J. 1042.
36
Sorabji, Costs: CPR Part 36 When Success is not to Your Advantage Carver v BAA Plc and Multiplex
Construction (UK) Ltd v Cleveland Bridge UK Ltd (2009) 28 C.J.Q. 15, 17.
37
Lord Woolf himself described is a key element of the new CPR. See Petrotrade [2001] 4 All E.R. 853.
38
See R. Jackson L.J., Review of Civil Litigation Costs, Preliminary Report, May 8, 2009, p.476. R. Jackson L.J.,
Review of Civil Litigation Costs: Final Report, December 21, 2009, p.423.
39
T. Parkes, The Civil Procedure Rules Ten Years On: The Practitioners Perspective in D. Dwyer (ed.), The
Civil Procedure Rules Ten Years On (Oxford: Oxford University Press, 2009) p.445.
40
O. Fiss, Against Settlement (1984) 93 Yale L. J. 1076.
41
A similar approach has been adopted in Scotland under Pt 35 ECCPR (the equivalent to the English Pt 36). See
Jackson L.J., Review of Civil Litigation Costs, Preliminary Report, May 8, 2009, p.643.
42
Carver [2008] EWCA Civ 412; [2009] 1 W.L.R. 113 at [30]. In a similar vein, Ward L.J. previously stated in
Egan v Motor Services (Bath) [2007] EWCA Civ 1002; [2008] 1 W.L.R. 1589 at [53]: What I have found profoundly
unsatisfactory, and made my views clear in the course of argument, is the fact that the parties have between them
spent in the region of 100,000 arguing over a claim which is worth about 6,000. In the florid language of the
argument, I regarded them, one or other, if not both, of them, as completely cuckoo to have engaged in such expensive
litigation with so little at stake. See also Whitecap Leisure Ltd v John H. Rundle Ltd [2008] EWCA Civ 1026 at [8].
43
Multiplex Constructions [2008] EWHC 2280 (TCC); 122 Con. L.R. 88 at [72].
49
In these cases a Pt 36 offer is no more than an educated guess aiming to achieve
a lower settlement than what would be otherwise obtained once the expert reports
are available.
Offers to settle are of general application to most types of civil claims, but they
are more usually employed in personal injury claims because these claims are
often disproportionate, with average costs higher than the awarded damages.44Part
36 offers are also commonly used in cases where one party has entered into a
conditional fee agreement, particularly in cases of medical malpractice where, on
average, costs are four times higher than the awarded damages.45 Disproportionality
on costs may nonetheless be attenuated once the government, following Jacksons
recommendations, stops the recovery of the conditional fee agreements success
fee and the after-the-event insurance and sets fix costs for the fast track.46
Zuckerman observed that the original purpose of Pt 36 offers is to make litigation
costs foreseeable for the parties,47 and this is incompatible with substantial court
discretion as to costs. Jacksons consultation confirmed that the lack of legal
certainty was not appropriate and put claimants in a disadvantageous position. The
government was finally persuaded and decided to overrule Carver.48 The new
amendment clarified the meaning of more advantageous, which now means that
an amount of money, however small, will be construed by the courts as more
advantageous. Jackson also acknowledged that Pt 36 was more beneficial to
defendants and it did not provide sufficient incentives for claimants to use it.49 For
this reason he recommended that when an adequate offer (one that is not improved
by the judgment) is refused by a defendant, the claimant should, in addition to
recovering the legal costs, recover an uplift of 10 per cent over the damages (instead
of over the legal costs) awarded by the court.50 This recommendation aimed to
balance the claimants position, thus counterpoising Jacksons additional proposals
of restricting the recovery of success fees in conditional fee agreements and the
introduction of contingency fee agreements.51
The Government has already announced that from 2013 an amended Pt 36 will
increase claimants recovery to an additional 10 per cent on the value of the claim,52
except for claims that are not for damages,53 which calculation will likely be based
on costs. Moreover, the government stated that a new test of proportionality test
would be employed to ensure that costs are proportional to the value, importance
44
Sorabji, Costs: CPR Part 36 When Success is not to Your Advantage Carver v BAA Plc and Multiplex
Construction (UK) Ltd v Cleveland Bridge UK Ltd (2009) 28 C.J.Q. 15, 18. See also Association of British Insurers
Analysis of Personal Injury Legal Costs Research Brief, (January 2009) p. 4.
45
Medical Defence Union Put An End to Excessive Legal Costs 9 February 2009. For full report see (2009)
25(1) MDU Journal.
46
Jackson L.J., Review of Civil Litigation Costs: Preliminary Report, May 8, 2009, p.94.
47
Zuckerman on Civil Procedure Principles of Practice (2006), pp.959, 963.
48
CPR (Amendment No 2) Rules 2011 (SI 2011/1979). 57th Update to the Civil Procedure. The amendments came
into force on 1 October 2011. See also Ministry of Justice, Impact Assessment on Reform on Part 36 (15 November
2010) p. 7 par. 1.15.
49
Jackson L.J., Review of Civil Litigation Costs: Preliminary Report, May 8, 2009, p.426.
50
Jackson LJ sets a ceiling of half million pounds above which the percentage might be reduced. Ibid p. 42.
51
Jackson L.J., Review of Civil Litigation Costs: Preliminary Report, May 8, 2009, p.94. Conditional fee agreements
are contracts between the legal counsels and their clients by which the counsels will not charge their clients (or will
charge a reduce fee) in the event of not succeeding in the claim, but will charge a premium (up to twice the amount
of the regular legal fee) in the event of succeeding. By contrast, contingency fee agreements are those whereby the
legal counsels are paid out of their clients compensation only in the event of succeeding in the claim.
52
Ministry of Justice, Impact Assessment on Reform on Part 36 (November 15, 2010).
53
Ministry of Justice, Reforming Civil Litigation Funding and Costs in England and Wales Implementation
of Lord Justice Jacksons Recommendations The Governments Response (March 2011), paras 12 and 149.

and complexity of the cases.54 The challenge the government now faces will be to
draft clear legislation that ensures a consistent approach by the courts while
minimising the risks for satellite litigation.55
II. Comparative overview: selected case studies

This part compares how offers to settle are employed, if at all, in arbitration and
under national courts of other jurisdictions, namely Ireland, the US and Spain. The
choice of these jurisdictions was based on the fact that different approaches to
offers to settle are used in these jurisdictions. While Ireland still requires lodgements
in court, in the US, the so-called offers of judgment are rarely used, and in Spain
costs sanctions are not applied for refusing settlement offers. In arbitration, of
course, it will depend on the law of the seat of the arbitration and which rules have
been contractually agreed between the parties.
Ireland
Comparing the English offers to settle with its Irish counterpart
Similarly to the old Pt 36, in Ireland Ord.22 (r.6) of the Rules of Superior Courts
(RSC) provides for cost sanctions against those claimants who failed to obtain a
judgment that is higher than a sum of money lodged in court by the defendant in
satisfaction of a cause of action.56 Inferior courts also use lodgements in courts
with cost consequences under their own rules.57 In Ireland lodgements may be
made either by admitting or without admitting liability, except lodgements regarding
questions of title to land that can only be carried out when the defence admits
liability.58 The scope of application of these lodgements in Ireland is more restricted
than the English offers to settle. The most striking differences between Ord.22 and
Pt 36 are as follows. First, in Ireland only defendants may benefit from the effect
of lodgements in court while in England claimants may benefit too from using
offers to settle. Secondly, Ord.22 requires the defendant to lodge the sum of money
in the court, thus the written offer per se is not sufficient. Thirdly, under Ord.22
there are more circumstances where the leave of the court is needed before the
lodgement can be made. Lastly, the cost consequences of Ord.22 start having effect
after the defendant has notified the claimant of the lodgement, while as discussed
above, under Pt 36 the effect takes place when the relevant period of 21 days has
expired.
54
Ministry of Justice, Reforming Civil Litigation Funding and Costs in England and Wales Implementation
of Lord Justice Jacksons Recommendations The Governments Response (March 2011), para.30.
55
J. Sorabji, Solomon and Oliver and the Interaction between CPR 36 and CPR 44 and 45 (2012) 31 C.J.Q. 135.
56
Order 22 of the Rules of the Superior Courts (as amended by the Rules of the Superior Courts (No.3) 1990 (SI
1990/229); Rules of the Superior Courts (No.2) 1993 (SI 1993/265); Rules of the Superior Courts (No.1) 1997 (SI
1997/52); and Rules of the Superior Courts (No.5) (Offer of payment in lieu of lodgement) 2000 (SI 2000/328).
57
See District Court Rules (SI 2001/510) Ord.41(5) and Circuit Court Rules (SI 1997/93) Ord.15(15).
58
Order 22 r.1(3). Section 29 of the Defamation Act 2009, (SI 2009/31), removed the exception in defamation
cases.
51
Late lodgements in court

In Ireland, one of the issues most discussed by the courts is their own discretion
in deciding whether late lodgements are allowed. Back in 1967, the court in Ely v
Dargan found that it was a matter of public policy to avoid litigation whenever
this is possible and reasonable.59 In this case the court let the defendant increase
the lodgement previously made in court. Nevertheless, Irish courts are also aware
of the tactical element and abuses that this may create. In Brennan v Iarnrd
ireann, after two failed attempts of the parties to reach a settlement, the defendant
sought the leave of the court to make a lodgement,60 but the court denied this on
the grounds that the defendant should not be allowed to take advantage of
information disclosed by the claimant during previous settlement meetings. This
restriction reveals the courts concern about the potential dangers of mixing offers
to settle and negotiations, since in these cases defendants may be able to make a
tight offer. However, Irish courts will allow lodgements in court and consensual
ADR methods, as long as there is no evidence of parties going to ADR in bad
faith, i.e. with the main purpose of gaining information on the strength of the other
partys case.61 Although ADR processes do not require parties to discuss evidence
for reaching an agreement (but rather focus on finding a workable agreement) one
of the common objectives of the negotiations is to discover the bottom line offer
of the parties, hence facilitating settlements.
Other examples of costs sanctions

In addition to the RSC, there are other legal provisions in Ireland that provide for
cost penalties. Section 17 of the Civil Liability Act 2004 encourages settlements
in personal injury claims; this provision states that the court when determining
costs must consider written offers of settlement made by the claimant.62 The amount
of money offered, unlike the one made under Ord.22, does not have to be lodged
in court and does not carry automatic cost consequences. These offers follow the
English Calderbank formula of offers to settle without prejudice save as to costs,63
though its legal standing in Ireland, unlike in other common law countries such
as in Australia,64 is unsettled because there is a lack of authority outlining under
which circumstances they may be used.65 Lyons observes that these types of offers
59
Ely v Dargan [1967] I.R. 89.

Brennan v Iarnrd ireann [1992] 2 I.R. 167.
In Noble v Gleeson McGrath Baldwin, the court did not follow the ratio in Brennan and distinguished it by
stating that in the present case the parties had been negotiating in good faith, therefore the principles set out in Ely
were followed. Unreported February 19, 2000 HC. Cf. subsequently, in Kearney v Barrett the court departed from
the Brennan decision and held that it was not unjust to allow the defendant to make a lodgement in court knowing
the strength of the claimants case. [2004] 1 I.R. 1.
62
Civil Liability and Courts Act 2004 (SI 2004/31).
63
Calderbank v Calderbank [1976] Fam. 93.
64
In Australia there are two types of offers to settle: offers of compromise, which are regulated by the court rules
(Pt 5 of the UCRP) and Calderbank offers regime. The latter will only take place by default, in other words, when
the offers of compromise are not accepted in court. The rejection of a successful offer (not beaten in court) may
support an order of indemnity costs. However, two requirements must be met for that to happen. First, the offer must
be genuine and not have just the single purpose of triggering costs sanctions; factors to prove whether the offer is
genuine are the value of the offer, the time the offer was open for acceptance, the clarity of the offer and the actual
circumstances of the case. Secondly, the rejection must be considered unreasonable taking into account the information
that the offeree had at the time of the refusal.
65
See ONeill v Ryanair (No.3) [1992] 1 I.R. 166. P. Lyons, Recent Developments Relating to Lodgments and
Tenders (2005) 1(2) Journal of Civil Practice and Procedure 6.
60
61

to settle are only used after the time for a lodgement in court has expired.66
Furthermore, these offers carry a number of similarities with Pt 36 offers. For
example, it can be done at any stage of the proceedings without permission of the
court; it must be communicated to the defendant in writing; and it must be lodged
in court (only the actual offer terms and not the amount of money) without
informing the judge until the judgment are decided.67
A further cost rule is used to discourage legal actions challenging the awards
decided by the Personal Injuries Assessment Board (PIAB). PIAB assessments
are not binding on any of the parties, thus claimants and respondents may
commence a legal action at any time. There will, however, be cost consequences
for a claimant who rejects a PIAB assessment that has been accepted by the
respondent if the claimant fails in a subsequent judicial proceeding to obtain more
than the amount awarded by the PIAB assessment.68 In such a case, a claimant will
not be entitled to their legal costs, and the court in its discretion may also award
costs against the claimant.69 It must be noted that this provision will apply only as
a default of Ord.22 and s.17 of the Civil Liability Act.70
United States
Offers of judgment under federal law
Offers to settle in the US civil procedure, called offers of judgment, are an exception
to the American cost rule where each party pays its own costs. Offers of judgment
were first adopted in state practice and later in federal law as a tort reform under
r.68 of the Federal Rules of Civil Procedure (FRCP).71 These offers have been
described as a riddle72 for having very little impact in the federal jurisdiction
given that the cost-shifting is typically limited to certain items (such as copies and
court reporter charges) and rarely include attorneys fees.73 There are in addition
two important limitations that hamper the promotion of settlement: (i) its lack of
symmetry, whereby only defendants can benefit from its use; and (ii) unlike private
settlements, once an offer is accepted, it is entered into a judgment becoming a
public admission of wrongdoing?in other words, they are not confidential and do
not typically exclude the recognition of liability by the defendant.74
The US Supreme Court examined this rule on two occasions delivering two
paradoxical landmark judgments that shaped its scope. In the first case, , the
Supreme Court employed a literal interpretation when construing the meaning and
scope of r.68 (which requires the plaintiff, i.e. the US claimant, to obtain less than
what the defendant has offered to him) and held that, although the cost
consequences apply when the plaintiff has not been able to beat the offer in
66
Lyons, Recent Developments Relating to Lodgments and Tenders (2005) 1(2) Journal of Civil Practice and
Procedure 6.
67
Section 17(3) and (4).
68
See s.51A of the Personal Injuries Assessment Board Act (PIAB) (Amendment 2007) Act 2003 (SI 2007/35).
69
Section 51A(3) PIAB 2007.
70
Section 51A(6).
71
R. Bone To Encourage Settlement: Rule 68, Offers of Judgment, and the History of the Federal Rules Of Civil
Procedure (2008) 102 Northwestern University Law Review 1561.
72
R. Simon Jr., The Riddle of Rule 68 (1985) 54 George Washington Law Review 1.
73
Wright, Miller and Marcus, Federal Practice and Procedure (West Publishing, 1997), Vol.12, para.3001
74
FRCP Symposium (2006) p.754.
53
judgment, it will not operate when the defendant had prevailed completely in the
case.75 Indeed, it seems anomalous that a defendant may obtain costs under Rule
68 against a plaintiff who prevails in part but not against a plaintiff who loses
entirely.76 The US Supreme Court rejected this compelling argument based on
the language of the Rule and its clear purpose.77 Arguably, this spectacularly
narrow interpretation of the rule was justified because, unlike the English Pt 36,
the court did not have a discretion in restricting the application of the cost sanction
in the event of delivering an unfair outcome,78 as seemed to be the situation in this
civil rights case. The restriction that the Supreme Court brought to r.68 in this case
is quite significant since defendants are no longer motivated to make an offer of
judgment in cases where the defendant believes that they may have a watertight
case.79
By contrast, only a few years later, the Supreme Court invigorated the Rule in
, giving defendants an additional incentive to use it.80 In this case the Supreme
Court established that when a statute allows the prevailing party to recover the
attorneys fees (e.g. in a civil rights action), the same restriction would apply when
a judgment offer has successfully been entered. In other words, the plaintiff will
not be entitled to his attorneys fees when he had prevailed in court without beating
the offer.
According to r.68 an offer must be made 14 days before the trial begins,81 but
unlike the English Pt 36, the offer is considered rejected and deemed withdrawn
after the 14th day.82 Equally to the English Pt 36, when the judgment is less
favourable than the offer, the offeree will not be able to recover any costs and
would not receive any interest on the awarded amount from the moment the offer
was made.
The main limitation of r.68, and the greatest difference with Pt 36, is that the
successful defendant would only recover nominal costs. Hence, this Rule does not
provide a robust incentive to settle a case, particularly when a settlement would
usually require the defendant to pay all the costs. Conversely, as we are going to
see below, the picture is quite different in some states where this rule carries more
weight, especially in those states where as part of the costs sanctions reasonable
attorneys fees are included.
Another important difference is that in the United States the cost consequences
of offers of judgments would not affect the parties contingency fee agreements,83
while in England the Pt 36 regime at the time of writing includes as part of the
costs the payment of premium fees when conditional fee agreements are used.
Furthermore, in the event that the UK Government decides to follow the
recommendation made by Jackson and scraps conditional fee agreements in favour
of introducing contingency fee agreements, it would be expected that such a reform
75
Delta Air Lines Inc v August 450 U.S. 346 (1981).

Delta Air Lines 450 U.S. 346 (1981) at 362.
Delta Air Lines 450 U.S. 346 (1981) at 356 (majority opinion).
78
J. Horowitz Rule 68: The Settlement Promotion Tool That Has Not Promoted Settlements (2010) 87 Denver
University Law Review 486, 510.
79
Rule 68 Symposium (2006) pp.743, 755.
80
Marek v Chesny 473 U.S. 1 (1985). See also Chesny v Marek 720 F.2d 479 (7th Cir. 1983) where Posner J.,
noted that the Rule was little known and little used.
81
Committee Notes on Rules 2009 Amendment, where the time limit was extended from 10 to 14 days.
82
Rule 68(e).
83
Rule 68(f) NRS.
76
77

will be accompanied by the 10 per cent increase84 of the claimants recovery when
the defendant had rejected the claimants offer.85 Overall, it is plain that Pt 36 offers
are much more compelling than its American counterpart, this has been particularly
the case since Pt 36 has been fuelled by the English costs rule and the ever
unpredictable nature of legal costs in England.86
Reasons for the lack of success of offers of judgment

Empirical research has shown the limited impact that r.68 has in promoting
settlement.87 Bone argues that the original purpose of the federal Rule is not to
promote settlement, but just to discourage unreasonable plaintiff behaviour.88 The
question is whether there are enough economic incentives to achieve this general
purpose. Bone observes that:
The Rule is written in a way that makes it an extremely poor tool for
settlement promotion. Four aspects are particularly noteworthy: its small
penalty, asymmetric application, requirement of a formal judgment, and
timing limitations.89
Hence, if the purpose of this rule is thus the promotion of settlement, then it would
be beyond debate that these four deterrents should be removed. Firstly, only when
there are attorneys fees involved, defendants will have an economic incentive in
employing them. Secondly, unlike with the confidential settlements under the
English Pt 36, when the defendant enters an offer of judgment, there will be an
actual public judgment setting out the liability of the defendant, i.e. it is equivalent
of losing the case in the final judgment90; hence the rule should shift from offers
of judgment to offers of (confidential) settlement. Thirdly, not only defendants,
but also plaintiffs should have the opportunity to make these offersas it appears
clear that the stronger the economic incentives are, the more symmetric the cost
rule should be; otherwise it will impose greater risks on plaintiffs than on
defendants.91 Finally, the time limitations restriction of submitting offers 14 days
prior to trial also weakens its settlement promotion power. Although certain
discretion could also be left to the court in order to restrict possible harsh
84
The final figure remains to be fixed by the UK Ministry of Justice.

Jackson (2010) p.427.
Zuckerman on Civil Procedure Principles of Practice (2006), p.957 bb. Yoon and T. Bakerbigation: Ales have
in promoting settlement. nd the rules employed by the parties. This part n common law c
87
A. Yoon and T. Baker, Offer-of-Judgment Rules and Civil Litigation: An Empirical Study of Automobile
Insurance Litigation in the East (2006) 59 Vanderbilt L.R. 155; H. Lewis and T. Eaton, Rule 68 Offers of Judgment:
The Practices and Opinions of Experienced Civil Rights and Employment Discrimination Attorneys (January 2007),
available at: http://ssrn.com/abstract=959675 [Accessed October 28, 2012].
88
Bone To Encourage Settlement: Rule 68, Offers of Judgment, and the History of the Federal Rules Of Civil
Procedure (2008) 102 Northwestern University Law Review 1561.
89
Procedure (2008) 102 Northwestern University Law Review 1561, 1566 cf. Horowitz Rule 68: The Settlement
Promotion Tool That Has Not Promoted Settlements (2010) 87 Denver University Law Review 486, 511.
90
Procedure (2008) 102 Northwestern University Law Review 1561 and Symposium, Revitalizing FRCP 68: Can
Offers of Judgment Provide Adequate Incentives for Fair, Early Settlement of Fee-Recovery Cases? (2006) 57
Mercer L. R. 749. [Hereinafter FRCP Symposium].
91
Procedure (2008) 102 Northwestern University Law Review 1561, 1562. It must be noted that the Supreme Court
has not ignored the possibility of making Rule 68 a two-way rule. Amendments to Rule 68 proposed by the Standing
Committee in 1983 and in 1984 addressed this specific issue, but left the rule unchanged. Preliminary Draft of Proposed
Amendments to the Federal Rules of Civil Procedure (1983) 98 F.R.D. 337, 353.
85
86
55
outcomes,92 the English Pt 36 has shown us that too much discretion would risk
unleashing satellite litigation.93
Offers of judgment under state law

There is a wide disparity amongst the procedural law of the individual states.
Although they operate similarly to the Federal system in that an accepted offer is
entered into a judgment, some states have emphasised the function of settlement
promotion by naming them offers of settlement instead of offers of judgment.94
While some states have adopted robust offers of judgment, others have implemented
weaker rules that are less persuasive in motivating litigants to settle earlier.95 It
is however possible to see some trends; for instance in the last four decades a
number of states have enacted legislation including the symmetric application of
judgement offers, allowing also plaintiffs to submit offers of judgment, and
strengthen the cost sanction by including attorneys fees.96 Furthermore, in states
such as Connecticut, New Jersey and Wisconsin, courts may add a substantial
amount of interest on top of the amount awarded in the judgment.
While a number of state courts can require one party to pay the other partys
attorneys fees, others such as Alaska, Arizona, California, Colorado, Florida, and
Texas, include attorneys fees within the meaning of shiftable costs (i.e. only under
fee shifting statutes).97 Some states have in addition introduced into the calculus
an element of reasonableness, permitting their courts to employ their discretion in
awarding costs including attorneys fees.98 Other states have opted for restricting
the application of this rule, such as the case in Maryland, where the offer to settle
applies only to medical malpractice, while in Georgia courts require that the
decision is at least 25 per cent more favourable, in order to give effect to the
payment of the attorneys fees to the successful offeror.
The cost rule: the American and the English approaches

The American rule of costs, unlike the English rule which is the most prominent
one in common law jurisdictions, provides that each party must cover its own
92
Horowitz Rule 68: The Settlement Promotion Tool That Has Not Promoted Settlements (2010) 87 Denver
93
Sorabji, Solomon and Oliver and the Interaction between CPR 36 and CPR 44 and 45 (2012) 31 C.J.Q. 135,
140.
94
For example, Colorado employs the term offer of settlement. Colo. Rev. Stat. 13-17-202 (2009). Other states,
such as California, refer to their rule as Offers by a Party to Compromise. Cal. Civ. Proc. Code para. 998 (West
2009). See Horowitz (2010) supra 485, 504.
95
Yoon and Baker, Offer-of-Judgment Rules and Civil Litigation: An Empirical Study of Automobile Insurance
Litigation in the East (2006) 59 Vanderbilt L.R. 155.
96
See, e.g. Alaska Stat. para.09.30.065 (2010); Ariz. R. Civ. Proc. 68; Cal. Civ. Proc. Code. para 998; Colo. Rev.
Stat. para.13-17-202(1)(a); Fla. Stat. Ann. para.768.79(1) (West 2009); N.J. R. Ct. 4:58-2; Tex. Civ. Prac. & Rem.
Code Ann. 42.004 (Vernon 2009); Wis. Stat. Ann. 807.01 (West 2009). See FRCP Symposium (2006); Lewis
and Eaton, Rule 68 Offers of Judgment: The Practices and Opinions of Experienced Civil Rights and Employment
Discrimination Attorneys (January 2007), available at: http://ssrn.com/abstract=959675 [Accessed October 28,
2012]; Yoon and Baker, Offer-of-Judgment Rules and Civil Litigation: An Empirical Study of Automobile Insurance
Litigation in the East (2006) 59 Vanderbilt L.R. 155; D. Glimcher, Legal Dentistry: How Attorneys Fees and
Certain Procedural Mechanisms Can Give Rule 68 the Necessary Teeth to Effectuate Its Purposes (2006) 27 Cardozo
L. R. 1449.
97
American College of Trial Lawyers, Survey of State Offer of Judgment Provisions, Survey conducted by the
American College of Trial Lawyers, Federal Civil Procedure Committee, October 2004.
98
Horowitz Rule 68: The Settlement Promotion Tool That Has Not Promoted Settlements (2010) 87 Denver

costs. The American rule has only two exceptions. First, it does not apply when
the parties agree by contract before litigation; and secondly, it will not be used if
a specific legal provision states otherwise. It has been widely argued that this
system contributes towards making the United States a litigious society, while the
English rule potentially hinders access to justice by increasing the economic risks
of litigation.99 This is because the English rule encourages parties to spend whatever
is necessary to ensure the case is won and the fees recovered, thereby increasing
the overall costs of litigation. On the continent, by contrast, the costs rule
interestingly takes a half way solution allowing the fixed recovery of costs in
proportion to the value of the claim.100
There are a number of studies on law and economics that examine the impact
that a rule on cost allocation may have in promoting settlement.101 The economic
conflict theory has argued that when one of the parties is a public institution that
party does not have an economic interest in running up the bill, hence they may
not be equally motivated in settling early. This view has, however, come into
question by some empirical studies that found that public defendants make more
offers than private ones.102 Economic studies also take into consideration the
perception that litigants have on the strength of their cases and how this perception
affects the likelihood of settlement. For instance, according to Spier, where both
parties know the compensatory value of the damage, but they are optimistic in
determining the probability of winning a case, the cost penalties attached to offers
to settle would increase litigation and discourage settlement.103 The mainstream
economic literature also suggests that the offer of judgment rule might be
counterproductive for settlement when the compensatory value of the damage is
unclear, but the likelihood of the plaintiff prevailing in the case is high.104 In these
types of cases offers to settle would be ineffective in reducing the litigation, and
they could indeed increase the adversarial position of the parties.105
Indeed, offers to settle are not a panacea; in fact there are some drawbacks in
promoting offers to settle when they are not appropriate, particularly in issues
where a judgment on the substantive issues would be more suitable, e.g. matters
of public policy,106 when it creates an imbalance on the final outcome, or when
weaker parties are pressurised into withdrawing their legal rights.107 Furthermore,
a claimant with significantly less resources than the defendant will be at risk of
being out of pocket in the event of refusing an offer to settle from a defendant who
is represented by a more expensive legal team.108
99
The different approaches and goals in the allocations of legal costs have been discussed for quite some time. Cf.
A. Goodhart, Costs (1929) 38(7) Yale L. J. 849. See also D. Root, Attorney Fee-Shifting in America: Comparing,
Contrasting, and Combining the American Rule and English Rule (20042005) 15 Indiana International and
Comparative Law Review 583 (arguing that both rules have their pitfalls).
100
See for example Civil Procedure Rules in Germany and Spain.
101
See G. Miller, An Economic Analysis of Rule 68 (1986) 15 Journal of Legal Studies 121 and K.E. Spier
Litigation in A.M. Polinsky y S. Shavell, Handbook of Law and Economics (Elsevier, 2007), Vol.1.
102
FRCP Symposium (2006), pp.743, 756.
103
Spier Litigation in Polinsky y Shavell, Handbook of Law and Economics (2007), p.304.
104
Spier Litigation in Polinsky y Shavell, Handbook of Law and Economics (2007). See also F. Cabrillo and S.
Fitzpatrick, The Economics of Litigation (Northampton: Edward-Elgar, 2008), pp.121130, and B. Main and A. Park,
The Impact of Defendant Offers into Court on Negotiation in the Shadow of the Law: Experimental Evidence
(2002) 22 International Review of Law and Economics 189.
105
See also Miller, An Economic Analysis of Rule 68 (1986) 15 Journal of Legal Studies 121, 122.
106
H. Edwards Alternative Dispute Resolution: Panacea or Anathema? (1986) 99 Harv. L. R. 668, 672.
107
Fiss, Against Settlement (1984) 93 Yale L. J. 1076.
108
Fiss, Against Settlement (1984) 93 Yale L. J. 1076, 1077.
57
Arbitration
The modern concept of offers to settle has its precedent in the sealed offers
employed in arbitration.109 There are a number of ways in which they can be used:
parties can agree to use sealed offers in a contractual clause, the institutional arbitral
rules under which the arbitration takes place could provide for them, and they may
be presented to the other party as an offer with the Calderbank formula, i.e.
without prejudice save as to costs.
According to Derains and Schwartz, parties participating in arbitrations provided
by the International Chamber of Commerce (ICC) increasingly claim for the
reimbursement of legal costs due to the high costs of international arbitration.110
The cost-shifting rule is favoured by the fact that the majority of institutional
arbitral procedures allow the tribunal to decide the allocation of costs with the
only guidance of expecting the unsuccessful party to bear part or all the costs of
the winning party.111 Although the allocation of costs seems quite inconsistent112
with the practice of those countries that follow the American rule of costs, it is
often the case that the costs paid by the losing party include the costs of the legal
representation of the successful party. In the event that the prevailing party succeeds
only in part of their contentions then the award of costs will often follow the civil
law approach, i.e. pro rata.113
The use of sealed offers in international arbitration is more likely to be employed
when the arbitration takes place in a common law jurisdiction that follows the
English cost rule, such as in Hong Kong, Australia and Canada.114 Ansjomshoaa
distinguishes the two main methods for employing sealed offers in arbitration with
the effect of cost sanctions are the bifurcation of the award and the submission of
a sealed offer.115 Bifurcation is a request made to the tribunal by which the arbitral
award takes place in two phases: the first one deals with the substantive issues and
the second one with the allocation of costs. Thus, if one party has submitted to the
other party a sealed offer without prejudice save as to costs (i.e. a Calderbank
offer) then the tribunal may take this into account when deciding the allocation of
costs. If the arbitration takes place in England, the more similar the sealed offer
is to the form and content of Pt 36, the more likely will be that the arbitral tribunal
would give the offer the same effect. The problem with this method is that the
offeree may oppose the bifurcation and argue that the tribunal should reject the
motion on grounds of delay and additional costs.
109
See J. OHare and K. Browne, Civil Litigation (Sweet and Maxwell, London, 2009), p.447.
Derains and Schwartz, A Guide to the ICC Rules of Arbitration, 2nd edn (Kluwer Law International, 2005),
p.370.
111
See s.61 of the English Arbitration Act 1996. See also art.31 of the ICC Rules of Arbitration 1998; r.28 of the
ICSID Arbitration Rules; art.31 of the AAA International Arbitration Rules 2005 and arts 38 and 40 of the UNCITRAL
Arbitration Rules 1976.
112
Y. Gotanda, Awarding Costs and Attorneys Fees in International Commercial Arbitration (1999) 21 Michigan
Journal of International Law 2.
113
M Moses, The Principles and Practice of International Commercial Arbitration (New York, Cambridge
University Press, 2008) p. 188.
114
P. Anjomshoaa, Cost Awards in International Arbitration and the Use of Sealed Offers to Limit Liability
for Costs (2007) 10 International Arbitration Law Review 39. See Hong Kong Order 22, 73 of the Rules of the High
Court; Australia Rule 42, 20 of the New South Wales Uniform Civil Procedure Rules; Canada, Rule 49 of the Rules
of Civil Procedure of Ontario.
115
Anjomshoaa, Cost Awards in International Arbitration and the Use of Sealed Offers to Limit Liability for
Costs (2007) 10 International Arbitration Law Review 39
110

The alternative method is to submit a sealed offer and request the tribunal to
open the envelope after the substantive issues are decided and before the decision
of costs is taken. Anjomshoaa suggests that this method is less desirable since the
tribunal might deduce the identity of the offeror, which might create a bias
suggesting that the offeror admits liability. He however observes that this request
may not necessarily influence the view of the tribunal as it must take into account
the legitimate interest of the offeror to limit the risks of costs regardless the merits
of the claim.116 Therefore, it would be advisable for those who would like to rely
on offers to settle to stipulate the bifurcation in the arbitration clause,117 as the use
of offers to settle would be better suited to a process where costs are decided
separately.118
Cost sanctions in civil law jurisdictions: the Spanish procedure as

a case study
The Spanish procedural rules do not contemplate offers to settle, thus this section
explores how the Spanish courts respond to lodgements in court by defendants
and the impact, if any that these lodgements may have at the time of allocating
legal costs to the parties.
Under the Spanish Code of Civil Procedure (CCP) a party may lodge an amount
of money in court in two different processes: conciliatory proceedings (jurisdiccin
voluntaria) and in adversarial proceedings (juicio contencioso).119 Unlike in the
common law jurisdictions, these lodgements are not confidential, so the judge will
be aware of them. In conciliatory proceedings defendants may lodge an amount
of money but claimants are neither required nor encouraged to accept a partial
payment for the settlement of the claim.120 In adversarial proceedings the CCP
provides that the claimant shall pay all the legal costs if he does not inform the
defendant in advance of initiating a legal action. This will only occur when the
defendant admits and pays the debt with the response to the claim. But, if the
defendant lodges in court a partial amount of the claim (the amount that the
defendant considers to be owed) and the court awards the same amount lodged or
less, then the court will likely not make an award on costs on the grounds that the
claim was partially recognised. Notwithstanding, in the case that the defendant
had previously started a conciliatory proceeding, and offered the same amount or
more than the one awarded by the judge in an adversarial proceeding, then the
judge may consider the claimant as a vexatious or unreasonable litigant.121 This,
however, would be very unusual in practice as the courts construe this rule in a
strict fashion.
In the Spanish jurisdiction like in most civil law jurisdictions the loser pays all
the costs, but there are important restrictions in the recovery of costs that aim to
116
Costs (2007) 10 International Arbitration Law Review 39, 4143.
117
Costs (2007) 10 International Arbitration Law Review 39, 43.
118
N. Ulmer The Cost Conondrum (2010) 26 Arbitration International 221, 245.
119
See Ley de Enjuiciamiento Civil 2001 for the juicio contencioso and Ley de Enjuiciamiento Civil of 1881 for
the jurisdiccin voluntaria.
120
In this proceeding the court will not issue a judgment but only a resolution (auto) which will state whether the
parties have reached an agreement or not. This resolution does not include a decision on costs.
121
See art.394.2 of the CCP. See also the French CCP.
59
deliver a cost-efficient civil justice.122 According to art.394 of the CCP, the party
who had succeeded in all their claims may apply for an award on costs,123 which
may not exceed one third of the value of the claim. In reality most awards are
between 10 and 20 per cent of the value of the claim, and very rarely go over this
range. This limit may only be overcome when the court considers that the losing
party has acted in bad faith, such as vexatious litigants or when the claim was
made recklessly.124 Furthermore, the court has discretion not to allocate costs in
favour of the prevailing party when it is considered that there was a claim that
contained a reasonable doubt in law or in fact.
When parties succeed in their claims partially, each party pays his own costs
and both parties share the payment of common expenses. There are however certain
litigants who are excluded from paying the costs of the other party; these are
litigants that benefit from free legal aid and public prosecutorssince Spain, as
a civil law jurisdiction, allows criminal and civil actions to be dealt with together
within the same proceedings.
Although settlement is an axiomatic feature in the adversarial system of common
law jurisdictions, it does not yet form part of the proceedings in many civil law
jurisdictions.125 While the adversarial procedure in common law jurisdictions have
traditionally put greater emphasis on rectitude of decision, the inquisitorial or
non-adversarial approach in civil law jurisdictions have taken a more
cost-efficient approach to civil litigationthis is because on the continent litigation
is not as expensive, which shows the conventional emphasis on access to justice
rather than justice on the merits at all costs.126 Indeed, civil law jurisdictions have
fewer incentives to settle once proceedings have started as the cost savings would
not be as high as in common law jurisdictions. For instance, in Spain the claim is
an elaborated document, and once submitted claimants would have already incurred
about half of the total fee that legal counsel can charge for their services.127
Traditionally, the calculation of the legal costs is based on the value of the claim
and counsel would not normally charge per hour.
The status quo is now starting to change as many civil law jurisdictions are
introducing conciliatory requirements in their civil procedures through the
implementation of the Mediation Directive. In addition a number of EU Directives
in specific sectors either encourage or require Member States to make provision
for adequate and effective ADR procedures.128 In the case of Spain, like in many
other jurisdictions, ADR is set to take a more relevant role in the next few years,
particularly once the Mediation Act, which implements the Mediation Directive,
122
See the German example. Cf. see A. Zuckerman, Lord Woolfs Access to Justice: Plus a Change (1996) 59
M. L. R. 773, 787896.
123
Ley de Enjuiciamiento Civil 1/2000 of January 7.
124
CCP art.394.3.
125
Cf. discussion below on the Spanish Mediation Act 2012.
126
A. Zuckerman, Civil Justice in CrisisComparative Perspectives of Civil Procedure (Oxford: Oxford University
Press, 2001).
127
The legal fees are in proportion of the claim and most legal bars recommended lawyers to charge of 50 per cent
after the submission of the claim. See the recommend scale of Law Bar of Madrid, p.18, available at http://www.icam
.es/docs/ficheros/200706140002_6_4.pdf [Accessed October 28, 2012].
128
For directives encouraging ADR procedures see for example art.14 of the Financial Marketing of Financial
Services Directive 2002/65art.14(2) of the Timeshare Directive 2008/122 and E-Commerce Directive 2000/31. For
directives requiring that ADR schemes are put in place see Consumer Credit Directive 2008/48 and the Payment
Services 2007/60.

is not only transposed for cross-border cases, but for domestic cases too.129 Unlike
the initial Bill,130 the Spanish 2012 Mediation Act, does not make it mandatory for
all litigants in monetary claims to attempt mediation131; yet it promotes the use of
mediation through a number of measures: (i) when the dispute escalates to the
court the cost of mediation will be added to the total legal costs132; (ii) parties
entitled to legal aid will be informed about mediation133; (iii) the prescription period
stops while parties attempt mediation134; (iv) confidentiality is ensured in the
mediation process135; (v) mediated settlements may be formalised by court annexed
processes and through a public deed136; and (vi) the courts may stay proceedings
when there is contractual clause requiring parties to attempt mediation.137
Similarly Italy has issued a Mediation Act, but, unlike the Spanish counterpart,
it has included compulsory conciliation for many civil disputes, and importantly,
it has also introduced costs sanctions as incentives for settling disputes.138 According
to the new Act, at the end of the conciliation the third neutral party will make a
proposal of settlement; if only one of the parties refuses it, but does not obtain a
more favourable judgment, then the court will automatically penalise the claimant
to pay all the costs, plus an additional fine.139 Although the approach appears to be
similar to the English Pt 36, a main distinction should be highlighted: in Italy the
court will be aware of the contents of the offer. It is thus more similar to the method
employed in Ireland for resolving personal injury claims.140 Given the length of
civil cases in Italy is still too early to assess how effective this rule will be in
practice,141 but it can be observed that while the main goal of the English Pt 36 is
to reduce the costs employed in resolving disputes, the main goal in Italy is to
reduce the time involved in resolving civil disputes.
III. Why offers to settle have not been employed in civil law
jurisdictions
Offers to settle are a key feature of the civil procedure in some common law
jurisdictions, such as in England where they have proven to be a very effective
way of encouraging settlement. This begs the question of why have they not been
introduced in civil law countries? Although costs vary greatly, even within the
129
Spanish Mediation Act of March 5, 2012 (Real Decreto-ley 5/2012 de la Mediacin para Asuntos Civiles y
Mercantiles) implementing Directive 2008/52 of the European Parliament and of the Council of May 21, 2008 on
Certain Aspects of Mediation in Civil and Commercial Matters [2008] OJ L.136 3.
130
Disposicin adicional primera para.10.3. of the Spanish Mediation Bill (2010). Cf. A.E. Vilalta Contratacin
Transnacional y Acceso a la Justicia: Mecanismos de Resolucin Electrnica de Disputas 732 (2012) Revista Crtica
de Derecho Inmobiliario forthcoming.
131
See Alassini and others v Telecom Italia (C-317/08) March 18, 2010 at [67] where the European Court held
that mandatory mediation prior litigation does not breach EU law. For the situation in England see M. Ahmed, Implied
Compulsory Mediation (2012) 31 C. J. Q. 151.
132
Article 18(3).
133
Spanish Mediation Act 2012 Disposicin Segunda 2.
134
Article 4.
135
Article 9.
136
Article 24.
137
Disposicin Final Segunda.
138
Decreto Legislativo March 4, 2010. See in particular arts 1314.
139
Article 14.
140
See PIAB Act 2003.
141
See generally V. Varano, Symposium: Civil Procedure Reform in Comparative Context Civil Procedure
Reform in Italy (1997) 45 The American Journal of Comparative Law 657674.
61
European Union,142 there are a number of conceivable reasons that may explain
why civil law jurisdictions have not implemented offers to settle in their procedures.
This part of the paper examines these intertwined reasons, which I argue, are
broadly related to the cost of litigation and a culture of settlement based on its
adversarial tradition. However, a renewed interest in promoting settlement is now
taking place in many civil law jurisdictions with the implementation of the
Mediation Directive and legislation that require the establishment of ADR schemes
for settling consumer complaints,143 coupled with the desire for developing a more
cost-efficient civil justice system. This part accordingly argues that the time is ripe
for considering offers to settle as an additional mechanism to promote settlement
in cross-border litigation and in civil law jurisdictions.
The cost of litigation

The role of the parties in civil litigation
Litigation in common law courts has been inspired by the English civil procedure,
which was, and still is, often regarded as expensive and elitist.144 The high cost is
partly due to its traditional adversarial nature, where it is the role of the parties to
research the law, to present the case complying with strict rules of pleading and
to fund and produce wide expert evidence. By contrast, in civil law jurisdictions
courts have traditionally employed a less adversarial approach by appointing
experts and conducting the interrogation of witnesses,145 thus assisting the parties
in finding the truth. Although some of the differences in approaches have been
diluted in England and in other common law jurisdictions with an increasingly
interventionist role of the judge,146 there are some features still remain inherent in
the adversarial nature of the common law tradition contributing to high legal
costsfrom the jury trial (though its use in England has almost disappeared, except
for libel cases)147 to the use of disclosure (and more so the discovery in the United
States).148
Hourly rates of counsel and the impact of technology

In a similar vein, an essential element that increases the cost in common law
countries, particularly those following the English rule of costs, is the payment of
hourly rates to legal representativesa feature that is now becoming more common
in large firms in civil law jurisdictions. But importantly, legal fees in common law
142
See Hoche, Demolin, Brulard Barthelemy, Consultancy Study for the European Commission: Study on the
Transparency of Costs of Civil Judicial Proceedings in the European Union: Final Report (2007), available at http:
//ec.europa.eu/justice/civil/document/index_en.htm [Accessed October 28, 2012].
143
See the Mediation Directive 2008/52 and the Proposal for a Directive on Consumer ADR 2011/0373 (COD).
144
See Zuckerman on Civil Procedure Principles of Practice (2006), pp.773, 774 and C. Hanycz, More Access
to Less Justice: Efficiency, Proportionality and Costs in Canadian Civil Justice Reform (2008) 27 C.J.Q. 98, 105108.
145
H. Ktz, Civil Justice Systems in Europe and the United States (2003) 13 Duke Comparative & Int. L. 61,
6364.
146
O. Chase et al., Civil Litigation in Comparative Context (US, Thomson West, 2007), p.592.
147
Ktz, Civil Justice Systems in Europe and the United States (2003) 13 Duke Comparative & Int. L. 61, and
S. Gross, The American Advantage: The Value of Inefficient Litigation (1987) 85 Mich. L. Rev. 734. See generally
S. Lloyd-Bostock and C. Thomas, Decline of the Little Parliament: Juries and Jury Reform in England and Wales
(1999) 62 Law & Contemp. Probs. 7.
148
K. Foss, Reducing Civil Litigation Costs by Promoting Technological Innovation: Adopting Standards of
Reasonableness in E-Discovery (2012) 63 Hastings L.J. 1167.

jurisdictions do not generally use a capping system and are set regardless of the
value of the claim with the exception of low-value claims.149 According to
Zuckerman these rates give financial incentives to legal representatives to tell their
clients that the more money they invest in their cases the more chances they will
have in winning the case and recovering their costs, which lead to unpredictability
and high legal fees.150 Disproportionate costs have in turn led to a restriction in
access to justice as legal aid is reduced and more and more individuals with legal
needs cannot afford to bring or defend claims.151
Conversely, the present way of calculating fees is progressively changing with
the growth of technology and a higher demand for cost-efficient legal services.
Richard Susskind in The End of Lawyers? argues that technology will play a key
role in the delivery and commoditization of legal services.152 Technology delivered
legal services (including legal representation) also known as e-lawyering, are
increasingly used in jurisdictions such as the US, where unbundling legal services
is a growing industry.153 The search for competitive legal services is not only
pursued by consumers looking for bargains, but also by large corporations that are
increasingly in the business of opening tenders for allocating legal work to law
firms with the relevant expertise at the most competitive cost. The same trend is
now seen in the procurement of legal services, which are now going online using
disruptive platforms.154 This trend will only augment in the United Kingdom once
Alternative Business Structures start getting a share of the legal market.155
Caps in the recovery of legal costs

Civil law countries have more stringent caps in the recovery of legal costs than in
most common law jurisdictions.156 The risk of high costs makes offers to settle a
useful tool for controlling costs, particularly in personal injuries cases and in cases
where parties are more likely to incur significant amounts in legal fees. In fact the
cost of legal representation if a case reaches the trial is such that it would not be
unusual to end up with disproportionate legal costs, especially when conditional
fee agreements are employed,157 to the extent that in the event of a claimant failing
to obtain a judgment more advantageous than a Pt 36 offer, the claimant may have
149
Rule 44.4(1). The rule that costs follow the event without caps is observed only in Multi-Track. It is therefore
not applied in the Small Claims Track where only limited costs, such as fixed court fees, are usually awarded. The
UK Government has announced that they will follow Jacksons recommendation of fixing costs also in the Fast Track
(i.e. claims of a value of 25,000 or less which can be resolved in one day at trial).
150
Zuckerman on Civil Procedure Principles of Practice (2006), p.1130. On conflict of interests between lawyers
and clients see R. Moorhead, Filthy Lucre: Lawyers Fees and Lawyers Ethics What is Wrong with Informed
Consent? (2011) 31 L.S. 345.
151
See J. Peysner, England and Wales in C. Hodges, S. Vogenauer and M. Tulibacka (eds), The Cost and Funding
of Civil Litigation (Oxford: Hart Publishing, 2010).
152
R. Susskind, The End of Lawyers? (Oxford Oxford University Press, 2008).
153
S. Kimbro, Virtual Law Practice: How to Deliver Legal Services Online (ABA/LPM Publishing, 2010).
154
Letts, Disruptive Procurement Business Targets Legal Market Legal Future (June 6, 2012), available at:
http://www.legalfutures.co.uk/latest-news/disruptive-procurement-business-targets-legal-market [Accessed October
28, 2012].
155
C. Brown, Future of Legal Services: or the Future is Now (2011) 11 Legal Information Management 101104
and J. Robins, ABS fab? (2012) 162(7521) N.L.J. 887.
156
According to the Spanish procedural law the winning party can only claim the recovery of legal costs up to one
third of the amount of the claim. It must be also noted that Spanish courts, unlike many jurisdictions, do not charge
fees. See Ley de Enjuiciamiento Civil 1/2000 art.394.3. Germany has also a similar scheme. See Zuckerman on Civil
Procedure Principles of Practice (2006), p.773.
157
Campbell v MGN (No.2) [2005] UKHL 61; [2005] 1 W.L.R. 3394 and MGN Ltd v United Kingdom [2011] 1
Costs L.O. 84.
63
any economic recovery spent on legal fees. In the words of the President of the
Supreme Court in the United Kingdom, under the law in England and Wales the
losing partys liability to pay the winners legal costs often makes the losing partys
detriment immeasurably greater than the benefit of winning.158
The financing of civil justice and the type of civil procedure

The funding of each jurisdiction may also impact upon the costs of civil litigation.
In England one important feature is the fact that civil courts are not subsidized by
the taxpayer, but paid with court fees from start to end by the parties involved in
the dispute.159 This self-financed approach to civil justice has been criticised by
Genn at the Hamlyn Lectures arguing that the cut of public investment in the civil
courts comes as a result of having a shared budget that diverts funds to criminal
justice, which is inevitable, she contends, as criminal justice takes up more resources
for coping with the increase of criminalisation of social activities.160
Another peculiarity of the English civil justice system after the Woolf Reforms
is the introduction of pre-action protocols161 and case management conferences162
that have caused a front-loading of legal costs with the purpose of facilitating
early-settlement. Settlement is part of the overriding objective of resolving the
disputes justly; the judge will encourage parties to agree on a settlement, thus
reserving litigation for those disputes where judgments are worth the expense.163
In Whitecap Ward L.J. commented on the defendants refusal to mediate and accept
a Pt 36 offer by saying:
Anyone with any sense knows that litigation is more expensive than ones
worst fears. Anyone with any sense would avoid litigation This [Part 36
offer] was a very favourable deal.164
Therefore, there is little doubt that high costs have a knock on effect on settlement.
According to Ktz, while in Germany the settling of personal injury cases is not
uncommon, in the United States due to the cost and number of attorney hours spent
on investigating the case and on pre-trial motions, discovery, and trial, the economic
pressure to settle is much more intense.165 The need to reduce costs takes us to the
second main issue which explains the development of offers to settle in common
law and not in civil law jurisdictions: the preference for settlement.
The settlement culture

Courts in common law jurisdictions carry out an important role in encouraging
parties to settle and to use ADR methods, being less adversarial than the original
158
Phillips L.J., Alternative Dispute Resolution: An English View-Point Speech by Lord Chief Justice in England
and Wales, India, March 29, 2008, p.2.
159
Foreword by L. Woolf, in Dywer (2009) supra. p. vi.
160
Genn, The Hamlyn Lectures 2008: Judging Civil Justice (2010).
161
Pre-action protocols require parties in various types of civil claims to exchange information prior to filing a
claim; not doing so opens the risk of later costs sanctions.
162
Case-management can be conceptualized as the role of the courts in supervising a case from the beginning to
the end.
163
Dunnett v Railtrack Plc (Practice Notice) [2002] 1 W.L.R. 2434 CA at [13] referring to CPR rr.1.3 and 1.4.
164
Whitecap Leisure [2008] EWCA Civ 1026 at [8]. See also Shovelar v Lane [2011] EWCA Civ 802; [2012] 1
W.L.R. 637.
165
Hein Ktz, Civil Justice Systems in Europe, 1 Duke L. CICLOPs 1 (2009) p.15.

function may traditionally have suggested.166 Indeed, Simon Roberts observes that
English civil courts have re-conceptualized their primary roles as the sponsorship
of settlement,167 where parties are given every opportunity to settle before reaching
the trial. Accordingly, not only in England and Wales, but also in most common
law jurisdictions, settlement is the most typical outcome of a civil dispute with
well over 95 per cent of cases being settled before reaching the trial stage.168 For
this reason Lord Woolf recommended the transformation of the CPR to reflect this
fact, preparing parties for settlement rather than for trial. The present CPR views
settlement as the preferred option for the majority of claims169; an agreement reached
amicably between the parties is considered more desirable than one that is imposed
by a third party which in all likelihood will not satisfy one of the parties. When
this is coupled with the high cost of resolving disputes, which may even be
disproportionate to the value of the claim, makes the search for settlement a priority
for the majority of civil cases. This new approach towards settlement in the CPR
is so fundamental that it has turned the trial into the last resort, leaving the delivery
of the judgment as a residual function of the court.170 It is thus worthwhile to note
that English courts also have discretion in encouraging parties to use ADR and to
stay proceedings while parties are attempting to settle their dispute.171
Negotiations between civil litigants as well as other forms of ADR have a longer
tradition in common law jurisdictions than in the Continent. Moreover, the use of
ADR is likely to increase as the UK Government has expressed its commitment
to ADR172 and it is in the process of introducing an automatic referral to mediation
for claims filed in the small claims track, i.e. initially for claims below 5,000, but
once established the threshold will be increased to the new small claims limit of
10,000.173 The automatic referral will be done on the basis that it will not be a
mandatory mediation scheme, but rather a requirement to engage with a small
claims mediator in an information session, which could take place over the
telephone.174 Furthermore, a number of common law jurisdictions such as Ireland
and the United Kingdom, have also included a number of pre-action protocols that
require parties in certain types of disputes, such as low value personal injury for
traffic accidents, to attempt ADR before going to court.175
166
M. Shapiro, Courts (University of Chicago Press, 2005), p.viii.

Roberts (2009) supra 457, 459.
See for instance an empirical study on settlements in the Mayors and City of London Court in S. Roberts,
Listing Concentrates the Mind: The English Civil Court as an Arena for Structure Negotiation (2009) 29Oxford
J. of Legal Studies 457, 475.
169
Andrews (2008) supra 193.
170
Roberts (2009) supra 457, 458.
171
Cable & Wireless v IBM United Kingdom Ltd [2002] EWHC 2059 (Comm); [2002] 2 All E.R. (Comm) 1041.
CPR rr.1.4.(2)(e) and 3.1.(2)(f). Cf. M. Brunsdon-Tully, There is an A in ADR but Does Anyone Know What it
Means Anymore? (2009) 28 C.J.Q. 218. Similar rules apply in the US district courts. See Alternative Dispute
Resolution Act 1998 s.652(b).
172
One of the most significant initiatives is the pilot project run by the HM Revenue and Customs, available at:
http://www.hmrc.gov.uk/adr/ [Accessed October 28, 2012].
173
UK Ministry of Justice, Solving Disputes in the County Courts: Creating a Simpler, Quicker and More
Proportionate System; A Consultation on Reforming Civil Justice in England and Wales, The Government Response
(February 9, 2012) Cm.8274, p.7. Cf. Ahmed (2012) supra 151175.
174
Ibid p. 11.
175
See the web-based schemes of PIAB in Ireland, available at: http://www.injuriesboard.ie/eng/ and the RTA PI
in England, available at: http://www.rtapiclaimsprocess.org.uk/index.html [Accessed October 28, 2012].
167
168
65
More generally English courts have the power to impose financial penalties for
unreasonable refusal to participate in ADR.176 In defended civil claims parties are
required to fill in an Allocation Questionnaire, the first section of which is headed
Settlement and requires parties to make every effort to settle the case before
the hearing.177 Indeed, the Allocation Questionnaire now requires parties to reflect
on the suitability of settlement while offering them a one month stay to negotiate
an agreement on the dispute, as well as exploring the suitability of mediation, and
includes the offer of the court to arrange the mediation on their behalf.178 All these
incentives form part of the toolkit inspired in the Woolf spirit of moving towards
putting greater emphasis on access to justice and distributing the limited resources
available in the administration of justice, and less on rectitude of decision at all
costs.179 As a result English law tends increasingly to consider litigation and trial
as the last option of all the available methods of dispute resolution.180
Is the time ripe for their adoption in Continental Europe?

The promotion of settlement is not only being encouraged in domestic procedures,
but also as a tool for increasing the efficiency in the resolution of cross-border
disputes. It is believed that cross-border processes should incorporate economic
incentives to promote settlement, as these cases are more costly and time
consuming, and parties are less likely to pursue drop their claims.181
The European Commission is currently looking into developing legislation to
promote the use of ADR in general, and mediation in particular, between SMEs,
especially when they enter into cross-border disputes.182 A key factor for the
promotion of mediation is the development of incentives for parties to engage in
settlement discussions. Offers to settle do just this. Hence, it is submitted that a
European initiative in the field of ADR that aims to encourage the settlement of
cross-border disputes should include a provision whereby courts can penalise
parties for rejecting reasonable offers to settle.
176
Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576; [2004] 1 W.L.R. 3002 at [11] regarding
the unreasonable refusal to participate in mediation and Carleton (Earl of Malmesbury) v Strutt & Parker (A
Partnership) [2008] EWHC 424 (QB); 118 Con. L.R. 68 regarding unreasonable attitude at the mediation process.
177
See Allocation Questionnaire (Forms N150 and 151 for the Fast-Track and Multi-Track and Form 149 for the
small claims track) requiring parties to answer whether they have considered the use of mediation.
178
Courts have however shown hesitation in imposing these sanctions; this is in part because, unlike with Pt 36
offers, there is a lack of clear guidelines on what might constitute unreasonable refusal to consider ADR.
179
Lord Woolf, Access to Justice, Final Report (1996), p.107, para.2; A. Zuckerman, The Second Great English
Reform of Civil Justice, A Triumph of Hope over Experience (2000) Hibernian L.J. 178.
180
J. Jolowicz, Civil Litigation: Whats it for? (2008) 67 C.L.J. 516. Lord Woolf stated: My approach to civil
justice is that disputes should, whenever possible, be resolved without litigation. Where litigation is unavoidable, it
should be conducted with a view to encouraging settlement at the earliest appropriate stage. Lord Woolf, Access to
Justice, Final Report, Ch.10, p.107, para.2. See also Lord Woolfs comments at R. (on the application of Cowl) v
Plymouth City Council [2001] EWCA Civ 1935; [2002] 1 W.L.R. 803. This development in civil justice has been
criticized by Hazel Genn who argues that the diversion of disputes out of the courts does not only affect the legal
entitlements of the parties but also the development of the common law. Genn, The Hamlyn Lectures 2008: Judging
Civil Justice (2010).
181
V. Tilman, Lessons learnt from the implementation of the EU Mediation Directive: the business perspective,
EU Directorate General for Internal Policies, Policy Department C: Citizens Rights and Constitutional Affairs,
available at: http://www.europarl.europa.eu/document/activities/cont/201105/20110518ATT19584
/20110518ATT19584EN.pdf [Accessed October 28, 2012].
182
European Commission DG JUSTICE, Directorate A: Civil Justice, Workshop on Alternative Dispute Resolution
(ADR) for Business-to-Business (B2B) Disputes, Brussels (February 28, 2012). In the invitation letter and at the
Workshop the European Commission stated that they foresee the adaption of a legislative instrument on ADR for
B2B disputes in 2013. (On file with author).

The transplantation of procedural institutions has been a controversial topic in
comparative law, which at a minimum requires a close consideration of the social
and political context of legal institutions.183 In this context, it can be argued that,
even though there is a lack of a negotiation culture in the legal profession that
discourages settlement in civil law jurisdictions, the approach of incorporating
settlement at the heart of civil proceedings may emerge organically in the next
few years as civil law jurisdictions start encouraging the use of ADR. This cultural
change can be expected to be developed more quickly in those jurisdictions where
mediation and conciliation processes have been introduced as a step, which may
be mandatory, of civil procedure. Indeed, Italy has already adopted cost sanctions
for those parties who unreasonably refuse conciliatory settlements.
A European legislative initiative should in any case let Member States decide
whether to allow the bifurcation of the cost procedure or to establish another
mechanism whereby offers to settle can be taken into account in the allocation of
costs. It should also be considered whether these types of incentives should be
introduced for lower value claims in order to promote settlement and encourage
swifter resolution of cross-border disputes.184 Yet, low-value claims should not
necessarily follow the bifurcation, as a separate procedure might add more expense;
hence, non-confidential offers might be more appropriate. The European Small
Claims Procedure, which currently does not have restrictions on its costs regime,185
could also be amended to allow for offers to settle, though in order to avoid costs
from spinning out of control, the existing caps on the recovery of legal costs should
remain in place. In any event, it would be important that the legislator and the
courts are able to balance an appropriate level of legal certainty, while retaining
a minimum level of discretion to avoid unjust results, particularly when at the time
of making the offer the offeree was not aware (or could not possibly be aware) of
all the relevant facts of the case, and therefore the suitability of the offer. If the
forthcoming European ADR initiative is a directive, as their predecessors,186 it
would provide Member States with sufficient margin to adapt offers to settle into
the nuances of their national civil procedures.
Conclusion
Offers to settle can be a good procedural resort for helping parties to cap their legal
costs, and for promoting early settlements, particularly by motivating defendants
to agree or provide reasonably valued offers when claimants have meritorious
cases. Offers to settle can thus be useful in those disputes where the defendant is
183
See generally O. Kahn-Freund, On Uses and Misuses of Comparative Law (1974) 37 M.L.R. 1 20. Cf. A.
Watson, Legal Transplants and Law Reform (1976) 92 L.Q.R. 79 (downplaying the risks of legal transplants and
highlighting their potential benefits).
184
The Association for British Travel Agents (ABTA) provides for consumer arbitration services and inform them
thus: if you [the consumers] lose or youre awarded less than previously offered to you by the respondent, youll be
ordered to pay an amount which is equal to the sum you paid as your registration fee. See http://www.abta.com
/consumer-services/travel_problems/arbitration [Accessed October 28, 2012].
185
See art.16 of Regulation 861/2007 of July 11, 2007 and its implementation in the England and Wales through
the Civil Procedure (Amendment) Rules (SI 2008/2178) Pt 78. Cf. C. Crif, Cross-Border Enforcement of Debts in
the EU (London: Kluwer Law International, 2009) and P. Corts, Does the Proposed European Procedure Enhance
the Resolution of Small Claims? (2008) 27 C.J.Q. 83. The House of Lords expressed their disappointment when
agreement within the European Union was not reached for regulating a common cost regime of the European Small
Claims Procedure. House of Lords, European Union Committee: European Small Claims Procedure (23rd Report
of Sessions 200506).
186
See the Mediation Directive 2008/52 and the Proposal for a Directive on Consumer ADR 2011/0373 (COD).
67
willing to admit liability but cannot settle because the claimant requests an arguably
inordinate amount in settlement. Conversely, they may also be beneficial for
claimants in those events where the defendant intends to get away with paying
insufficient compensation.
Offers to settle can have a positive impact in civil justice because they promote
settlement and bring a more realistic view to litigants, who are required to consider
reasonable offers to settle. It is then not surprising to find that common law
jurisdictions, especially England, consider offers to settle as one of the most
effective incentives to encourage settlement. Conversely, these cost incentives for
settlement have not been employed in the civil law countries. The differences in
legal traditions suggest that civil law courts have historically less need for reducing
the costs of the proceedings by encouraging parties to settle. Yet, even when
processes are more cost-efficient, civil law jurisdiction should not disregard the
potential benefits that offers to settle might bring when appropriately used.
This paper has argued that the reasons behind the lack of implementation in
civil law traditions are due to lower costs of litigation, lower expectations for the
parties in seeking extrajudicial settlements, and less tradition in using ADR
methods. However, in recent years, partly influenced by the EU legislation, civil
jurisdictions are starting to encourage the use of ADRthis institutional and
regulatory use of ADR may pave the path for the inclusion of cost sanctions that
promote the settlement of civil disputes. Accordingly, it has been argued that the
introduction of cost sanctions would be particularly beneficial in cases where there
is a greater need to encourage settlement and where there is unmet legal need. As
cross-border processes are characterised by these features, it may therefore be
justified to adopt offers to settle in any future ADR legislation that aims to promote
settlement.
Those involved in evaluating the operation of courts in civil law jurisdictions,
for both national and cross-borders cases, should as the starting point consider the
incentives that Pt 36 and the surrounding case law have delivered over the last few
years. Yet, they should also be reminded that they ought to take a holistic approach
when amending national civil procedures to include offers to settle. Indeed, it
would be prudent that, before introducing offers to settle widely, national courts
should carry out a number of pilot cases in order to examine empirically under
which circumstances offers to settle could bring benefits to their civil justice system.

A Comparative Review of Offers To Settle

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A Comparative Review of Offers to

SettleWould an Emerging Settlement

Licenciado, LLM, PhD, CSET Lecturer in Civil Justice, University

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44 Civil Justice Quarterly

I. Offers to settle in England and Wales

Calderbank v Calderbank [1975] 3 All E.R. 333.

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46 Civil Justice Quarterly

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The Carver case and the impact of Jackson on Pt 36

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II. Comparative overview: selected case studies

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Late lodgements in court

Other examples of costs sanctions

Ely v Dargan [1967] I.R. 89.

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Delta Air Lines Inc v August 450 U.S. 346 (1981).

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Reasons for the lack of success of offers of judgment

The final figure remains to be fixed by the UK Ministry of Justice.

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Offers of judgment under state law

The cost rule: the American and the English approaches

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Cost sanctions in civil law jurisdictions: the Spanish procedure as

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The cost of litigation

Hourly rates of counsel and the impact of technology

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Caps in the recovery of legal costs

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The financing of civil justice and the type of civil procedure

The settlement culture

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M. Shapiro, Courts (University of Chicago Press, 2005), p.viii.

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Is the time ripe for their adoption in Continental Europe?

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