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Obtaining interim payment in litigation - the use of settlement offers

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Posted on 12 November 2010

Court action to obtain payment can sometimes be a lengthy process and adjudication is not always available or appropriate. However the court rules (known as the Civil Procedure Rules, or “CPR”) lay down specific grounds for allowing a claimant to apply for an interim payment in respect of his claim, before trial.

This can be an attractive option for a claimant, particularly if there are cash flow problems. One such ground is that, if the matter went to trial, the claimant would be awarded a “substantial” sum of money. The issue for this article is whether the fact that a defendant has made a settlement offer can be used as part or all of the evidence to support an application for interim payment.

There are two main types of settlement offers:

  • formal offers under the CPR, known as CPR Part 36 offers (“Part 36 offers”)
  • offers made outside of the CPR, known as “Calderbank offers”.

Both are made on a “without prejudice save as to costs” basis. Settlement offers are a powerful weapon in the defendant’s armoury. They are made for a variety of reasons, not least the perceived risk to the defendant if the case went to trial. Offers can however be made on purely commercial grounds: to avoid the distraction of litigation; or to avoid the stress and inconvenience of a trial, particularly if the defendant is an individual rather than a large corporate entity.

However, a settlement offer does not amount to an admission of liability. There is little recent case law on whether settlement offers can be used as evidence to obtain an interim payment where liability is denied. 

A widely held view is that a settlement offer cannot be used as evidence to support an application for an interim payment order where liability is denied, because the offer has been made on a “without prejudice save as to costs” basis. The reality however is not so clear cut. Neither a Part 36 Offer nor a Calderbank offer can be disclosed to the trial judge until the trial is over and the issue of costs falls to be considered. However, the question is whether it can be disclosed to a different judge for the purposes of the interim payment application. The traditional view is not, because that would run counter to the general policy which is to encourage early settlement. The concern is that defendants would be less likely to make offers if they thought they would be used against them to obtain an interim payment order. 

1995 case

These concerns were considered in the 1995 construction case of Bowmer & Kirkland Ltd v Wilson Bowden Properties Ltd. In that case the defendant had made both a payment into court (the predecessor to a Part 36 offer) and a Calderbank offer. In that case the Judge was not swayed by the concern that disclosing the existence of a payment into court could deter defendants from taking steps to settle their cases by making such payments. 

He found that the costs sanctions for failing to beat a payment into Court (now replaced by Part 36 offers) was a sufficient incentive to insure that defendants were not put off making such payments. He also discounted the relatively recent authority to the contrary. 

He also allowed in evidence the Calderbank offer for the same reasons but, crucially, made clear that there may be a different outcome in a future case where there was an express challenge on whether a Calderbank offer could be used to obtain an interim payment. 

The court rules have been changed since the Bowmer & Kirkland case. Nevertheless it may still be possible to refer to the existence of a Part 36 offer and/or Calderbank offer to support an application for interim payment based on the decision in the Bowmer & Kirkland case. 

The Bowmer & Kirkland case was decided in 1995, but has not been considered since. Clarification from the Court of Appeal would help to resolve the conflicting case law in this area so that both parties know whether, in the event of the defendant making a settlement offer, the claimant can use that offer to try and obtain an interim payment. 

In the current economic climate, obtaining an interim payment remains an attractive option but will need very careful consideration. 

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