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Without prejudice subject to costs offers and the Employment Tribunal


In Brooks v Nottingham University Hospitals NHS Trust [2018] the Employment Appeal Tribunal upheld a costs order of £170,000 against Mr Brooks. Read more..


without prejudice subject to costs

What does ‘Without prejudice and subject to costs’ mean?

Once you file a claim in the Employment Tribunal (ET), preparation for the hearing usually runs parallel with settlement negotiations. Settlement discussions don’t stop when you get the ACAS certificate. They can continue all the way through to the final hearing. You and your Employer are called “parties” to the dispute. You can make an offer to settle, as can your Employer. [see Without prejudice communications and discussions, Letter before claim]

As part of this process the parties, sometimes make an offer of settlement marked ‘without prejudice save as to costs’, which is also known as a “Calderbank Offer/Letter”.  It is an offer from a party to a dispute to the other party to settle their dispute. It puts the receiving party on notice that if the claim goes to the Employment Tribunal (ET) and they lose or are  awarded less than what was offered in the Calderbank letter, the party who made the offer would be entitled to make a claim for costs against the party who turned it down.  This is because if the offer had been accepted then the parties would not have had to expend time and money taking the matter to the ET. The ET is not told about the offer of settlement during the hearing, but the successful party can pull it out when costs are being discussed.

Making or rejecting a Calderbank offer is taking an educated bet. If you make a Calderbank offer, you are betting that the ET will give you more than your Employer is offering. If you are right, then you can apply to the ET to have some of your costs paid by your Employer. If your Employer makes a Calderbank Offer, they are betting that the ET will award you less than what they are offering. If you lose your claim or the ET awards you less than your Employer offered, then they can apply to the ET to get you to pay some of their costs.

A bit of trivia – Why is it called a Calderbank Offer?

The name comes from the divorce case of Calderbank v Calderbank [1975]. Before the trial, Mrs Calderbank had sworn an affidavit declaring herself willing to accept a certain result in the litigation going on between herself and Mr. Calderbank. During financial negotiations, Mrs Calderbank offered to give Mr Calderbank a house occupied by his mother his mother which was worth about £12,000.00. In exchange for this, she wanted him to leave their matrimonial home. Mr Calderbank refused because the offer was too low, and the case went to trial. The Court’s judgment was less favourable to him than what Mrs. Calderbank had offered. The Court said that  Mrs. Calderbank was entitled to her costs from the date on which she made her willingness to settle known. The Court also suggested that a letter like the one used in this case should be used in assessing costs. What has become known as a Calderbank Letter developed into a recognised procedure to set up an award of costs based on a willingness to settle.

You’ve received a Calderbank Letter and you are panicking

Fear not. In Kopel v Safeway Stores plc [2003] the Employment Appeal Tribunal(EAT) said that there is no question of any rule in Calderbank v Calderbank applying to proceedings before the Employment Tribunal (ET). Just because an Employee rejects an offer does not mean that the Employee will be on the receiving end of a costs award. Read on, because the way in which they apply is different to the way they apply in the civil courts. So although they are called Calderbank Offers (presumably without prejudice subject to costs offer is too much of a mouthful), they are really Calderbank-like, rather than full Calderbank.

Rules about costs in the Employment Tribunal

If you are already in the ET or preparing your ET claim, you must familiarise yourself with the ET Rules of Procedure. Everything in the ET is done in accordance with these Rules. ET’s have a discretion to make an award of costs in certain limited circumstances which are set out in Rules 74 to 84 of the Employment Tribunal Rules 2013 (ET Rules). Although the Calderbank rule does not apply to ET’s, the refusal of any settlement offer is just one of the factors that the ET can take into account.

Rule  74(1) says that  “Costs” means fees, charges, disbursements or expenses incurred by or on behalf of the receiving party (including expenses that witnesses incur for the purposes of or in connection with attendance at a tribunal hearing).

In Barnsley Metropolitan Borough Council v Yerrakalva [2012] the Court of Appeal said that costs in the ET are the exception rather than the rule. The existence of a Calderbank type of offer should not automatically lead to an order for costs. This is because in the civil courts the loser pays, but the general rule in the ET is that each party bears their own costs.

Rule 76(1) ET Rules 2013

In making an order for costs, the ET must act within specified rules in  Rule 76 (1)(a) of the ET Rules 2013 which requires that there must be unreasonable behaviour by the other party or their representative. Refusal of the Calderbank offer is one of the factors that the ET must take into account when considering whether the conduct of a party has been unreasonable. It is up to you or your Employer to show evidence that the rejection of the offer was unreasonable and even then, the ET has the ultimate discretion as to whether or not to award costs. Note that Rule 77 allows a party to apply  for a costs order at any stage up to 28 days after the date the written judgment is received.

Costs Risks

Costs may be awarded against you (or your employer) if you fall foul of Rule 76(1) of the ET Rules which says that a costs order may be made where a Tribunal considers that:

  • a party (or that party’s representative) has acted vexatiously, abusively, disruptively or otherwise unreasonably in either the bringing of the proceedings (or part) or the way that the proceedings (or part) have been conducted;


  • any claim or response has no reasonable prospect of success.

The ET can make an order of up to £20,000.00 for costs  without going to a further assessment hearing [Rule 78 (1)(a)]. Any order above £20,000.00 will be subject to a detailed assessment by an Employment Judge or in the County Court [Rule 78(1) (b)].

When considering an application for costs the ET must ask itself two questions in accordance with the test set out in Monaghan v Close Thornton [2001].

1 – Is the costs threshold triggered, for example was the conduct of the party against whom costs is sought unreasonable? And if so,

2 – Should the ET exercise its discretion in favour of the party who made the offer, taking account of all the circumstances?

What is unreasonable behaviour?

The types of unreasonable behaviour which would attract a costs award include when one of the parties;

  • does not comply with ET case management orders
  • includes irrelevant evidence (witnesses or documents) which make the hearing much longer than it should be
  • does not turn up to a hearing
  • wastes the ET’s time with unnecessary arguments, cross examination or in any other way

This is why you should be clear on the facts and legal principles of your case, as well as ET Procedures.

In the case of Kopel v Safeway Stores,  Miss Kopel was employed by Safeway on the deli counter. She resigned after several months of complaints, grievances, counter-grievances, investigations and hearings involving her immediate line manager and other staff. She then sued Safeway for constructive dismissal, sex discrimination, and breach of Articles 3 and 4 of the European Convention on Human Rights (prohibition against torture and slavery) in the ET. The ET threw out all her claims.

After she lost, Safeway applied to the ET for Miss Kopel to pay some of its costs of the hearing. They referred to a letter that they had written earlier in the proceedings offering her  £5,700 in full and final settlement and which was headed “without prejudice save as to costs”. Miss Kopel objected to paying costs because unlike High Court proceedings, there is no rule in the ET that a party to litigation should be punished with a costs order if they get less at the hearing than what was offered during settlement negotiations (a Calderbank Offer).

The ET disagreed with Miss Kopel, because she had not meaningfully engaged in settlement negotiations with Safeway or through ACAS and ordered her to pay Safeway £5,000 towards their total costs of £18,000. The ET said that an Employer should be able to protect its position by making a Calderbank offer where an Employee refuses to enter into negotiations.

Miss Kopel appealed to the Employment Appeal Tribunal (EAT). She said that the ET had got the law on Calderbank Offers wrong. The EAT agreed with her that a failure to beat a Calderbank offer should not, by itself, mean that the person should have an order of costs made against them, and so the ET was wrong. HOWEVER. A refusal to accept a Calderbank type offer is only one factor that the ET can take into account when deciding to award costs if the party’s conduct in rejecting the offer is ‘unreasonable’. The EAT said that Ms Kopel had unreasonably rejected a generous offer while pursuing substantial damages for claims that were ‘manifestly misconceived’. Ms Kopel had to pay the costs of £5000.00.

Vexatious Claims

The Court described a vexatious claim in Marler Ltd v Robertson [1974] as one that has no substance in it and is bound to fail or on the face of it, is so manifestly misconceived that it has no prospect of success:

‘If the employee knows that there is no substance in his claim and that it is bound to fail, or if the claim is on the face of it so manifestly misconceived that it can have no prospect of success, it may be deemed frivolous and an abuse of the procedure of the tribunal to pursue it.’

In Ghosh v Nokia Siemens Network UK Ltd [2013] Mr Ghosh had to pay Nokia £5000 when he lost his claim because he had made a large number of allegations of discrimination, which he could not prove.

Cases where costs were not awarded

An illustration that refusal of a Calderbank offer will not lead automatically to a costs award is in Telephone Information Services v Wilkinson [1991]. Here, Telephone Information Services offered to pay Mr Wilkinson £9699.00 in full and final settlement without admitting that they were wrong. He rejected the offer, saying that he wanted a declaration from the ET that his dismissal was unfair. When he lost his ET claim, the Employer applied for costs again him because his claim for unfair dismissal was vexatious and frivolous. The ET refused to give them costs and Telephone Information Services appealed to the EAT. The EAT agreed with the ET and dismissed the Employer’s appeal. Compensation for unfair dismissal is not limited to money. You have a right to a declaration that you have been unfairly dismissed, particularly if you are looking for another job. The EAT said that Mr Wilkinson had a right to a declaration that he had been dismissed. In order to settle, the employer should have admitted liability as well as offering money.

Anderson v Cheltenham & Gloucester Plc [2013] is another relevant case where the EAT disagreed with the ET’s award of costs.  A branch manager with Cheltenham & Gloucester in Leamington Spa, Ms Anderson left the branch safe open and then left the premises to collect a prescription. She was fired for gross misconduct and sued the bank in the ET for sex and race discrimination, unfair dismissal, and wrongful dismissal. Cheltenham & Gloucester made her a Calderbank offer of £25,000.00. Ms Anderson refused since her schedule of loss came to £1.2m taking account of the loss of her career. She lost her discrimination claims but won the unfair dismissal. The ET did not award her compensation at the hearing but sent the case to a remedy hearing where they would decide how much she should be awarded for the unfair dismissal. Cheltenham and Gloucester made her another offer of £7000.00 before the remedy hearing. She rejected that as well.

At the remedy hearing, the ET deducted two-thirds from her unfair dismissal award to reflect her contribution to her dismissal by her own conduct and awarded her £18,073.00.

The bank then applied for a costs order to be made against her because she had unreasonably rejected their initial offer of £25,000.00. Their costs came to £37,000.00. The ET granted the application and ordered Ms Anderson to pay the bank £10,000.00 in costs. She appealed to the EAT.

The EAT agreed with her and threw out the bank’s costs application. They disagreed with the ET because the only reason that the ET gave in awarding costs against Ms Anderson was that she acted unreasonably in refusing the offer of £25,000 against the background of a claim calculated at £1.2 million. They should have considered the following factors;

  1. Although Ms Anderson lost her discrimination claims there was no suggestion from the ET or the bank that her claims were misconceived.
  2. Her job searches after her dismissal would be assisted by a finding that she was unfairly dismissed.
  3. It was difficult for her to predict at the time how much the ET would deduct for her contributory fault.

In addition, if she had won her claim for discrimination, she would have been awarded a large sum, close to the £1.2million in her schedule of loss for career-long loss. So, it was not reasonable to expect her to accept an offer of £25,000.00 at the time.

What you should do if you get a “Without prejudice subject to costs” Offer

Your employer will make you a Calderbank offer in order to advance the argument that you were unreasonable if you refuse the offer. They will then hit you with a costs application if you lose your case or don’t get as much as they offered you. This is a common strategy so don’t be too gleeful and think they are making the offer because their case is weak.

  • Under Rule 77, the ET must give you a reasonable opportunity to say why they should not grant the costs order to your Employer. You can state your case in writing or at a hearing, usually 14 days after you receive the costs application. Start preparing from when you reject the offer and read the cases on this page to understand how the ET approaches the question of reasonableness.
  • Your employer may ask you to prepare a schedule of loss on which to negotiate or may just throw a number at you. DO NOT exaggerate your schedule of loss. Make sure that your schedule is reasonable, balanced and justifiable. [see Employment Tribunal Compensation Limits, Checklist for Claiming Compensation in the Employment Tribunal, How to prepare your Schedule of Loss, The Compensatory Award, The Basic Award, Schedule of Loss Spreadsheet for Unfair Dismissal claims, Schedule of Loss Spreadsheet for Discrimination claims].
  • If all attempts to settle fail, your employer will send you a letter marked ‘without prejudice save as to costs’. The letter will set out their best offer and say why they think you are acting unreasonably in either refusing the offer or refusing to negotiate. The letter will also state that the ET has the power to award costs for unreasonable behaviour. Settlement negotiations are often conducted on the telephone, so it will be hard for you to prove that you have negotiated or reasonably considered their offer.
  • If you are negotiating either by yourself, or through a representative, make a note of every conversation and email during the settlement negotiations. When you receive the Calderbank letter (and assuming you reject the offer), write to them on the same without prejudice basis, stating your reasons for rejecting the offer, and that you have negotiated in good faith.
  • Throughout the proceedings make sure that you are sure of your claims and fulfil all case management orders. In Scott v Commissioners of Inland Revenue [2004] the Court of Appeal clarified that the key question was not whether the person thought that they were right in rejecting the offer, but whether they had reasonable grounds for doings so. Prepare a statement detailing the reasons you turned down the offer. It could be that you wanted your employer to admit that they have unfairly dismissed you and they refused. The admission is important for your future job prospects, mental health etc. It could be that the money offered was rubbish. In that case, having researched and properly prepared your schedule of loss, you can make a case as to why you refused the financial offer.
  • You must take legal advice before you make or reject the offer. Ask your Employer to pay for the legal advice. Call up a law firm and ask them for their charges to advice on the settlement offer. It may be that your Employer says how much they will pay for you to get legal advice. If the law firm charges more than your Employer is prepared to pay, ask the law firm for a pro-forma invoice or estimate of charges. Send this to your Employer and ask them to increase the money for the legal advice in accordance with the pro-forma invoice or estimate. If they refuse and you reject their offer, add the letter from the law firm, and your Employer’s refusal to pay and add this to your arsenal to defend a potential costs application.
  • If your Employer gives you a deadline by which to respond, and it is too short, you must write to them and say so.
  • If you take legal advice which recommends that you take the offer, then you should seriously consider taking the offer.
  • Under Rule 84, the ET must also consider your ability to pay when deciding how much to order, so prepare a financial statement showing your income and outgoings.

Heads up!

  • Even though settlement discussions and negotiations will be bound by the without prejudice rule, the settlement agreement itself is not bound by the rule, and any documents or references to the subject matter of the negotiations that are mentioned in the document itself can be put before an Employment Tribunal or Court as evidence. [see BGC Brokers v Tradition (UK)]
  • During negotiations, if you want to use a document or record and not have it bound by the without prejudice rule, mark that document as “OPEN CORRESPONDENCE” .
  • Be smart and summarise the details of a relevant telephone or ad-hoc conversation, and send it to the person, confirming that you had the conversation, marked “without prejudice” or “open correspondence” as needed.
  • Remember that tagging any correspondence as without prejudice gives it specific legal protection, and you will not be able to use it any subsequent legal proceedings. If you are not yet in dispute and are just concerned about other people seeing it, mark it as “PRIVATE AND CONFIDENTIAL” rather than without prejudice.

Updated: 16/03/2020


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