If you sue or are sued and there is a trial the Judge will usually order the loser to pay the winner’s costs. In relation to most claims, particularly claims for damages, the parties can attempt to protect themselves from the risk of having to pay their opponent’s costs. This is done by making cost protection offers. The easiest way to illustrate such an offer is in relation to a claim for damages. In such a case either or both parties can offer to settle for an amount that is less than the amount claimed. The general position is that if the Court awards damages equal to, or less than, the amount offered then the party who made the offer will have secured a distinct cost advantage over his opponent. For this reason a well-judged offer will often facilitate a settlement.
Costs protection offers can be made either within the framework of the court rules [the Civil Procedure Rules (“CPR”)] or outside them. An offer made within the framework is called a Part 36 offer. An offer made outside the framework is often called, a “Calderbank” offer. Amongst other things Part 36 of the CPR sets out the costs consequences of not beating a Part 36 offer at trial.
Parties to a dispute should consider whether it would be in their interests to make a cost protection offer as soon possible. Offers can be made at any time, even before proceedings have been commenced.
Another way of obtaining costs protection is by obtaining legal expenses insurance. This can be done after a dispute has arisen and either before or after proceedings have commenced.