Calderbank letters
"Calderbank letters" (so called after a case of that name) are routine parts of any UK divorce where the "ancillary relief" claims are contested. It is the normal rule in litigation in the courts of England and Wales that the loser is ordered to pay the winner's legal costs and the same is true (in general) of matrimonial cases. In any case where significant legal costs have been incurred a litigant will want, so far as is possible, to minimise the risk of having to pay his (or her) opponent's legal costs and the Calderbank letter is intended to address this problem. Drafting such a letter and pitching it at the right level is a skilled art and one in which a mistake can cost dear or, if done well, reap handsome dividends.
So if, for instance, a husband and wife have a jointly owned house worth, say, £100,000 free of mortgage and it is agreed between them that the property should be sold and the proceeds divided between them the ancillary relief dispute might be about what percentage of the proceeds each should get. (And this very much depends on their needs and circumstances). The wife might want, say, 70% and the husband, say, might only be prepared to divide the proceeds 50/50. Since one is talking about a difference of £20,000 this is quite likely a case where there will be a legal dispute and it may end up in court if the parties do not reach an agreed settlement.
If neither party is legally aided (because legal aid can affect the calculation very significantly), then each party is at risk of paying the other's legal costs (as well as their own) if he/she loses. So if, for instance, the judge decided the wife should get 70% of the proceeds he will almost certainly order the husband to pay the wife's legal costs. Similarly, if the judge were to order a 50/50 split the wife would very likely be at risk of having to pay her husband's legal costs.
In order to lessen the risk of this the husband (or, more likely, his solicitors) might write a "Calderbank letter" to the wife's solicitors offering to let her have, say, 60% of the proceeds of sale and they would head such a letter "Without prejudice save as to costs". What this heading means is that the letter cannot be produced to the court as it is deciding the issue of what percentage of the proceeds should go to each. The judge would decide the matter without knowing anything at all about the letter. But then say the judge decided to split the proceeds 60/40 in favour of the wife (which he might easily do on the basis of just splitting the difference between the husband's position and that of the wife). At that point there would be an argument about who should pay the legal costs of the proceedings and the husband's lawyers would produce the Calderbank letter to show that he had already offered a 60/40 split.
In circumstances such as these the judge would almost certainly order the wife to pay the husband's legal costs from the date of the letter because all legal expenses since that date would have arisen as a result of the wife's refusal to accept the offer.
Notice that it would have been possible for the husband to have made his offer of 60% of the proceeds in so-called "open correspondence" or, indeed, in one of his affidavits sworn during the course of the case. If he had done this the court would be aware of the offer as it was making its decision about what percentage to grant to each. Very often it is undesirable that the court should know the parties' "bottom line" in this way because it will naturally tend to use the husband's offer of 60% as its base figure and might then, perhaps, have awarded the wife, say, 65% of the proceeds. For this reason it is sometimes sensible to keep the court in the dark while still protecting one's own position so far as possible by means of a Calderbank letter. That is why the letter is headed "without prejudice save as to costs".
It is fair to say that the courts do not apply costs rules in matrimonial cases anywhere near as strictly as they do in, say, commercial litigation cases. Also, the matrimonial courts do normally require an indication of both sides' legal costs before coming to a decision because they know these can affect the fairness of their decisions. Nevertheless, the general rule is still that "costs follow the event" - ie that the loser pays the winner's legal costs - and it would be very unwise of any party to matrimonial proceedings to ignore that fact.
Knowing exactly where to pitch the level of a Calderbank letter is a difficult matter of judgment which, basically, involves second guessing the court. For that reason it needs professional expertise and it would be a rash practitioner who could guarantee never to get it wrong. It is a guess but a guess based on informed knowledge of what and how the courts decide these cases is the best advice on offer. Done well it can save a client a great deal of money and handled badly can have quite the opposite effect.
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