Category: Claims handling · Reviewed by Tim Roche, Director · PI & Commercial · Last reviewed 2026-06-11
A sealed offer is the arbitration analogue of a Part 36 / Calderbank offer — a settlement proposal placed before the tribunal in a sealed envelope at the start of the hearing, to be opened only after the substantive decision has been made and considered on the question of costs.
Sealed offers are the mechanism by which parties in commercial arbitration achieve the costs-incentive effects of Part 36 and Calderbank offers in court. They are widely used in ARIAS arbitrations, in LCIA, ICC and ad hoc proceedings governed by the Arbitration Act 1996, and in insurance and reinsurance arbitrations.
The mechanics are simple: a party making a settlement offer places it in a sealed envelope delivered to the tribunal at the start of the hearing. The envelope is not opened during the substantive hearing. After the tribunal has decided the merits, the envelope is opened and the offer is considered on the question of costs.
The principle is grounded in:
The costs consequences of a sealed offer are discretionary, not formulaic. The tribunal will consider whether the offer was a reasonable attempt to settle, whether the offeree’s refusal was reasonable, and what costs order best reflects the parties’ conduct. Tribunals routinely make adverse costs orders against parties that fail to beat sealed offers, often awarding the offeror the costs from the date the offer should have been accepted.
A sealed offer is made in writing, marked “Without prejudice — to be opened only after the tribunal’s determination on the merits”, and addressed to the tribunal chair or secretariat. The envelope is hand-delivered or couriered before the hearing begins and is retained by the secretariat until opened.
The offer itself is structured similarly to a Calderbank: a specific sum (or sums plus interest plus costs to date), with any conditions, and with the offer expressed to remain open for acceptance for a stated period. Some sealed offers include a withdrawal mechanism — the offeror reserves the right to withdraw the offer at any time before acceptance.
After the tribunal has issued its substantive award on the merits, the parties make written submissions on costs. At this stage the sealed envelope is opened (often by the tribunal chair in front of the parties or their representatives). The offer is then considered in the costs analysis.
If the offer has been beaten by the offeror (a defendant’s offer is more advantageous than the outcome to the claimant), the tribunal will normally order the offeree to pay the offeror’s costs from a defined date (often the expiry of the relevant period for acceptance). If the offer has not been beaten, the offer is disregarded.
In some arbitration regimes the costs consequences can be more punitive than in court. ARIAS tribunals have on occasion awarded indemnity costs against parties that unreasonably refused sealed offers, particularly where the refusal appears tactical rather than substantive.
For reinsurance arbitrations, sealed offers are particularly powerful because the costs of arbitration (tribunal fees, hearing facilities, transcript costs, counsel fees) are often very substantial. A sealed offer that shifts those costs onto the losing party transforms the economics of the dispute.
“Time-limited” sealed offers expire after a stated period if not accepted. The offer is then disregarded except as a fact relevant to costs.
“Conditional” sealed offers — settlement terms contingent on external events such as regulatory approval or commutation of a related treaty. Less common because of complexity at the costs stage.
“Withdrawn” sealed offers — offers that have been formally withdrawn before the substantive hearing. The tribunal usually disregards withdrawn offers, but a party that withdraws a reasonable offer late in the day may still face an adverse costs argument.
“Multiple” sealed offers — a series of improving offers, each contained in a separate envelope. The tribunal considers each in turn at the costs stage.
A reinsurance arbitration between a cedant and a reinsurer concerns a $14m treaty recovery in dispute. The reinsurer makes a sealed offer of $8m three months before the hearing. The cedant rejects. The hearing proceeds and the tribunal awards the cedant $6.8m. The sealed envelope is opened: the tribunal sees that the cedant has failed to beat the reinsurer’s offer by approximately $1.2m. The tribunal awards the reinsurer its costs from the expiry of the sealed offer’s relevant period to the issue of the award, on the indemnity basis, totalling approximately $1.4m. The cedant’s net recovery: $6.8m (award) minus its own irrecoverable costs from the relevant date ($380,000) minus the reinsurer’s costs ($1.4m) = approximately $5.0m. Had the cedant accepted the sealed offer, it would have received $8m plus its costs to the date of acceptance.
By Matt Bartlett, Director, on 2026-06-11. Next review: 2026-12-11.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-11. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
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