1. Preface
Part 36 of the English Civil Procedure Rules (CPR) offers the opportunity to the thoughtful solicitor and commercially-minded client to achieve a pre-trial resolution.
Part 36 is a self-contained code. It contains a carefully structured and highly prescriptive set of rules. It deals with formal offers to settle proceedings.
Where the party making the offer is known as “the Offeror”, the party to whom it is made is “the Offeree”.
A Part 36 Offer must be accepted within 21 days. It is still possible for an Offeree to accept later in time but this can only be with the permission of the Court and after the further costs of the case have been taken into account. Late acceptance carries risk.
There are specific consequences on costs where a Part 36 Offer from an Offeror is not accepted by the Offeree, and the Offeree fails to do better following a trial.
A Part 36 Offer may be made in respect of a whole or part of – or any question that arises in any claim or Counterclaim including appeals. It can also relate to questions of costs which are ordered following a trial, where those costs have to be assessed by the Court (a process known as detailed assessment).
In broad terms, if an Offeree fails to beat a Part 36 Offer following a trial, they may be held liable to meet the Offeror’s indemnity costs (from the date of the offer) and may also be subject to punitive additional costs to (dependent upon the amount of the claim in dispute).
Accordingly, Part 36, prudently wielded, can prove a useful tool for compromise.
There are three particular areas which have been clarified by case law in recent years.
New Claims & Part 36
(1) Hertel & Another v. Saunders [2018] EWCA Civ. 1831
Hertel (H) was the Claimant and Saunders (S) the Defendant in legal proceedings.
S made an offer to H in relation to a new claim which H had indicated it wished to bring.
The new claim had not been incorporated within H’s document setting out its case in law (known as the “Particulars of Claim”).
H chose to accept S’ offer in relation to its new intended claim – and then H abandoned its case on its Particulars of Claim.
The Court later decided that S’ offer had been made under Part 36, and as a consequence directed S to pay H’ costs of the abandoned claims.
S appealed. The Judge on appeal found that S’ offer had not been made in keeping with Part 36 and that – because H’ abandonment meant that S was effectively the successful party – H should pay S’ costs of their abandoned case.
H appealed to the Court of Appeal.
[At this point, it should be noted that the version of P36 which applied to Hertel was that which existed prior to amendments which came into force in April 2015. However the wording of the relevant rule – 36.2(2)(d) was preserved by the new rule 36.5(1)(d).]
36.5(1)(d) states that a Part 36 Offer must “relate to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue”.
The Court of Appeal held that a new claim which had been intimated but which did not form part of the pleadings (that is, the Particulars of Claim) was not caught by this provision and therefore fell without the Part 36 regime.
On this basis, S the Defendant was not liable to pay H’ the costs of its abandoned claims.
There had been no legitimate Part 36 Offer.
How might this difficulty have been avoided?
It would have been open to H to agree the terms of a Consent Order providing for an agreed amendment to its Particulars of Claim, so as to introduce the new claim intended. The price of that would be for H to meet the (possibly manageable) costs resulting from the amendment. There would then have been the new claim before the Court which could then have been settled on the Part 36 basis and H costs defeat avoided.
Part 36 : with or without interest?
(2) King v. City of London Corporation 2019
Mr King, the Claimant (K) sued the City of London Corporation (CL).
Through his solicitors, K came to a settlement with CL. The terms of that settlement included agreement by CL to contribute towards K’s costs which – if these could not be agreed – would be subject to detailed assessment by the Court.
The costs were not agreed and the detailed assessment proceedings took place.
Before the detailed assessment, K offered to accept £50,000 in settlement of his costs claims. It was said that his offer expressly excluded interest.
CL chose not to accept the offer and the matter continued to costs assessment.
The upshot was that K was awarded costs which totalled £52,470. He argued that because he had recovered more than his Part 36 Offer CL was liable to meet his costs of assessment under the provisions of 36.7(4) of the CPR and on the indemnity basis.
The case went to the Court of Appeal. In his leading Judgment, Lord Justice Newey stated that it was beyond doubt that
“… an offer which fails to comply with the requirements of CPR Part 36 in an essential respect will not take effect as a Part 36 Offer even if it is expressed to be one”
The Judge went on to say that in order to be valid, offers must comply with the provisions of CPR 36.5(4) which states that a Part 36 offer:
“… which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest.”
Because K had expressly excluded the right to recover interest his offer offended the strict provisions of Part 36 and no indemnity costs (or indeed no costs at all) were recoverable.
Put another way, the Court of Appeal mooted that had CL chosen to accept K’s proposal then -upon his own terms – he would have been deprived of any of the right to claim interest in any event.
K’s offer had not been legitimately drafted and accordingly – even though K recovered more on detailed assessment than the amount for which he had earlier been prepared to settle – no costs consequences arose from it.
How might this difficulty have been overcome?
There were a number of options open to K:
(a) to calculate the notional interest to the point at which acceptance was required (21 days from the Part 36 Offer) and to include it in his proposal, and to limit that interest to 21st day for acceptance;
(b) for K to incorporate interest as in (a) but expressly to reserve the right to argue for interest on 22nd day and after;
(c) if K had no wish to tackle a claim for interest, then to exclude it entirely and make a settlement proposal under the broad and general provisions of Part 44 CPR – where conduct in negotiations may still be taken into account when it comes to acceptance and costs.
(3) Carcraft Test Centre and Martin v. Trotman & Advantage Insurance Co
In this case, the Court awarded indemnity costs against the Defendant, Trotman (D) who had accepted a Part 36 offer from Carcraft, the Claimant (C), 10 months out of time but before the trial began.
C was awarded indemnity costs against D from the date that C’s Part 36 Offer had expired ( after 21 days) to the point of late acceptance.
The Court noted that C had made its Part 36 Offer after disclosure of medical evidence but before the litigation had commenced.
The Court considered that it would not be “unjust” to make an award of indemnity costs having considered the factors listed within CPR 36.17(5).
Those factors are:
(a) the terms of any Part 36 Offer
(b) the stage in the proceedings when any such offer was made (including in particular how long before trial had started)
(c) the information available to the parties at the time of its making
(d) the conduct of the parties regarding the giving or refusal to give information (to enable the offer to be made of evaluated) and
(d) whether the offer was a genuine attempt to settle.
The decision of the Court in Carcraft mirrors that in the earlier case of Sutherland v. Khan [2016] where there was late acceptance (4 weeks after the initial 21 days) by the Defendant. The Claimant was awarded his fixed costs ending 21 days after the date of his offer and thereafter (to the point of late acceptance) the Defendant was obliged to pay him his indemnity costs.
In Sutherland, District Judge Besford made the following observations which apply equally to the case of Carcraft:
“There has been a tightening-up as to the “carrot and stick effect” of Part 36 Offers … if there was no incentive or penalty, there would be little point in a Defendant accepting offers early doors, as opposed to waiting immediately prior to trial. It also seems to me unsatisfactory that there should be penalties flowing if you do not beat an offer at trial, whereas if you settle before trial there are none.”
In summary – and in both cases – there had been offers made at the appropriate time, all parties had sufficient information properly to consider the offer, and each offer was a genuine attempt to settle.
A means of resolution
The arguments over costs could well have been avoided had – in each case – the Offeree responded more promptly to the offer put. The responses had been dilatory and had led to further costs being incurred which would – in the event of early acceptance – have been avoided. Hence the delaying party was penalised under the provisions of Part 36.
It behoves an Offeree to consider closely and with expedition the terms of any offer put and to assess the benefits of prompt acceptance, when weighed against the further costs and risks that delay might occasion.
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This Article contains views founded upon the interpretation of current legal practice and procedure. However, each case is fact-specific and much may turn upon the individual nature of the case or changes in the law or differing judicial interpretations.
Richard Peter Tymkiw LLB (Hons) 