UK: Part 36 Offer Update

Last Updated: 8 August 2011
Article by Nigel Brook and Davinder Chhatwal

Introduction

A party to English court proceedings can mitigate its costs exposure (as a defendant) or enhance its costs recovery (as a claimant) by making a well-judged settlement offer that complies with Part 36 of the Civil Procedural Rules.

The current version of Part 36 dates back to 2007. If the changes made then were intended to reduce the legal wrangling surrounding such offers post-trial, they do not appear to have achieved that aim. Recent months have seen a flurry of cases concerning Part 36 offers and a further amendment to the rules is anticipated this October. We set out below some of the key areas which have attracted judicial comment in the last year and provide tips on how to avoid the potential Part 36 pitfalls.

Is your offer a Part 36 offer at all?

1) Is it even an offer? This may seem an obvious point, but the recent case of AB v CD & Ors1 demonstrates the potential problems of "strategic" offers. The concept of an "offer to settle" is not defined in Part 36. However, the judge said it was clear that a request to a defendant to submit to judgment for the entirety of the relief sought by the claimant cannot be an offer to settle within Part 36: "In my judgment, the offer must contain some genuine element of concession". For claimant offers, this can be something which it is in the claimant's power to give up either at the time the offer is made or only at or after the trial (provided that agreeing to forgo the opportunity to obtain it is not "merely an empty gesture").

On the facts of the case, the claimant had not made a valid Part 36 offer because he had not stated any specific sum which he would be prepared to accept and nor had he made any real concession of significant value. Forgoing an advantage which could have been used in future proceedings against third parties was not a genuine concession either.

2) What does it say about costs? CPR r36.10(1) provides that "where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings up to the date on which notice of acceptance was served on the offeror".

In London Tara Hotel Ltd v Kensington Close Hotel Ltd2 an offer was sent by the claimant to the defendant. The letter in question was headed "Claimant's Part 36 Offer to Settle made on the Counterclaim - Without Prejudice save as to costs". One of the terms of the offer was that the defendant would pay only 10% of its costs of the litigation. Roth J held that the result of that term was that the offer was not a valid Part 36 offer. When a Part 36 offer is accepted, the claimant is entitled to its costs up to the date of acceptance and: "This is not a matter of discretion but results by operation of the rules. The court has no power to disallow a proportion of those costs".

Similarly, in Howell & Ors v Lees-Millais & Ors3, the offer letter offered the claimant 75% of her costs of an application. The Master of the Rolls said the offer was not Part 36- compliant because it "specifically excluded the offeree from recovering all her costs, as it gave her the option of recovering only a proportion of her costs or a fixed sum in respect of her costs".

3) Is it time-limited?

Although there is no express exclusion in Part 36, it is not possible to make a time-limited offer. CPR r36.2(2)(c) provides that a Part 36 offer must specify "a period of not less than 21 days within which the defendant would be liable for the claimant's costs in accordance with rule 36.10 if the offer was accepted".

In Carillion JM v Phi Group4, the letter sent by one party requested a response within 7 days. Even though the letter was expressly intended to be a Part 36 offer, the judge held that it was not Part 36 compliant: "The failure to spell out a 21 day period is an important one because it provides not only a timetable within which the offeree needs to accept the offer but also points the offeree to the cost consequences of accepting it. This is perhaps even more important when, as here, the offeree was not yet a party to the proceedings ... and the offeree was nowhere near as well informed about the underlying litigation as [the offeror] was."

It should be noted, though, that this case contrasts with the Court of Appeal decision in Onay v Brown5, as well as Crystal Fibres v Fianium6 and Sutherland v Turnbull7 where the failure to specify the period of not less than 21 days (as required under CPR r 36.2(2)(c)) was held to not be fatal to an argument that the offer was a valid Part 36 offer. However, in Onay and Sutherland, there was, at least, a reference to 21 days in the letter itself, whereas in this case there was reference only to a 7 day period.

In C v D8, the claimant made an offer to the defendants in which it was stated that "the offer will be open for 21 days from the date of this letter". This was a common wording for Part 36 offers under the old rules. The Court of Appeal found that the offer in question was not a time-limited offer. Reading the offer as a whole, Rix LJ said: "In the context of Part 36, it seems to me to be entirely feasible and reasonable to read the words "open for 21 days" as meaning that it will not be withdrawn within those 21 days." It also served as a warning that a withdrawal of the offer (see further on this below) after 21 days was "on the cards". Of particular significance here was the fact that the offer was clearly intended to be a Part 36 offer.

4) "Technical challenges"

In C v D, Burnton LJ commented that: "any ambiguity in an offer purporting to be a Part 36 offer should be construed so far as reasonably possible as complying with Part 36". This approach reflects a growing judicial trend not to allow "technical challenges" to Part 36 offers, where possible. Such an approach will normally favour the offeror (although that wasn't the case for the offeror in C v D - the offer he had made, and which remained open, had become unfavourable by the time the other side accepted it).

5) Failure to clarify

CPR r36.8 provides that an offeree may, within 7 days of a Part 36 offer being made, request the offeror to clarify the offer (and, if the offeror does not provide this, the court can order it to do so). In AB v CD & Ors (see above), the defendants had made a valid Part 36 offer but had failed to supply certain financial information requested by the claimant in order to assess the value of the offer. The judge confirmed that, although it is "good practice" to provide clarification, a failure to comply with this obligation does not invalidate a Part 36 offer. If an offeree decides to refuse an offer because of insufficient information, and later fails to match or improve on it, he can argue that the usual adverse consequences should not follow (or should at least be mitigated). In any case, it was not clear that the claimant did not have sufficient information to make an educated decision in this case.

Withdrawal of the Part 36 offer

Part 36 offers cannot lapse. They have to be formally withdrawn. So, for example, in C v D (see above), where the offer was said to be open for 21 days, further correspondence between the parties had only amounted to an extension of the time for acceptance but there had been no formal withdrawal of the offer. Accordingly, it was still open for acceptance. A similar conclusion was reached in Howell & Ors v Lees-Millais & Ors.

Where an offer has been withdrawn, the Part 36 costs consequences will not apply. However, CPR r44.3 provides that in deciding what order to make about costs the court must have regard to an admissible offer which is not a Part 36 offer. In Owners of Samco Europe v Owners of MSC Prestige9 the judge followed a line of caselaw authority in deciding that the key question is what has caused the costs incurred after the offer has been withdrawn to be incurred: "If it is the unreasonable conduct of the offeree in failing to accept an offer which ought to have been accepted then the offeree will usually have to pay those costs. In those cases where an offeree wishes at a later stage to settle on terms which have been withdrawn by the offeror the offeree can protect himself against future costs by making an offer in those terms himself".

Has your offer been beaten?

The 2007 revisions to the Part 36 rules removed the reference to "beating" a Part 36 offer. Instead the rule now refers to (1) a claimant failing to obtain a judgment which is "more advantageous" than a defendant's Part 36 offer; or (2) judgment against the defendant being "at least as advantageous to the claimant" as the proposals contained in a claimant's Part 36 offer.

Shortly after the revised rules came into effect the Court of Appeal held in Carver v BAA Plc10 that the court was entitled to take into account all the circumstances of a case (and go beyond a mere financial comparison) when deciding whether a claimant had failed to obtain a judgment more advantageous than a defendant's Part 36 offer.

Carver has been widely criticised because it is said to give rise to uncertainty. Accordingly, Jackson LJ's final report on Civil Litigation Costs has recommended the reversal of the case. It is now anticipated that the decision will be formally reversed by a change to the Part 36 rules on 1 October 2011.

In a recent case - Acre 1127 Ltd v De Montfort11 - the claimant made a Part 36 offer which it beat (but only marginally) in financial terms. The Court of Appeal referred to Carver and, interestingly, did not criticise the decision. Instead, a distinction was drawn on the facts. Here, there was a claimant offer and the situation with defendants' offers was said not to be analogous. Furthermore, the claimant's offer had been met with no response and so the claimant had "had no option but to continue in order to recover anything". It was not relevant whether or not the defendant had been reasonable in declining to engage with the offer - the rule required only that the court look at the advantage to the claimant.

Court's discretion as to costs

It is worth bearing in mind that judges can refuse to award the enhanced cost benefits set out in Part 36 if they consider it would be unjust to award those higher costs. In Shovelar & Ors v Lane & Ors12, at first instance in this case, the judge refused to apply the costs consequences set out in Part 36 after the claimants beat their (rejected) Part 36 offer to the defendants at trial. The Court of Appeal reversed the decision on the following grounds:

  1. The size of the costs meant that it was not possible for the defendants to accept the offers made: although the Court of Appeal had some sympathy for this argument (here, over £320,000 had been spent fighting over a £134,000 estate), it held that this was not a good reason to refuse the Part 36 consequences because: "the amount of the costs which would have to be paid is a matter for assessment by the costs judge and it is the costs judge who will question, and will no doubt question very closely indeed, whether the costs claimed were necessary and proportionate".
  2. The nature of the case was such that the outcome could not be certainly predicted until after evidence had been given: the Court of Appeal held that this was not a good reason: "It is almost inevitable in all litigation that the nature of the outcome cannot be certainly predicted until after the evidence has been given and even then there is no certainty as to the outcome until the judge has decided the case on that evidence". In this case, it would have been better for the parties to mediate rather than litigate.
  3. The fact that the offer was not accepted could be properly taken into account under Part 44 when determining what order for costs ought to be made: the Court of Appeal held that Part 36 is a separate self-contained code which must be applied - Part 44 cannot be taken into account. In the words of Ward LJ, "Part 36 trumps Part 44".

Tips

  • Remember that a Part 36 offer which has not been formally withdrawn can be accepted, without notice, at any time by the other side (even if it has previously been rejected by the other side). Therefore, keep your Part 36 offers under review. Diarise reviews but also remember to reconsider the offer you have made every time new information comes to light.
  • Defendants have less to gain than claimants from the enhanced costs provisions of Part 36. Equally, it will often be the case that they will find their position deteriorating over time as the claimant's costs increase in pursuing the case. Accordingly, it is particularly important for defendants to consider whether to withdraw their offer after the end of the period which they set out in their offer letter for acceptance.
  • Part 36 provides that offers are automatically inclusive of interest but there is no such provision in relation to costs. The parties can agree the costs payable up to the date of acceptance, but if they don't these will be assessed by the court on the standard basis. The need to refer to costs in an offer letter has been described in the decisions above. A common issue, though, is whether it is acceptable to offer £X, inclusive of costs, without breaking down the figure for costs. However, such an offer will not be Part 36- compliant. Accordingly, it is always best to either set out a separate figure for costs (although, tactically, this may be inadvisable since an offer may remain open for a long period of time, during which the figure for costs will inevitably become too low) or to explain that the offer is exclusive of costs. In all cases, the offer should state that if the costs cannot be agreed, they will be assessed by the court.

Footnotes

1 [2011] EWHC 602 (Ch)

2 [2011] EWHC 29 (Ch)

3 [2011] EWCA Civ 786

4 [2011] EWHC 602 (Ch)

5 [2011] EWHC 1581 (TCC)

6 [2009] EWCA Civ 775

7 [2010] EWHC 972

8 [2010] EWHC 2699 (QB)

9 [2011] EWHC 1656 (Admlty)

10 [2008] EWCA Civ 412

11 [2011] EWCA Civ 130

12 [2011] EWCA Civ 802

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Nigel Brook
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.