29 April 2024

Costs, Actually: A Recap On Offers To Settle

Gatehouse Chambers


Gatehouse Chambers (formerly Hardwicke) is a leading commercial chambers which specialises in arbitration and all forms of ADR, commercial dispute resolution, construction, insolvency, restructuring and company, insurance, professional liability and property disputes. It also has niche specialisms in clinical negligence and personal injury as well as private client work.
Hugh Grant has put civil costs on the public radar, in his latest thread on X (formerly Twitter) (via: @HackedOffHugh), concerning the settlement of his privacy claim against The Sun.
UK Litigation, Mediation & Arbitration
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Hugh Grant has put civil costs on the public radar, in his latest thread on X (formerly Twitter) (via: @HackedOffHugh), concerning the settlement of his privacy claim against The Sun. In one out of a series of posts from the thread on April 17th 2024, Grant wrote, "I don't want to accept this money or settle. I would love to see all the allegations that they deny tested in court," and he goes on to write in a subsequent post in the thread: "But the rules around civil litigation mean that if I proceed to trial and the court awards me damages that are even a penny less than the settlement offer, I would have to pay the legal costs of both sides."

Not all offers to settle are Part 36 offers, and whilst we don't know the exact (or any) terms of the settlement being referred to here, it has certainly been an interesting conversation starter on the costs consequences of settlement offers, and in particular, the quagmire that is Part 36 of the Civil Procedure Rules ("CPR").

The Edge of Reason?

Mark Darcy would probably describe CPR Part 36 as part of the weaponry of the Civil Procedure Rules. It is a "self-contained procedural code about offers to settle" (CPR 36.1(1)) and has been described as a code with the "[salutary purpose of] promoting compromise and the avoidance of unnecessary expenditure of costs and court time" (see Smith v Trafford Housing Trust [2012] EWHC 3321 (Ch) at [13]). The costs consequences under CPR 36.17 apply where (1):

  1. a claimant fails to obtain a judgment more advantageous than a defendant's Part 36 offer; or
  2. judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant's Part 36 offer.

So, if a defendant makes a valid Part 36 offer and the claimant fails to beat this at trial, the claimant will be faced with the costs consequences set out at CPR 36.17(3), unless the court considers it unjust to do so. In this scenario the defendant would usually be entitled to their costs from the date on which the relevant period expired, and interest on those costs.

If judgment against a defendant is at least as advantageous to the claimant as the proposals in a claimant's Part 36 offer, the court will order the defendant to pay, unless it is unjust to do so, the costs set out at CPR 36.17(4). In this scenario the claimant would usually be entitled to:

  1. interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above the base rate;
  2. costs on the indemnity basis from the date on which the relevant period expired;
  3. interest on those costs at a rate not exceeding 10% above base rate; and
  4. An additional amount not exceeding £75,000, calculated by applying the prescribed percentage set out in CPR 36.17(4)(d)(i)-(ii).

The reasoning behind this scheme of rules is to incentivise settlement; Part 36 is therefore a useful code for putting an opposing party under pressure.

A Part 36 offer will be treated as "without prejudice save as to costs"; so, the fact that a Part 36 offer has been made and the terms of such an offer must not be communicated to the trial judge until the case has been decided. Parties should therefore think carefully about the costs risks posed by a trial when a Part 36 offer is on the table. With this in mind, I have selected some noteworthy decisions on CPR Part 36 below as a refresher.

About A Boy

In the case of IEH v Powell [2023] EWHC 1037 (KB) Senior Master Fontaine assessed whether the usual costs consequences of a Part 36 offer should apply in circumstances where a young boy was 18 months late accepting an offer.

The Claimant was sadly involved in a road traffic accident aged 8, whereby he suffered a femoral fracture to his right leg and a traumatic brain injury. The Claim was settled by the late acceptance of the Defendant's Part 36 offer made on 20 November 2020. The Claimant accepted that he had the burden of proof in demonstrating that it would be unjust to make the order specified in CPR 36.13(5). When proceedings were served, the Claimant's experts considered that it was too soon to provide an accurate prognosis, as the Claimant's disability might not be evident until he was older. The Claimant's solicitors took a number of steps after receipt of Counsel's opinion dated 27th November 2020 (which advised against accepting the Part 36 offer at that stage), including obtaining a letter from the Claimant's expert in Clinical Neuropsychology, which confirmed a recommendation for appropriate software and hardware accessories to assist with the Claimant's schoolwork, as well as several further steps to firm up the evidence.

On 16 June 2022 the Claimant's counsel had considered the updated information and advised the Claimant to accept the Part 36 offer. The Senior Master considered that the Claimant would suffer injustice if the usual costs consequences applied and stated: "This is because it is not the Claimant's fault that he sustained the accident when a child, and has to wait to pass through puberty before the long term effects of his injury can be assessed with more certainty". There were also other factors weighing in the balance, including the fact that the Claimant lived abroad – and was affected by the pandemic – and there was a need to appoint an Official Solicitor (due to the Claimant's mother's illness) which delayed matters further. The Senior Master also considered it very unlikely that the court would have approved the Claimant's acceptance of the Part 36 offer had it been accepted in late 2020, given the evidence available at the time. It is clear from this judgment that the issue is case specific; the judgment does not provide a sigh of relief for protected parties thinking of accepting an offer late – as the normal consequences of late acceptance of a Part 36 offer could still bite, depending on the circumstances. The case is an important reminder of the need for practitioners to review a claimant's progress when an offer is on the table.

Two Weeks' Notice?

When it comes to making a Part 36 offer, two weeks' notice would be late: the crucial rule to remember is that Part 36 offers should be made at least 21 days before the start of a trial. Offers can be made later, i.e. closer to trial, but several consequences would flow:- there is no automatic costs order upon acceptance of a late offer, instead, the court must decide the appropriate costs order if the parties cannot agree liability for costs (rule 36.13(4)(a)) and late offers do not attract the usual Part 36 consequences upon judgment unless the court abridges time under rule 36.17(7)(c).

The recent case of Mate v Mate & Ors [2023] EWHC 806 (Ch) (5 April 2023) considers what constitutes the "start of the trial" for the purposes of the timing of the service of a Part 36 offer. The background facts are not particularly relevant, but the key thing to note is that someone named Julie made a Part 36 offer of £650,000 on 12 August 2022. The parties agreed that if the trial started on 5 September 2022, Julie's offer was made less than 21 days before trial, and if the trial started on 6 September 2022, Julie's offer was made 21 days before trial meaning that r.36.17(4) must apply unless the judge considered it unjust to make the usual costs order.

In October 2021 the court had sent a document to the parties titled "Notice of Trial Date" which stated as follows: "The trial of the above claim will take place at 10:30am on the 6th, 7th, 8th, 9th, 12th, 13th, 14th September 2022 with a time estimate 7 days. Judicial Reading has been allocated on the 5th September 2022 and the parties are not required to attend on this day". The barrister representing the Second and Third defendants submitted that the trial was to start on 5 September 2022 because that was the date allotted for judicial pre-reading. He relied on paragraph 11.11 of the Chancery Guide which says that the trial timetable "should allow for a realistic time for pre-reading by the judge" and argued that judges sometimes make contact with counsel during reading days to clarify matters relevant to the trial. The Judge considered that Julie's offer had been made in time: the court notice plainly stated that the trial of the claim was to take place on the 6th and the ensuing six days; it also clearly stated that the parties were not required to attend on the designated pre-reading day. The upshot of this was that the punitive provisions of CPR 36.17(4) applied unless the judge considered it unjust. The Judge considered that it would not be unjust for the Second and Third defendants to pay Julie enhanced interest and indemnity costs.

Nine Months (Late)

I'm not sure why I've never seen the film Nine Months (1995), given that Jeff Goldblum and Joan Cusack are in it – and Hans Zimmer composed the score. I've managed to find a tenuous link to a recent Court of Appeal decision, so here it is.

The recent case of Tabbitt v Clark [2023] EWCA Civ 744 is a decision concerning the "future proofing" of a party's position. This case will be of particular interest to Personal Injury practitioners, but it also has wider significance on the issue of whether a court can make an order protecting a party against a potential change in the procedural rules.

In January 2016, Mr Tabbitt was in a road traffic accident ("RTA") with Mr Clark and sustained serious injury. On 20 January 2022 Mr Clark's insurers made a Part 36 Offer, which was not accepted for over 9 months. Consequently, Mr Tabbitt was entitled to his costs up to and including 10 February 2022, and Mr Clark was entitled to his costs thereafter. It was common ground that qualified one-way costs shifting applied ("QOCS"). It was also common ground that at the time of the judge's judgment (a) acceptance of a Part 36 offer did not result in an award of damages and (b) any costs order in favour of the defendant could not be enforced either against the amount of the Part 36 Offer or against the order for costs made in Mr Clark's favour. As the costs had not been assessed or agreed, there was no immediate prospect of them being enforced against Mr Tabbitt; however, at the time of the judgment there were changes to the QOCS rules under consideration by the Civil Procedure Rules Committee (the "CPRC").

Mr Tabbitt wished to guard against the possibility of a future rule change with potential retrospective effect; he sought a declaration to be included in the order giving effect to the acceptance of the Part 36 Offer on the basis of the rules as they stood at the time. In the High Court, Judge Walden-Smith accepted that she had the power to make an order in the form of the declaration sought by Mr Tabbitt but in the exercise of her discretion she declined to do so. Mr Tabbitt's appeal was dismissed by the Court of Appeal. Lord Justice Lewison, giving the leading judgment, stated that Judge Walden-Smith had been entitled, in the exercise of her discretion, to decline to make an order and to leave the matter to the CPRC. The CPRC have since changed the rules, and ironically, Mr Tabbitt's claim is unaffected by the change in the rules.

More Offers and a Funeral

The case of Kore v Brocklebank [2019] EWHC 3491 (QB) is a useful case for practitioners handling fatal accident claims.

This was a tragic RTA case in which the Claimant's son had sadly passed away. On 13 January 2016, the Claimant's solicitors sent a letter of claim in respect of: (i) dependency; (ii) bereavement; and (iii) funeral costs. The Defendant's solicitors responded the next day admitting liability by way of an email and inviting details of the financial losses "to include funeral expenses". Between April and May, negotiations proceeded with respect of funeral expenses. On 12th May, the Defendant's insurers made a Part 36 offer in the sum of £12,185, less £6,685 relating to an interim payment. The box "whole of claim" had been ticked in the N242A form. Under the "details of offer" a breakdown of the offer was provided against items relating to funeral expenses. On 13th June the Claimant's Solicitors accepted the Part 36 offer and sent a separate subsequent email stating: "I write to clarify that the acceptance of the Part 36 offer is in relation to the funeral expenses only. The dependency claim will continue...".

The Claimant sought to bring a dependency claim on his own behalf and in respect of the deceased's mother and sisters. The Claim was defended on the basis that the whole of the Claim under the Fatal Accidents Act 1976 had been compromised. The issue was tried as a preliminary issue on 13 November 2018 by HHJ Sykes. She found that the Claim had been settled by the acceptance of the Part 36 offer. The Claimant appealed. On appeal, the Hon. Mr Justice Turner stated, "it is perfectly open to a Defendant to settle claims (or distinct heads of claim) intimated by one or more prospective claimants in respect of losses falling within the scope of the Act before proceedings are commenced or served on behalf of those whose claims have not been so settled". The judge considered that this was exactly what had happened – the offer was expressed to be in respect of the whole claim but the only claim raised in the pre-action correspondence was that of the Claimant; therefore, the offer was limited to the Claimant's individual claim in its entirety (with his own claim falling to be struck out) but the claim of the other dependants remained viable. This case provides a handy warning about the framing of fatal accident claims pre-action – the wording in both correspondence and offers can pose a trap for the unwary!

Whoopsiedasies! Setting Yourself Up for A Fall

Someone should have advised William Thacker and Anna Scott that climbing a five-foot railing to access a communal garden was plainly a bad idea. Sometimes you can set yourself up for a fall by becoming fixated by the layers of complication in Part 36 such that you end up missing the more obvious dangers1, e.g. making sure to express the Part 36 offer in the correct currency! I've written a separate article on the topic of Part 36 and the doctrine of mistake here.

This article features one of my favourite county court cases, whereby a party accidentally made a Part 36 offer for £0 which the Defendant accepted...oops! It also contains precedent for parties (and their lawyers) who are looking to escape the consequences of drafting blunders.

Sense and Sensibility

The caselaw above captures the intricacies and pitfalls of settlement offers. Careful drafting is crucial if a party wishes to avoid an eye-watering costs bill – or if a party wishes to secure the automatic costs consequences under Part 36. One should however bear in mind that Part 36 contains built-in mechanisms to temper potential unfairness; rules 36.14 and rules 36.17 require the court to make the prescribed costs orders under the respective rules "unless it considers it unjust to do so".

Going to trial carries inherent risks, and sometimes, sensible decisions need to be made with the wider costs picture in mind. Whatever your views on the fairness of the Civil Procedure Rules, the more you look, the more you will observe that costs law actually is, all around.


1. Full marks if you knew this was a Glass Onion (2022) reference.

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.

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