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Part 36 settlement offers....again
08 June 2011

Part 36…again

We recently provided an update regarding the court’s interpretation of Part 36 of the Civil Procedure Rules in light of a number of cases. Since then the court has continued to provide guidance on various aspects of the rule.

Practitioners need to remain alert to the technicalities of Part 36 because failure to comply may mean that the advantageous costs consequences of the rule will not automatically follow – a potentially costly mistake.

Pre-action part 36 offers

Part 36.3(2) provides that:

“A Part 36 offer –

(a) may be made at any time, including before the commencement of proceedings; …”

In Udogaranya v Nwagw [2010] the court considered a Part 36 offer which had been made, and accepted, prior to the issue of court proceedings in relation to a road traffic accident. An application was made to court solely to address the issue of costs. The question arose of whether the claimant was entitled to the benefit of the costs consequences of Part 36.10 such that the defendant was obliged to pay him his reasonable and proportionate costs, subject to detailed assessment.

Part 36.10 provides:

“…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…”

The problem in this case was that no proceedings had been issued at the time of acceptance of the offer. Could the claimant nonetheless recover his pre-action costs pursuant to Part 36.10? The court decided he could not. The offer letter had stated that “acceptance is subject to payment of our reasonable costs and disbursements” but made no reference to the engagement of Part 36.10. The judge found that if the wording had been instead, “the defendant would be liable for the claimant’s costs, including the costs pre-issue of proceedings in accordance with CPR 36.10” then he would have found for the claimant. (As the case was in relation to a road traffic accident the claimant was nonetheless entitled to assessment of his costs under Part 45.12 (Road Traffic Accidents – Fixed Recoverable Costs) because the court felt there were exceptional circumstances.)

The judge re-emphasised the point made in previous cases about the interpretation of Part 36, namely:

“Part 36 is a self-contained code. The rules of Part 36 must be complied with to the letter for the costs consequences of Part 36 to be engaged. In my judgment in this case they are not.”

Concession of significant value?

AB v CD and others [2011] was a trade mark infringement case. The judge addressed issues arising from claimant and defendant Part 36 offers at the end of a trial on liability and what award, if any, should be made in respect of the costs of the liability trial. The judgment was anonymised to avoid the existence and terms of the offers becoming known to any future trial judge on quantum issues or any appeal court.

Part 36.14 provides for the relevant provisions of the rule to be triggered when the claimant fails to obtain a judgment which is “more advantageous than a defendant’s Part 36 offer” or judgment against the defendant is “at least as advantageous to the claimant” as the proposals in a claimant’s part 36 offer.

Henderson J considered whether the claimant’s offer was a genuine offer or a “lightly disguised request for total capitulation”. The offer sought various undertakings from the defendant not to infringe certain trademarks together with an amount in respect of damages or an account of profits to be assessed by an inquiry if not agreed.  The judge’s view was:-

“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 the meaning of Part 36. If it were otherwise, any claimant could obtain the favourable consequences of a successful Part 36 offer, including the award of indemnity costs, by the simple expedient of making an “offer” which required total capitulation by the defendant. In my judgment the offer must contain some genuine element of concession on the part of the claimant, to which a significant value can be attached in the context of litigation…The concept of a settlement must, by its very nature, involve an element of give and take. A so-called “settlement” which was all take and not give would in my view be a contradiction in terms.”

The judge found that the judgment obtained against the defendants was at least as advantageous to the claimant as its offer but he did not consider that the offer made any real concession of any significant value. He therefore found that the claimant’s offer was not an offer of settlement within Part 36 and therefore it was not entitled to the favourable treatment under Part 36.14. The offer could nevertheless remain a relevant consideration for the court exercising its general discretion on costs.

The claimant argued that an offer made by the defendant was not a valid offer because the defendant had failed to provide it with sufficient financial information for it to be able to assess the validity of the offer. In this instance the judge found that it is good practice for a party making a Part 36 offer to provide the offeree with enough information to make an informed decision whether to accept it or not. Part 36.8 also provided a mechanism whereby a party could seek further clarification of an offer (which was not used by the claimant in this  case). Failure to provide sufficient information did not invalidate the offer provided the other requirements of Part 36 are satisfied. However, refusal to give information might come into play when the court is considering whether it is unjust to grant the favourable costs consequences that would normally follow under Part 36.14.

Time limited offers – revisited

In our last article on Part 36 we discussed the case of C v D [2011]. The case has now been reviewed by the Court of Appeal which reconsidered the validity of time-limited Part 36 offers. The defendant purported to accept an offer some three and half weeks before trial which the claimant asserted had lapsed.

The offer in question in this case was expressed to be “open for 21 days from the date of this letter (“the Relevant Period”).” The important questions before the court were:-

• Can a Part 36 offer be made in terms which limit the acceptance of the offer to a stipulated period, such that the offer lapses at the end of that period?

The court followed the judge at first instance and held that whilst Part 36 does not contain an express exclusion of a time-limited offer in order for it to have the costs consequences following trial the offer has to have remained on the table for acceptance.

• What is the true construction of an offer which is “open for 21 days” in the context of what is intended to be a Part 36 offer?

At first instance the judge had decided that “open for 21 days” meant the offer lapsed without express withdrawal, was time limited and therefore did not comply with Part 36. Rix LJ in the Court of Appeal held that “open for 21 days” meant that an offer was open for at least 21 days but was a warning that after those 21 days the offer might be withdrawn. The wording was to be objectively interpreted against the background that it was the clear express intention that the offer was made in accordance with Part 36. This particular offer was therefore construed as not being time-limited and so was compliant with Part 36.

Giving the leading judgment Rix LJ stated:

“…it should be clearly understood that if a claimant wishes to make a time-limited offer, in the sense that the offer is to lapse of its own accord at the end of a stipulated period, then such an offer cannot be made as a Part 36 offer; that an offer presented as a Part 36 offer and otherwise complying with its form will not readily be interpreted in a way which would prevent it from being a Part 36 offer; and that if an offeror wishes to bring his Part 36 offer to an end, so that it cannot be accepted, then he must serve a formal notice of withdrawal.”

The offer was found to still be open when the defendant accepted it some three and half weeks before trial – at a time when the claimant thought it was no longer open for acceptance and did not want it to be accepted. This highlights the importance of understanding the implications of making a Part 36 offer, keeping it under careful review and expressly withdrawing it if circumstances change.

Conclusions

  • If the claimant wants to make a pre-action offer and recover costs if that offer is accepted prior to the issue of proceedings, then the offer must make specific reference to the defendant’s liability to pay the claimant’s costs, including pre-action costs in accordance with CPR 36.10. 
  • To be a valid Part 36 offer the offer must include a genuine element of concession.
  • A time limited offer will not comply with Part 36.
  • Keep offers under review and ensure that if an offer is to be withdrawn then express notice of withdrawal is given.

For more information about the issues raised in this article or to find out more about how the Dispute Resolution team can help you please contact Mike Robinson on 0118 952 7206 or email [email protected].

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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