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PART 36 The importance of making and reviewing offers

Diane Johnson, Director, Costs Lawyer UKDiane Johnson, Director, Costs Lawyer UK

Making a good Part 36 offer is an important tactical step. A Claimant who makes a good Part 36 offer can reap a number of benefits/rewards as follows:-

  • Indemnity costs

  • Exceed the approved budget

  • Increased interest up to 10% above base rate

  • Uplift on damages and costs

  • Fixed costs trumped by a Part 36 offer

Indemnity costs

The difference between Claimant and Defendant Part 36 offers

A Claimant who makes a good Part 36 offer benefits from indemnity costs, whereas a Defendant who makes a good offer usually only recovers standard costs. This is because Part 36 is specifically designed to promote settlement, acting as a penalty for Defendants and a bonus for Claimants.

In the event that a Defendant fails to accept a good Claimant Part 36 offer, a Claimant can recover indemnity costs at Trial, meaning no proportionality test! In addition, the budget only applies to costs on the standard basis, CPR 3.18. However, in the case of Lejonvarn –v- Burgess [2020] the Defendant was initially awarded standard costs but appealed. On appeal, the Defendant was awarded indemnity costs as a result of the unreasonable conduct of the Claimant in pursuing speculative/weak claims and the unreasonable failure to accept an early Part 36 offer.

The Judge exercised discretion, pursuant to CPR 44. It was also confirmed in this case that the budget was irrelevant when dealing with indemnity costs ... “in principle, the assessment of costs on an indemnity basis is not constrained by the approved cost budget.”

Another case reference is Slick Seating Systems [2013] EWHC B8 (Mercantile)

Para 11 … “Therefore, in those circumstances, indemnity costs are applicable. This means that the costs budgeting, even if the claimants had exceeded their budget would not have come into play as far as this is concerned because it would be upon the defendant to show that the costs they had incurred, whether within or above the budget were unreasonable.”

In the event a party’s costs budget is limited to applicable court fees only for failing to file a costs budget (CPR 3.14), as in the widely known case of Mitchell, a party who makes a good Part 36 offer can recover 50% of the costs assessed, see CPR 36.23.

CPR 36.23 “ (1) This rule applies in any case where the offeror is treated as having filed a costs budget limited to applicable court fees, or is otherwise limited in their recovery of costs to such fees.

(2) “Costs” in rules 36.13(5)(b), 36.17(3)(a) and 36.17(4)(b) shall mean—

(a) in respect of those costs subject to any such limitation, 50% of the costs assessed without reference to the limitation; together with

(b) any other recoverable costs.”

Additional awards - uplift on damages and costs CPR 36.17 (4)(d) & interest on damages and costs up to 10% above base rate CPR 36.17 (4)(a) & (c)

The rules provide for an uplift of 10 % on the first £500,000.00 awarded, then 5% over half a million pounds, which is capped at £1 million, so the maximum uplift is £75,000.00.

In the case of JLE –v- Warrington Halton Hospitals NHS Foundation Trust [2019] EWHC 1582 (QB), clinical negligence matter in which the bill of costs was assessed at £7K more than the offer. The uplift was £43,000.00. On appeal against a decision to make no order under CPR 36.17(4) (d), it was held that the amount by which the Claimant had beaten his/her own offer was not a relevant factor in considering whether it was unjust to award the additional 10% uplift. Even if the offer had been beaten by a small margin, the offer had been “bettered”, therefore the receiving party was entitled to the full uplift/rewards.

CPR 36.17(2) provides “ in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.”

Obiter, Stewart J held (para 78) :-“ In short, if I had to, I would find that the 10% in subparagraph (d) is all or nothing. It must be awarded in full unless it is unjust to do so. However, for the reasons given, it does not arise on this appeal.”

Also see the case of Telefonica –v- Office of Communications [2020] EWCA Civ 1374

In this case, the Court confirmed that the successful Claimant should receive all of the available rewards.

Para 46… “Third, I see no justification for the Judge's approach of treating the award of the additional amount of £75,000 and of indemnity costs as factors rendering it unjust also to award enhanced interest on the principal sum, whether as a matter of "proportionality" or otherwise. The rule provides for the successful claimant (in the terms of CPR 36.17(1(b)) to receive each of the four enhancements and there is no suggestion that the award of one in any way undermines or lessens entitlement to the others. In this case the Judge regarded the award of the two more trivial enhancements as a reason why it was unjust to award the major enhancement. I consider he was not entitled to do so.”

In the case of Cashman –v- Mid Essex Hospital Services NHS Trust [2015] an appeal following the refusal to award an additional amount under CPR 36.14(3)(d) on a detailed assessment in a clinical negligence case.

On appeal the Claimant was awarded the uplift. Held CPR 36.14(3)(d) is intended to be an incentive to Claimants to make timely and realistic Part 36 offers and a penalty to Defendants who do not accept such offers. The size of the award cannot render it unjust. It’s worth noting that there must be provision within the retainer for the Solicitor to keep the uplift.

Fixed costs trumped by Part 36

In the case of Broadhurst –v- Tan [2016] EWCA Civ 9 the Claimant beat her own offer in a fixed costs matter. The Court of Appeal held Part 36 indemnity costs prevailed over fixed costs.

The Claimant was awarded costs to the last staging point provided by the relevant table, with costs on the indemnity basis, in addition, from the date the offer became effective. This led to a generous outcome for the Claimant but it was consistent with the policy of Part 36.

“Where a claimant makes a successful Part 36 offer in a section IIIA case, he will be awarded fixed costs to the last staging point provided by rule 45.29C and Table 6B. He will then be awarded costs to be assessed on the indemnity basis in addition from the date that the offer became effective. This does not require any apportionment. It will, however, lead to a generous outcome for the claimant. I do not regard this outcome as so surprising or so unfair to the defendant that it requires the court to equate fixed costs with costs assessed on the indemnity basis. As Mr Williams says, a generous outcome in such circumstances is consistent with rule 36.14(3) as a whole and its policy of providing claimants with generous incentives to make offers, and defendants with countervailing incentives to accept them.”

Validity of Part 36 offers

Whilst it is not mandatory to use the Court form N242A, it is the best way to ensure compliance and a valid Part 36 offer being made.

See the case of Essex County Council –v- UBB Waste [2020] EWHC (TCC) In this case, a Part 36 offer in a £9 million pound case was disputed on the issue of service. The Claimant’s Part 36 offer stated the relevant period was within 21 days of the date of their Part 36 letter. The Defendant argued that due to receiving the letter the following day, the relevant period expired in 20 days and therefore did not comply with Part 36. The Claimant’s position was that the offer ran from the date of deemed service. The High Court held the offer was valid. This Judgment makes interesting reading and discusses a number of important costs issues.

“37.5 Fifthly, I consider that, as a matter of policy, the responsibility for ensuring that an offer is compliant with Part 36 should lie squarely upon the offeror and his lawyers. There are two very simple answers to the unrelenting stream of cases which, as Coulson LJ observed in King, litter the law reports in which parties seek to obtain the benefits of Part 36 despite making non-compliant offers:

a) As has been repeatedly stressed by the Court of Appeal and as the rules clearly explain, there is no problem with a party making an offer outside Part 36. Such offers will be taken into consideration under Part 44 but will not gain the special advantages of Part 36.

b) As the commentary in Civil Procedure (the White Book) makes clear at paragraph 36.5.2, much of the difficulty would be avoided if parties would only use form N242A to make their offers.”

Requirements of a Part 36 offer (36.5)

  • The offer must be in writing

  • It must make clear it is made pursuant to Part 36 (36.5 (1)(b))

  • It must specify a period of not less than 21 days within which the Defendant will be liable for the Claimant’s costs

  • It must state whether it applies to the whole or part of the claim

  • It must state whether it takes into account any counterclaim

Reviewing offers

An important point to note is that Part 36 is procedural not contractual. CPR 36.1 makes clear that Part 36 is a self-contained code. Accordingly, the usual contractual requirements of offer and acceptance do not apply. Part 36 offers do not lapse. The offer can be accepted even if it has previously been rejected, so long as the offer has not been withdrawn and the Trial has not begun. It is important to review and withdraw, or vary Part 36 offers at key stages in the claim, therefore avoiding a negligence claim.

36.1 (1) “ This Part contains a self-contained procedural code about offers to settle made pursuant to the procedure set out in this Part (“Part 36 offers”).”

In the case of Gibbon v Manchester City Council [2010] EWCA Civ 726, [2010] 1 WLR 2081 the Court of Appeal stressed that Part 36 contains a carefully structured and self-contained code of rules, and that it is "to be read and understood according to its terms without importing other rules derived from the general law, save where that was clearly intended".

Part 36 was amended on 6 April 2015, to address the issue of Claimants obtaining costs benefits of Part 36 when making offers to accept 100% or just below 100% liability.

When considering whether it would be unjust to impose the costs benefits, the Court must now consider “ whether the offer was a genuine attempt to settle proceedings.” CPR 36.17(5)(e).

In the case of Jockey Club –v- Willmott Dixon (2016) EWHC 167 (TCC) an offer to accept 95% liability was held to be a genuine effort to settle CPR 36.17(5)(e). This was a ‘win or lose’ case and therefore 95% was not a possible outcome. Either the Defendant was liable for the full extent of the Claimant's damages, as assessed or agreed, or it was not. However, it was not necessary for the offer to reflect a possible outcome at Trial.

Late acceptance of a Part 36 offer

CPR r.36.13(4)(b) provides that where a Part 36 offer which relates to the whole of the claim is accepted after expiry of the relevant period, the liability for costs must be determined by the court unless the parties have agreed the costs.

If a Defendant accepts an offer within the 21 day period, there is a deemed costs order.

In the case of Pallett –v- MGN Limited [2021] EWHC 76 (Ch) (which concerned the actress, Roxanne Pallett, in the phone hacking scandal), the Defendant waited until day 22 to accept the offer. This was a deliberate strategy in order to argue the issue of costs before the Court. Ultimately, the Court found that the normal consequences should follow and the Claimant should have all the costs of the proceedings on the basis of the normal template order.

Part 36 benefits not attributable to costs of the costs

Best –v- Luton & Dunstable Hospital NHS Foundation Trust [2021] EWHC B2 (Costs) (29 January 2021)

This case related to a detailed assessment listed for 10 & 11 November 2020. A month prior to the listed hearing, the Defendant accepted the Claimant’s P36 offer, out of time to settle the bill and interest up to the date of expiry of the offer. The only remaining issue was the quantification of the Claimant's costs of the assessment process, which were payable by the Defendant. At the hearing on 10 November, the Claimant’s costs of assessment were summarily assessed. Thereafter the Claimant requested Part 36 provisions for beating her own Part 36 offer on the costs of the assessment costs. The Judge referred to his earlier decision in the case of Bourne.

…. “ 44. As Mr Clegg for the Defendant points out, there is at least the potential for an indefinite cycle of Part 36 offers and new detailed assessment proceedings, each parasitic upon the last. Even one such parasitic set of detailed assessment proceedings would be disproportionate, duplicative and unfair to the paying party. That is not consistent with the overriding objective.

… “45. In summary my conclusion is that the costs of the detailed assessment proceedings do not, for the purposes of CPR 36.17(4), fall within “any issue that arises in the claim”. The Claimant’s submission that it does seems to me to be inconsistent with the way in which CPR 36 has been interpreted since well before 2013. It is also, in my view, inconsistent with the full provisions of CPR 36.17. To accept it would be to override my obligation to interpret the Civil procedure rules in accordance with the overriding objective.”

Offers inclusive of interest

In the case of King –v- City of London Corporation [2019] EWCA Civ 2266, the Court of Appeal held that Part 36 offers excluding interest were not valid Part 36 offers. However, note the change in the rules from 6 April 2021 below.

Para 86… “Accordingly, I have reluctantly come to the conclusion that I agree that the appeal should be dismissed. It seems to me, however, that the issue merits consideration by the Civil Procedure Rules Committee. In my opinion there are arguments in favour of permitting Part 36 offers to be made which are exclusive of interest, at least in assessment proceedings if not in the general run of claims. If the Committee decides, however, that offers exclusive of interest should not be permitted, then I would suggest that rule 36.5 be amended to say so in terms. At the very least, PD47 paragraph 19 should be revised.”

The CPR (amendment) rules 2021 came into force from 6 April 2021 with a new rule 36.5 (5) …. A Part 36 offer to accept a sum of money may make provision for accrual of interest on such sum after the date specified in paragraph (4). If such an offer does not make any such provision, it shall be treated as inclusive of all interest up to the date of acceptance if it is later accepted.

In conclusion, making a good offer can secure a windfall. Using the Court form N242A is the best way to ensure a valid offer is made. Reviewing offers when a significant development occurs avoids the possibility of being bound by an offer left on the table if the claim becomes of greater value due to further evidence becoming available. There is also the potential risk of a negligence claim due to being bound by a low offer, or the Claimant missing out on a significant uplift on the damages if no Part 36 offers have been made. 

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