PART 36 OFFERS: LAW AND GUIDANCE Iqbal Mohammed

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This seminar will cover Part 36 offers and recent case law on how such offers are to be treated by the courts.

OFFERS TO SETTLE AND COSTS 2. Offers to settle are covered by the common law rules of contract. They may be enforced as contracts in and of themselves, in addition to challenging litigation conducted in breach of a settlement. 3. Settlement is highly relevant in the exercise of commercial decision-making: the classic good case not worth pursuing, e.g. a small claim where costs are not recoverable, or where costs will far outstrip any recovery. 4. 5. Therefore, offers to settle have strong relationship to costs. Outside of the regime of Part 36, a court may consider offers to settle when assessing costs. The conduct of the parties under CPR 44.2(4)(a); and any admissible offer to settle made by a party which is drawn to the courts attention, and which is not an offer to which costs consequences under Part 36 apply: CPR 44.2(4)(c). 6. Conduct above includes conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction (Pre-Action Conduct) or any relevant pre-action protocol, under CPR 44.2(5)(a).
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The costs consequences of Part 36 do not apply to any offer to which Part 36 itself does not apply: CPR 36.1(2). While this seems obvious, it has been so ordered and appealed: Amber v Stacey [2001] 1 W.L.R. 1225, CA. Courts have been persuaded to apply Part 36 rules to non-qualifying offers, see: Huntley v Simmonds [2009] EWHC 406, QB; and AF v BG [2009] EWCA Civ 757.

8.

There are a number of cases dealing with offers to settle outside of Part 36; please read the commentary in the White Book [2013] at 44.3.12. Please note that the Rule has been deleted but the commentary is relevant.

9.

Remember, without prejudice offers may not be admissible so if you wish to rely upon such an offer later, in an assessment of costs, mark the offer without prejudice save as to costs.

PART 36 OFFERS 10. Part 36 offers are not contractual but procedural and subject to the rules of the court: Flynn v Scougall [2004] EWCA Civ 873. Consequently, only the court may assess the validity of such an offer and order the cost consequences to apply. Scope 11. Part 36 offers do not apply to the small claims track: CPR 27.2(1)(g). Although you may still rely upon offers to settle generally in applying for costs as a result of unreasonable refusals to settle under CPR 27.14(3). 12. Valid offers may also be made at any time, including pre-action: CPR 36.3(2).

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Part 36 only applies if the offer is made in accordance with CPR 36.2 below however, an offer which is formally defective may still be upheld as a Part 36 offer where it is certain and does not cause the offeree prejudice: Huntley v Simmonds [2009] EWHC 406, QB.

14.

Phi Group Limited v Robert West Consulting Limited [2013] EWCA Civ 588 casts doubt on this. A formal defect, such as failing to mention that the offer is open for 21 days or more, will mean that Part 36 does not apply.

Formal requirements 15. Under CPR 36.2(2), a valid offer may be made in relation to liability and/or quantum and must: Be in writing; State on its face that it is intended to have the consequences of Section I of Part 36; specify a period of not less than 21 days within which the defendant will be liable for the claimants costs in accordance with rule 36.10 if the offer is accepted (unless it is made less than 21 days before trial); state whether it relates 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; and state whether it takes into account any counterclaim.

16.

Form N242A may be used under CPR36 PD1.1.

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A Part 36 offer must contain such further information as is required by CPR36.5 (Personal injury claims for future pecuniary loss), CPR36.6 (Offer to settle a claim for provisional damages), and CPR36.15 (Deduction of benefits).

18.

These offers only apply to the proceedings in relation to which they are made, not subsequent appeal proceedings, which require fresh offers: CPR 36.3(4).

19.

Time limited offers are not valid: C v D [2011] EWCA Civ 646. In this case the offer was an offer to settle under CPR Part 36 but open for 21 days and lapsed after that period and became incapable of acceptance.

20.

An offer may not expire itself see C v D aboveand must be withdrawn by written notice: CPR 36.3(7). However, an offer may only be changed or withdrawn within 21 days of being made with leave: CPR 36.3(5) and CPR36A PD2.

21.

The offer is valid only when served.

Responses to a Part 36 offer 22. The offeree may within 7 days of the offer being made request clarification which must be responded to within 7 days itself: CPR 36.8. 23. The offer may also be accepted, if so, it must be through the service of a written notice. An offer may be accepted at any time (unless trial has concluded) so it is imperative old offers are withdrawn: CPR 36.9(2). Costs consequences before judgement 24. A Claimant accepting a Part 36 offer will be entitled to its costs up to the date of the service of the notice of acceptance, if it is accepted within the relevant period (i.e. 21 days). If the Defendants offer related only to a part of the proceedings and the

Claimant, on accepting the offer, abandons the remaining claim(s), the same rule applies: CPR 36.10. 25. 26. The standard basis of assessment applies under CPR 36.10 if costs are not agreed. Where the offer is accepted after 21 days of being made: The Claimant is entitled to its costs up to 21 days after the offer is made; but The offeree is entitled to its costs from that point onwards up to the acceptance of the offer: CPR 36.10(5). Although a court may make another order. 27. 28. Remember the Claimants costs will include pre-action costs. The payment offered in the accepted offer must be paid within 14 days (unless agreed otherwise in writing) in default of which, judgement can be entered for the unpaid sum: CPR 36.11(6)-(7). 29. Any claim in respect of which a Part 36 offer is made is stayed upon acceptance: CPR 36.11(1). 30. Acceptance of offers relating to claims exiting the MOJ low value PI claims protocol, are dealt with under the new CPR 36.10A. Offers just before trial 31. The usual rules do not apply where the offer is accepted less than 21 days before the start of trial: CPR 36.10(1) and 36.10(4). Here, if costs liability is not agreed, the court will make an order. Cost consequences after judgement

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The rules have changed under the Jackson reforms. Where the Claimant fails to beat the Defendants Part 36 offer: the Defendant is entitled to his costs from the date that offer expired with interest, unless it is unjust to make such an order: CPR 36.14(2).

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Although the above rule is silent as to the basis of the costs assessment, it may be on an indemnity basis where justified: Balmoral Group Ltd. v Borealis (UK) Limited [2006] EWHC 2531.

34.

Where judgement is as advantageous (in money terms, however small) to the Claimants as their offer, under CPR 36.14(3): the Claimant is entitled, unless it is unjust to make such an order, to interest not exceeding 10 per cent above the base rate on any award made (or part thereof) from the 21 days after its offer was made; its costs on the indemnity basis from 21 days after the offer was made; Interest on those costs not exceeding 10 per cent above the base rate; and Now, an additional sum of either 10 per cent of the damages awarded (or where judgement is non-monetary, costs) where the amount awarded is 500,000. And on any amount above 500,000, 5%. The sum is capped at 75,000.

35.

Whether the above order is unjust or not should be considered taking into account CPR 36.14(4): the terms of any Part 36 offer; the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;
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the information available to the parties at the time when the Part 36 offer was made; and the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.

When is it unjust? 36. The court does not have an unfettered discretion and simply accepting that the losing party had reasonable grounds to refuse the offer is the wrong approach: Mathews v Metal Improvements [2007] EWCA Civ 215. Though, the legal representatives are obliged to give sufficient information to the parties about the offer (and by implication the effect of Part 36) to enable them to make a proper judgement: Ford v GKR Construction [2000] 1 WLR 1397. It may be unjust where: Considerable time is needed to evaluate the offer: SG v Hewitt [2012], CA. Conduct after the offer is made is inappropriate: Lilleyman v Lilleyman (costs) [2012] EWHC 1056 (Ch). 37. See CPR 36.14A for claims which exit the MOJ low value PI claims protocol.

Cases on litigated offers 38. In Gibbon v Manchester City Council [2010] EWCA Civ 726, a Part 36 offer was rejected and then a revised offer was made. Moore-Bick LJ held that neither event impliedly withdrew the Part 36 offer. In doing so, the court approved Sampla v Rushmoor Borough Council [2008] EWHC 2616 (TCC), in which Coulson J held that the words at any time in rule 36.2(9) allow an offeree to reject and subsequently accept a Part 36 offer yet to be properly withdrawn.

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In C v D [2011] EWCA Civ 646, the issue was whether an offer open for 21 days lapsed after that period and became incapable of acceptance. While Part 36 is silent on what happens to rejected offers, in the above authorities and in the appellate authority of Rolf v De Guerin [2011] EWCA Civ 78, an offer was not regarded as lapsing at the end of 21 days.

40.

In C v D, Stanley Burton LJ also stated (at 83-84) 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. Once it is accepted that a time-limited offer does not comply with Part 36, one must approach the interpretation of the offer in this case on the basis that the party making the offer, and the party receiving it, appreciated that fact.

41.

However, this should not be seen as a get out of jail card for an unambiguous failure to comply with rule 36.2. In Carillion JM Ltd v Phi Group Ltd [2011] EWHC 1581 (TCC), Akenhead J held that an offer which failed to specify a period of not less than 21 days within which the defendant would be liable for the claimant's costs could not be treated as a Part 36 offer. This was upheld on appeal, however, his decision on whether the offer was open in common law was reversed: Phi Group Limited v Robert West Consulting Limited [2013] EWCA Civ 588.

42.

Similarly, it was held in Mitchell v James [2002] EWCA Civ 997 that an offer proposing cost consequences inconsistent with rule 36.10 could not be valid.

IQBAL MOHAMMED 15 January 2014