All inclusive
Litigants agreeing on part 36 offers before starting proceedings often include terms about their respective costs pre-litigation – but it's not always that simple, says Francesca Kaye
Part 36 has always included provision for pre-action part 36 offers. Parties are able to make an offer to settle in advance of the issue of proceedings, which, if in due course proceedings are commenced and the matter proceeds to trial, has the same benefits for an offeror as a part 36 offer made after the proceedings had started. Simple.
If a part 36 offer is made after proceedings have begun there is no need to mention costs in the terms of the offer. Part 36 specifies the costs consequences depending on when and how the offer is accepted by the claimant or defendant. The starting point is part 36.10 if the offer is accepted after proceedings have commenced but before judgment, and part 36.14 sets out the position after judgment.
Part 36.10 does not deal with what should happen in the event that a pre-action part 36 offer is accepted either within the relevant period or outside it but before the issue of proceedings.
This is a lacuna in the rules. But the position set out in the pre-action protocols and the practice direction on pre-action conduct is clear. A party can explore a potential claim without starting proceedings and will only be liable for their own costs. If a settlement is reached pre-action by any means, it is a matter for the parties to agree how costs should be provided for.
Sometimes the successful party obtains agreement that the unsuccessful party will pay a proportion of its costs. Having no specific costs rules in pre-action allows the parties flexibility to find their own settlement. In the absence of a specific rule requiring a party to pay the costs of a pre-action part 36 offer accepted before the start of proceedings, the rules simply reflect the protocols.
The White Book 2011 states that 'it is somewhat unclear as to what the costs consequences might be of a part 36 offer which is made and then accepted before proceedings are commenced'. It recommends that 'parties wanting to make [part] 36 offers in advance of proceedings should do so in terms whereby the offer expressly states that it is made on the basis that, in the event of acceptance before the commencement of proceedings, the costs provisions of [part] 36 (and [part] 44 if the parties so wish) will apply, thereby binding those terms into any settlement contract'.
This is what the parties that make pre-action part 36 offers have been doing for some time. A pre-action part 36 offer usually incorporates some wording that makes it clear that the offeror will either pay or expect to receive its costs in some form if the offer is accepted. So it is simple until it goes wrong.
Say what you mean
In Udogaranya v Nwagw [2010] EWHC 90186, the defendant in a road traffic accident made a pre-action part 36 offer which made no provision for costs. The claimant accepted it before the start of proceedings. The essential point of Master Howarth's judgment was that the defendant had not made any offer in respect of costs and therefore the claimant could not recover their costs for acceptance of a pre-action part 36 offer within the part 36 framework.
In Sandra Solomon v Cromwell Group PLC [2010], HHJ Platt considered the acceptance of a pre-action part 36 offer pre-issue and concluded: 'In my judgment, for part 36.10 to have any application in terms of a party's entitlement to costs following acceptance of a part 36 offer, proceedings must be extant.'
However, in Katie Thompson & ors v Bruce [2011] EWHC 2228 (QB) a pre-action part 36 offer had been made which did include provision for costs up to the expiry of the relevant period. It was accepted after the expiry of the relevant period but before proceedings had been issued. The issue to be determined was whether costs could be recovered after the expiry of the relevant period.
The judge decided: 'With some diffidence I disagree with Judge Platt on this issue and conclude that in part 36.10 on a purposive construction 'proceedings' should be given a wider meaning to include steps taken prior to issue which would ordinarily be compensatable in costs on a formal assessment and that part 36 is not confined in application to post-issue proceedings. That means that 'proceedings' in part 36.10 has a different meaning to that which it has in part 36.3 where it clearly means post-issue proceedings. In statutory provisions as in conversation, context matters.'
And so it does. This case was determined on its very particular facts. It would be unwise to rely on the judgment in relation to all pre-action part 36 offers. The judge's purposive construction seems to place unnecessary strain on a self-contained code regulating part 36 offers. Better to say what you mean and say what you want clearly and succinctly and avoid satellite litigation.