Part 36 Offers: The battle lines
Recent case law underlines the importance of Part 36 Offers in a litigator’s arsenal. These offers continue to operate within a rigid and prescriptive kingdom, where their powerful costs consequences can be deployed tactically against an opponent. A Part 36 Offer must satisfy the formal requirements set out at CPR 36.5.
Among other things, it must:
—— Be in writing
—— State that it is intended to have the costs consequences set out in CPR 36
—— Specify a “relevant period” (of not less than 21 days) within which the defendant will be liable for the claimant’s costs if the offer is accepted
—— State (and detail) whether it relates to the whole or part of the claim, or an issue in it,
—— State whether it takes into account any counterclaim (the Part 36 Offer should, for good order, state that it does not take into account any counterclaim even if one does not exist).
CONSEQUENCES OF ACCEPTANCE
A Part 36 Offer can be accepted so long as it has not been withdrawn, even if the offeree rejected it previously. Acceptance must be communicated in writing (CPR 36.11(1)). Unless otherwise agreed, any settlement must be paid within 14 days of acceptance (CPR 36.14(6)). There are also costs consequences that arise from acceptance, namely:
—— If accepted within the “relevant period”, the defendant must pay the claimant’s costs on the standard basis up to the date of acceptance of the offer.
—— If accepted after the “relevant period”, the court will determine recovery of costs between the parties if they cannot agree. If not agreed, the court must, unless it considers it unjust, allow the claimant to recover costs up to expiry of the relevant period, and the offeree must pay the offeror’s costs between expiry of the relevant period and acceptance. Practitioners should note the power of the usual costs rule as illustrated in Tuson v Murphy  EWCA Civ 1461. The Court of Appeal held that dishonest and misleading conduct of the claimant, who accepted a Part 36 Offer after expiry of the relevant period, did not justify a departure from the norm. The defendant was to pay the claimant’s costs up to expiry of the relevant period.
f no offer is accepted, the court will consider the question of costs following trial in the ordinary way, taking into account any offers made. The starting position is that, under CPR 44.2, the court retains discretion as to recovery of costs between parties. This discretion can however be trumped by a Part 36 Offer. Part 36 Offer The precise costs consequences of a Part 36 Offer depend on its author and terms, and the result at trial. Under CPR 36.17(3), if the claimant fails to obtain a judgment more advantageous compared to the terms of the defendant’s Part 36 Offer, the court must, unless it considers it unjust, order the claimant to pay the defendant’s costs on the standard basis from expiry of the relevant period plus interest.
Under CPR 36.17(4), if the judgment against the defendant is at least as advantageous to the claimant compared to a claimant’s Part 36 Offer, the court must, unless it considers it unjust, order the defendant to pay the following from the expiry of the relevant period:
—— the claimant’s costs on the indemnity basis;
—— interest on those costs not exceeding 10% above base rate;
— further interest on all or part of the judgment award, not exceeding 10% above base rate;
—— an ‘additional amount’ dependant on the judgment award and not exceeding £75,000. CPR 36.17(5) sets out factors that the court will consider in assessing whether it would be “unjust” to apply the costs consequences, including the terms of the offer and at what stage in the proceedings it was made. The Court of Appeal refused permission to appeal in Ayton v RMS Bentley Jennison & Ors  EWHC 2851 (QB) noting that “the cases are unanimous in stating that the test of injustice is a high hurdle”. This harshness has been mitigated by indication in JLE v Warrington & Halton Hospitals NHS Foundation Trust  12 WLUK 450 (Costs) that the costs consequences are severable. In other words, the court may award some but not all of the costs consequences. In JLE, the defendant did not have to pay the ‘additional amount’ given the slight margin between the claimant’s Part 36 Offer and higher judgment sum. In light of the above, a defendant may be well advised to make an early Part 36 Offer where there are doubts as to the merits of the claim, or a claimant may do so when confident of its position. However, there can never be a hard and fast rule and practitioners will need to consider the circumstances before them.
For example, a defendant may understandably not wish to set an early floor on settlement negotiations, or risk making an inflated offer at an early stage in the proceedings. Defective Part 36 Offer Under CPR 36.2(2), an offer that does not meet the formality requirements of CPR 36.5 will not attract the costs consequences outlined above. The court has been prepared to forgive technical defects, but the more recent trend suggests a much stricter application of CPR 36.2(2) (recently illustrated in James v James and others  EWHC 242 (Ch), where the defect was minor). The non-compliant Part 36 Offer would become a Calderbank Offer, its weight determined by the court in its general discretion under CPR 44. Given these consequences and the risk of a professional negligence claim against the drafter, practitioners should carefully scrutinise their draft Part 36 Offer. A fail-safe is offered by court form N242A, which provides a compliant template to be completed as appropriate. If practitioners prefer a more independent form of drafting, it is advisable to do so with a copy of Part 36 to hand so each requirement can be ticked off. In an effort to minimise (but by no means eliminate) a potential dispute down the line, the Part 36 Offer should invite the recipient to explain by return whether they consider the offer in any way defective or non-compliant with CPR 36. Likewise, if an error is spotted post-dispatch, it should be remedied immediately. Withdrawing and varying Part 36 Offers The practitioner must keep offers under review and react swiftly to developments in the case. For example, disclosure and exchange of (lay and/or expert) witness evidence may warrant withdrawal or variation of a Part 36 Offer. The CPR is clear on withdrawals and variations to increase the offer.
A withdrawn Part 36 Offer loses its costs consequences under CPR 36.17(7)(a) and becomes a Calderbank Offer. Under CPR 36.9(5), an upwards variation is not deemed a withdrawal, but a new offer (sitting alongside the original offer) with a new relevant period expiring at least 21 days after written notice of the variation. There does however seem to be a lacuna in relation to varying Part 36 Offers to make them less advantageous to the offeree. Litigators should tread lightly and draft carefully following the cautionary tale of Ballard v Sussex Partnership NHS Foundation Trust  EWHC 370 (QB). The defendant withdrew a Part 36 Offer and made a new Part 36 Offer. The claimant did not better either offer at trial. At first, the claimant was ordered to pay costs from expiry of the first relevant period, but this was overturned on appeal. Ultimately, the claimant was to pay costs from expiry of the second relevant period, with the court relying on the explicit wording of the defendant’s offer (which referred to the second relevant period). Rather than withdrawing the first offer, the defendant could have relied on Burrett v Mencap Ltd  5 WLUK 444 for optimum costs protection, reducing the Part 36 Offer while still relying on the expiration of the original “relevant period”. However, as CPR 36.9 is silent on the point, the position is far from clear cut and ripe for disputes.
On a more practical note, a detailed record of offers is an invaluable resource for advising clients in relation to acceptance, withdrawal, variation and costs issues generally. The recent case law serves to reinforce the power (and inflexibility) of Part 36 Offers. As the court can only consider the exact terms and status of the Part 36 Offers before it, the onus remains on practitioners to draft carefully, review regularly and react swiftly.