There has been a surprising spate of decisions about Part 36 offers since the beginning of 2018 and it’s still only April. The flow is reminiscent of 2011 when the Court of Appeal looked at Part 36 twelve times. The reason then was the confusion caused by the new version of Part 36 introduced in April 2007. Although we had another new version of Part 36 in April 2015, that doesn’t seem to be the prompt for many of these recent cases.
The reason for this flurry must be the financial significance of costs in the context of litigation under the Civil Procedure Rules. Despite Sir Rupert Jackson’s attempts to reduce the level of recoverable costs to a proportionate sum, in many cases costs still dwarf the amount claimed. This means in turn that Part 36 and the application of its automatic costs consequences are of considerable importance to the parties.
We offer ten points illustrated by these recent cases as a refresher guide to Part 36, undoubtedly the hardest part of the CPR to keep on top of.
1. A Part 36 offer must be a genuine attempt to settle
A claimant’s offer cannot carry with it the benefits of an additional amount, indemnity costs and enhanced interest unless it is a genuine attempt to settle the proceedings (CPR 36.17). It doesn’t matter that what is offered is not a possible outcome at trial or that the concession is very small – in both Huck v Robson and Jockey Club Racecourse Limited v Willmott Dixon Construction Limited the claimant’s offer to accept 95 per cent of the claim was held to be valid. In the latest case on this point, an offer to accept 90 per cent of damages to be agreed or assessed was a genuine attempt to settle. The judge rejected the defendant’s argument that the litigation risk in “notoriously hazardous” clinical negligence cases is often regarded as being in excess of the conventional 10 per cent. The claimant was awarded indemnity costs plus enhanced interest on those costs at 5 per cent above base rate (JMX (A child by his Mother and Litigation Friend, FMX) v Norfolk and Norwich Hospitals NHS Foundation Trust).
2. A Part 36 offer cannot contain any terms about costs inconsistent with CPR 36.13
Where an offer contained a term that the claimant would be liable to pay the defendants' costs "up to the end of the Relevant Period or, if later, the date of service of notice of acceptance of this Offer", automatic costs consequences under CPR 36.17 could not apply. This term was inconsistent with CPR 36.13 which requires the claimant to pay the defendants' costs only up to the date of acceptance within the relevant period. The fact that the offer also referred to the costs consequences under CPR 36.13 was irrelevant given the inconsistency (James v James).
3. A withdrawn Part 36 offer cannot provide Part 36 automatic costs consequences
Automatic costs consequences do not apply to withdrawn Part 36 offers but a withdrawn offer may be taken into account by the court when exercising its discretion as to costs under CPR 44.4. The issue is whether the offeree acted unreasonably in rejecting the offer at the relevant time but other factors such as the wording of the offer may be relevant to the exercise of discretion. In the present case, on 8 February 2017 the defendant withdrew her first Part 36 offer made on 25 January 2016 and then made a second lower Part 36 offer. The claimant failed to beat both offers at trial. The second offer concluded: “if the claimant fails to obtain a judgment more advantageous than the offer made in this letter then the defendant will seek an Order that the claimant should pay both parties' costs from 01.03.17”. The claimant was entitled to take this at face value. It was not therefore appropriate to give the defendant her costs from 16 February 2016, even though considerable costs could have been saved had the claimant accepted the first offer (Ballard v Sussex Partnership NHS Foundation Trust).
4. The court must give permission for an offer to be withdrawn or accepted during trial
During a trial, judgment was given in closely related proceedings. The defendants purported to withdraw their Part 36 offer and the following day, all but one of the claimants notified their acceptance of the Part 36 offer. The judge refused to allow the defendants to withdraw their offer: a judgment handed down in a case concerning similar issues did not amount to a change in the legal landscape so as to make it unjust to hold the defendants to their offer. However, in determining costs consequences, the judge took into account the fact that the claimants had deliberately chosen not to accept the Part 36 offer for three months while waiting to see how the proceedings progressed (Application in private).
5. A subsequent payment on account will reduce a Part 36 offer unless stated otherwise
The Court of Appeal rejected the argument that a Part 36 offer remains open for acceptance in its full amount where the offeror has subsequently made a payment on account. The presumption is that a voluntary payment is intended to reduce the amount of an earlier Part 36 offer. If the offeror wishes to avoid the operation of that presumption, it should say so (Gamal v Synergy Lifestyle Ltd).
6. Late acceptance of a Part 36 offer generally involves the loss of costs protection for the period of delay
Not technically a decision this year, but this important Court of Appeal decision from last year has only recently become available. The court distinguished its previous decision in SG (A Child) v Hewitt (Costs), an extreme case where the usual costs order would have been unjust due to difficulties in forming a prognosis following brain damage to a small child. That was very different from the present case. Uncertainty about the claimant's prognosis is part of the usual risks of personal injury litigation, and one of the purposes of Part 36 is to shift the risk to the offeree if the offeree does not accept an offer. It is important not to undermine that purpose. To disapply the Part 36 costs consequences, the claimant must demonstrate injustice; it is not enough to show that it was difficult to form a view on the likely outcome of the litigation (Briggs v CEF Holdings Ltd [2018] 1 Costs L.O. 23).
7. The court will not look at offers and negotiations unless they are open or “without prejudice save as to costs”
Where the parties had a without prejudice settlement meeting but did not discuss whether any offers made should be “without prejudice save as to costs” (WPSATC), the court was unable to take into account anything that happened at the meeting. An offer that does not comply with Part 36, such as a drop hands, costs-inclusive or time-limited offer, must be described as being made WPSATC if the court is to take it into account. If a meeting is purely without prejudice, either party wanting to make an offer which might affect costs should put the offer in a subsequent WPSATC letter. There is no need to say anything if a Part 36 offer is made because CPR 36.16 states that a Part 36 offer will be treated as being made “without prejudice except as to costs” (Marcura Equities FZE & Anor v Nisomar Ventures Ltd).
8. Part 36 does not prevent disclosure of the amount offered and accepted
Part 36 prevents disclosure of the fact that an offer has been made, but it makes no reference to the position once the offer is accepted and a compromise is reached. Where one defendant had settled with the claimant using Part 36 and was pursuing a contribution claim against the second defendant, it was possible that the Part 36 sum would have to be disclosed in the contribution proceedings, subject to considerations of relevance and prejudice (Richard v BBC - unreported Mann J 9 March 2018).
9. A claimant may be awarded enhanced interest in a foreign currency under CPR 36.17
A claimant or counterclaiming defendant is entitled under CPR 36.17 to an additional amount, indemnity costs and enhanced interest on the claim and costs where it betters its offer at trial. In the present case, although the relevant contract was concluded in Thailand and largely performed in Thailand for a Thai company, the counterclaiming defendant was not entitled to interest calculated with reference to Thai interest rates because the currency of the relevant contract and the judgment was US dollars. The rate of 10 per cent in CPR 36.17 is not a starting point but is the maximum possible enhancement. The correct rate here was 4 per cent over the US prime rate which ranged between 3.50 per cent and 4.25 per cent during the relevant period (Triple Point Technology, Inc v PTT Public Company Ltd).
10. The fact that a claimant is funded by a CFA affects the appropriate rate of enhanced interest under CPR 36.17
In this personal injury claim, the defendants argued that the claimant should be awarded only 2 per cent above base rate on the award of indemnity costs. Since the conventional award is 4 per cent above base, they claimed it should be halved because the claimant's solicitors were acting under a pre-April 2013 conditional fee agreement (presumably with a 100 per cent success fee) and so would recover double the costs than would otherwise be awarded. The judge awarded the claimant 4 per cent above base, taking into account both the CFA and the fact that the defendants had failed to make an offer themselves during the year between their rejection of the claimant’s Part 36 offer and trial (Bruma v Hassan unreported QBD Judge Curran QC 16 January 2018).
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