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Everything you need to know about recent cases relating to Part 36 offers

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Rules on Part 36 settlement offers have been completely rewritten in 2015. The change was prompted by the significant amount of case law where Courts were requested to clarify the application of the rules contained within CPR 36. It would appear that for some time there were less case law on the issue of Part 36 settlement offers coming through the Court but this seems to have somewhat changed in recent months. So the purpose of this article is to summarise the most recent case law on Part 36 settlement offers.

I have no doubt that anyone reading this article has an excellent knowledge of the requirements for a valid Part 36 settlement offer and costs consequences attached to such an offer. I will not therefore go through these again but just mention that costs consequences will not stand if a Part 36 settlement offer is found to be invalid. In a relatively recent case of Patience v Tanner [2016] EWCA Civ 158  the Court of Appeal was asked to make a determination on how the costs of the main action should be apportioned between the parties. It would appear that none of the parties sought to contend that the defendant’s settlement offer made in May 2014 was a Part 36 settlement offer but Gross LJ stated that this was not a Part 36 offer in any event because it did not accept that the claimant would have had his costs up to the date for acceptance.

A Part 36 settlement offer that attempts to vary usual costs consequences will not be a valid Part 36 offer and costs consequences will not be applicable was the decision made by HHJ Matthews in the case of James v James & others [2018] EWHC 242 (Ch). The defendant's Part 36 settlement offer stated that "your client is to be liable to pay our client’s costs of the claim and the counterclaim on the standard basis, to be assessed if not agreed, up to the end of the Relevant Period or, if later, the date of service of notice of acceptance of this Offer”. The claimant argued that this term was inconsistent with the rules. The defendant on the other had argued that the reference to CPR 36.13 should have been clear and that the phrase “or, if later", should have been construed as meaning "or, if sooner". The judge decided that the terms of the defendant's Part 36 offer were inconsistent with the rules as in effect if the claimant accepted the offer before 21 days had expired they would be liable to pay the defendant's costs up to the end of the Relevant Period. As a result the defendant’s Part 36 offer was found to be invalid.

In a very recent case of JMX (A child by his Mother and Litigation Friend, FMC) v Norfolk and Norwich Hospitals NHS Foundation Trust [2018] EWHC 185 (QB) Mr Justice Foskett was requested by the defendant to determine whether the claimant's Part 36 settlement offer of 90% liability was a genuine offer to settle. The claimant sought to invoke costs consequences under CPR 36 as they succeeded at trial and achieved an outcome at least as advantageous as their Part 36 settlement offer. The defendant argued that the claimant's Part 36 offer could have not been a genuine offer to settle as it did not reflect any realistic assessment of the risk of the litigation. The defendant tried to demonstrate that an assessment of the risks as being only 10% was a significant under-evaluation of the litigation risk. Mr Justice Foskett was not with the defendant on this point and suggested that the perceived risks in any given case would rarely be the same by both sides. He went further to say that settlement did not require both sides to come to an agreement on the nature of the litigation risks. On this basis the judge considered that the defendant’s argument could hardly ever be successful. It was concluded that the claimant’s Part 36 settlement offer was a genuine offer to settle and therefore it carried costs consequences as provided by CPR 36.

Costs consequences under CPR 36 are applicable to both claimants and defendants' offers. Pursuant to the rules if the claimant accepts the defendant’s Part 36 settlement offer after the relevant period had expired the claimant will be liable to pay the defendant’s costs incurred after the date of the expiry of the offer unless the Court considers it unjust to follow this provision. No doubt the case of SG v Hewitt, where it was decided that it was unjust to order the claimant to pay the defendant’s costs due to the fact that the claimant was unable to properly consider the defendant's Part 36 settlement offer given uncertainty of the claimant's condition, is well known to the practitioners. Unfortunately in the case of Briggs v CEF Holdings Ltd [2017] EWCA 2363 (Civ) the Court of Appeal  did not consider that medical uncertainty was a good reason to depart from  the general costs consequences as provided within CPR 36. The threshold for departure was not simply a reason that it was difficult to form a view as to the outcome of the litigation; but instead the offeree had to show real injustice if the offer was accepted.     

It is not uncommon for the parties during the litigation to make interim payments; in fact it is a good idea to make interim payments as this reduces the amount of interest payable at the conclusion of the case. However, a party wishing to make an interim payment must be precise about the nature of the payment as it might have an impact on any Part 36 settlement offers. In the case of Gamal v Synergy Lifestyle Ltd [2018] EWCA Civ 210 the defendant made a Part 36 settlement offer that read:

“Our client's position is that the value of the works undertaken and the balance payable is the sum of £15,000. They offer this sum in full and final settlement of your client’s claim, along with costs to date…”

About a year later after making the Part 36 settlement offer the defendant made a voluntary payment in the sum of £10,000 which was in addition to £16,600 paid previously. The matter proceeded to the trial where Briggs LJ made an award for damages, including VAT, in the gross sum of £36,389.30. From this amount the judge deducted sums already paid by the defendant and arrived to the judgment figure in the sum of £19,788.97.

Briggs LJ was also asked to consider the issue of the parties’ costs. Given the amount of the defendant's Part 36 offer and the judgment figure the judge decided that the defendant should pay the claimant's costs; the defendant’s liability for costs was reduced to 25% given the claimant’s conduct during the litigation.

Unfortunately the matter did not conclude here as the defendant raised an issue about the correct judgment figure; following some communications between the defendant and Briggs LJ the judgment figure was revised to the sum of £14,275.49. This in turn resulted in further correspondence to the judge where the defendant argued that the revised judgment sum was less that the defendant’s Part 36 settlement offer and therefore the costs order pursuant to Part 36 should be amended.

The matter proceeded to the appeal on the sole ground that the revised judgment was less than the defendant's Part 36 settlement offer in the sum of £15,000.

The appeal was concluded in favour of the respondent (the claimant in the main action) on the basis that the payment made after the making of the Part 36 settlement offer was a payment for works and therefore there was a presumption in law that it is also on account of the earlier Part 36 offer. As such it was found that the appellant’s Part 36 settlement offer in effect was in the sum of £5,000. Lord Justice Flaux further stated that:

“If the paying party wishes to avoid the operation of the presumption on the basis that a payment is a voluntary interim payment or not intended to reduce the amount of an earlier Part 36 offer, it should say so. If it does not do so and a payment on account of the claim is made without any such quantification, then parties will know where they stand."

It is a shame that even rewritten Part 36 provisions have not prevented satellite litigation. This being said you can avoid incurring unnecessary costs in fighting points relating to Part 36 offers if you stick to the rules, keep it simple and clear, be proactive when it comes to clarification of any Part 36 offer and try to stay clear of the desire to re-invent a wheel.