Part 36 – Cynical offers, how high can you go..

As we reported earlier this week, the amendments to Part 36 of the Civil Procedure Rules will apply to Part 36 offers made on or after 6 April 2015.

Of particular interest is the change in the law in respect of “very high” Part 36 offers.   It is not surprising that very high Part 36 offers fell under the scrutiny of the Civil Procedure Rules Committee (the “CPRC”) last year during the 78th review of the Civil Procedure Rules as this aspect of Part 36 has been criticised in recent years.  Claimants often make very high Part 36 offers to take advantage of the Part 36 cost consequences, rather than to settle their cases, which conflicts with the purpose of Part 36 which is to encourage early settlement.   Therefore, the CPRC have amended Part 36 in their review, introducing Rule 36.17 (5) which provides that the Court must take into account whether a Part 36 offer is a “genuine attempt to settle the proceedings” when considering whether to make an order for costs with Part 36 consequences.

Currently Part 36 costs consequences apply if a Part 36 offer has been made by the claimant and later at trial the claimant secures a judgment against the defendant which is at least as advantageous to the claimant as the proposals contained in the claimant’s Part 36 offer (Rule 36.14 (1) (a)) .  Therefore, for example, a claimant can make a Part 36 offer of 95% of the value of the claim which is so close to the amount of the claim itself it is unlikely that the defendant would accept.  If the case later went to trial and the claimant obtained a judgment at least as advantageous at its Part 36 offer, i.e. 95% or higher, the defendant would be liable not only for damages and the claimant’s legal costs on the standard basis, but also from and including the date after the relevant period has expired (day 22 after the date the offer was made) for the following:

  • The claimant’s costs on the indemnity basis;
  • Interest on those indemnity costs; and

3)      Enhanced interest on the damages

For offers made on or after 1 April 2013, the defendant is also liable for a “Jackson Lump Sum” which is a sum of money not exceeding £75,000 calculated by applying a prescribed percentage as set out in Rule 36.14 (3) (d) to the sum of money awarded to the claimant by the Court.  In contrast to the heavy cost consequences for the defendant if the claimant obtains a judgment at least as advantageous at its Part 36 offer, if at trial the claimant fails to do better than its own Part 36 offer there are no cost consequences – it is as if the Part 36 offer had never been made.

The case law on high Part 36 offers has been brewing for some time yet the change in the rules is not reflective of the current case law.  In the case of Huck v Robson [2002] EWCA Civ 398 a claimant’s high Part 36 offer to settle was considered by the Court of Appeal.  Ms Huck was a victim of a road traffic accident and during proceedings against the Mr Robson, the defendant in the case, she made a 95% Part 36 offer to settle.  The judge at first instance refused to award costs on the indemnity basis.  On appeal the Lord Justices agreed that the crucial question was whether it was unjust to award Ms Huck costs on the indemnity basis despite the fact that she had “beaten” her Part 36 offer.  By majority decision it was ruled that it wasn’t unjust to award Ms Huck’s costs on the indemnity basis as an offer to accept 95% of the claim was a real discount to the defendant.  However, it was also said by Lord Justice Tuckey that if it was self-evident that the offer made was merely a tactical step designed to secure the benefit of the incentives provided by the rules a judge would have the discretion to refuse indemnity costs.  Lord Justice Tuckey then suggested that a Part 36 offer of 99.9% of the value of the claim would not be valid.  Accordingly, the case of Huck v Robson encouraged very high Part 36 offers rather than discouraging them, as the case indicates that claimants can “get away” with making Part 36 offers of 95%.

Almost ten years later in the case of AB v CD [2011] EWHC 602 (Ch) it was rejected that a Part 36 offer of 100% of the full value of the claim should attract the usual Part 36 consequences even though the Claimant argued that a 100% offer was at “least as advantageous” in accordance with Rule 36.14 (1) (a) .  The reasoning behind the ruling was that a Part 36 offer has to contain an element of genuine concession that is of a significant value to the litigation as the purpose of Part 36 is to encourage the settlement of claims before trial and before any judgment.

The new rules go further than the case of AB v CD by granting the Court an addition factor to consider when making Cost Orders – i.e. whether a Part 36 offer is a “genuine attempt to settle the proceedings”.  It is clear that the CPRC believe that very high Part 36 offers in some circumstances are an abuse of Part 36.  The purpose of the new rule may be to overcome the ruling in Huck v Robson and as a consequence solicitors should be very cautious when considering the value of a Part 36 offer made on or after 6 April 2015.  In limited circumstances very high Part 36 offers may be appropriate but only in open and shut cases.  However, it is likely that new Rule 36.14 (1) (a) will trigger new cases which will provide further guidance on how high claimants can go when making their Part 36 offers – watch the space!