Part 36 Offers

Part 36 offers are a hot topic at the moment with a number of recent cases for reactionary to get to grip with. What these cases demonstrate is that lawyers have not properly taken on board the wholesale re-writing of CPR Part 36 which was done in April 2007.

As everyone knows, Part 36 as originally introduced provided that:

• A defendant’s offer was only open for 21 days. After that, the offer could only be accepted if the Parties agree liability for costs or the court gave permission. Also, it could only be accepted if it had not been rejected or withdrawn.
• A claimant’s Part 36 offer could be accepted at any time, if not rejected or withdrawn. If accepted, the defendant would have to pay the claimant’s costs.
• A claimant rejecting a defendant’s Part 36 offer and doing worse at trial was penalised, as was a defendant who rejected a Claimant’s Part 36 offer and did not do better.

The new rules completely replace the old. They key changes, which lawyers are only now getting to grips with are:

• A Part 36 offer remains open for acceptance whether or not it is rejected; as long as it has not been withdrawn it is still open for acceptance.
• A Part 36 offer is only withdrawn by serving written notice on the opponent.
• Crucially if a Part 36 offer is withdrawn it no longer has Part 36 effects – contrast this with a Part 36 offer which was rejected under the previous rules, after which the defendant could not accept it, but it still had Part 36 effects. Under the new rules if the offer is withdrawn after rejection the Part 36 effects do not apply.
• A claimant’s or Defendant’s Part 36 offer can be accepted at any time. After acceptance:
  • A defendant accepting a claimant’s Part 36 offer can then ask the court to order that it does not have to pay costs after the 21 day period.
  • A claimant accepting a defendant’s Part 36 offer can then ask the court to order that it does not have to pay costs after the 21 day period.

Lawyers need to think carefully about whether they want to make a part 36 offer in the first place as opposed to an offer which does not engage the part 36 mechanism. Do they instead want to make an ordinary offer to settle and then argue that it should be taken into account on costs? The court can certainly do this by virtue of CPR Part 44.

Bringing this case note entirely up to date is the case of Shah v Elliot, an appeal against a costs order, heard by His Honour Judge Platt in the Romford County Court. In this case the Claimant received a Part 36 Offer for £3523 plus predictive costs under the Part 45 provisions. The Claimant rejected, this went to trial and got £3441.81; about £80.00 below the the defendants offer. The judge refused to consider the offer and gave the Claimant all their costs. The Defendants appealed.

HHJ Platt agreed that because of the failure to allow the Part 36 Costs provisions to run by attempting to use predictive costs, the offer was not a Part 36 offer. So far so simple. BUT the judge decided to take it into account by virtue of CPR part 44 rule 44.3(4). He noted that the Claimant had made an offer just before issue which had been responded to with a counter offer, just after issue which was just £750.00 below the first offer. The Defendants counter offer included an an invite to negotiate further. But the Claimant did not respond to it for 4 months when they made a counter offer, reducing the gap to some £550.00.

The Judge was not pleased about this – he felt the case could have been settled within a month of the defendants first offer. In fact he said that

…the claimant’s failure to respond to an offer to negotiate until a mere three weeks before the disposal hearing is not only lamentable, it is a clear breach of the duty contained in Rule 1.3 to assist the court in furthering the overriding objective. …The requirement to conduct proper settlement negotiations is implicit in Rule 1.3 and such time is not just reasonably spent, it is necessarily spent.

He went on to disallow the claimants costs from a month after the defendants offer to trial. The only sweetener for the claimant was that because the offer of predictive costs was so bad, he didn’t order the claimant to pay the defendant their costs.

So be warned – fail to negotiate at your peril

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