Part 36: Don’t be deterred by tricky tactics!

Part 36 offers are a useful tool in the arsenal of litigators and can, if used correctly, offer a significant cost advantage to claimants, and to a lesser extent a defendant. However, the rules and ever-increasing body of case law on this topic have shown that technical breaches of the rules will prevent clients from being able to benefit from the costs consequences under Part 36.

The requirements of a valid Part 36 offer are set out at CPR 36.5. To be valid an offer must:

• be made in writing
• make clear that the offer is made pursuant to Part 36
• specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs (referred to as the relevant period)
• state whether it relates to the whole or part of the claim, and
• state whether it takes into account any counterclaim.

The recent case of Essex County Council v UBB Waste (2020) Costs LR 1259 is an example of a situation where an opponent argued that a breach of Part 36 negated the offer and the benefits it attracted. Mr Justice Pepperall offered some useful guidance on good practice which we summarise below.

The claimant’s solicitors had made an offer by email after 4:30pm on 7 March 2019 which specified the 21-day relevant period as running from the date of the letter. CPR 36.7(2) provides that offers are made when served. CPR 6.26 deems service as applying from the next business day. The defendant sought to argue that the relevant period for acceptance was less than 21 days and so the offer was invalid. Mr Justice Pepperall was faced with two possible constructions:

1. The 21 days ran from the date on the face of the letter (i.e. 7 March 2019) which was a mistake and so the offer was non-compliant; or
2. The 21 days ran from the date when the offer was made i.e. 8 March 2019.

Fortunately for the claimant’s solicitors, Mr Justice Pepperall preferred the latter option and accepted the claimant’s submissions citing C v D [2011] EWCA Civ 646 [2012] 1 WLR 1962 that where “faced with two reasonable interpretations of the offer, the Court should favour the construction that is compliant with Part 36”. This follows the “validate if possible” principle set out at Dutton v Minards [2015] EWCA Civ 1984.

So what can be done to ensure your Part 36 offer is compliant? As highlighted by Mr Justice Pepperall, there is an obvious answer in court form N242A. The form is user-friendly and has tick boxes to ensure all of the key ingredients required by CPR 36.5, as set out above, are included.

Whilst you may wish to accompany your offer with a letter pointing out the weaknesses in your opponent’s case, this can come in the form of a side letter enclosing Form N242A. The Court’s interest will be in the contents of the form.

Many litigators adopt proforma wording which seeks to put the emphasis on the offeree to let them know if they believe the Part 36 offer is not compliant. Unfortunately, whilst your opponent may be kind enough to let you know that you’ve got it wrong, Pepperall J included an obiter comment within his judgment that responsibility lies squarely on the offeror to ensure the offer is correct.

Sadly the court form is not always the solution and it is important to consider your own particular scenario. Whilst the court form ensures compliance with CPR 36.5 it does not, for example, cater for those receiving parties who do not wish to fall foul of the “interest trap”. The Court has clarified that Part 36 offers must be inclusive of interest (King v City of London Corporation (2019) EWCA Civ 2266). In April 2021, the Civil Procedure (Amendment) Rules 2021 will introduce CPR 36.5(5) which will incorporate this point into statute enabling a party to make an offer to include provisions for interest to accrue after the expiry of the relevant period. After that date it will be important for the party making a Part 36 offer to include provisions for interest to accrue if the offer is accepted late. Following implementation of these changes we expect the Court form will be updated to reflect the new position and this may make it more appealing.

Receiving parties can protect themselves from paying parties who may accept an offer months or even years out of time by including a provision for trailing interest within the offer. It was confirmed in Calonne Construction Limited v Dawnus Southern Limited [2019] EWCA Civ 754 that a Part 36 offer would not be invalid if it included interest until the expiry of the relevant period, with interest claimed thereafter being calculated at 8% per annum.

The case of Pallett v MGN Ltd [2021] EWHC 76 (Ch) has given parties more cause for concern. The High Court ruled that a defendant who accepted a Part 36 offer one day outside the ‘relevant period’ could invite the Court to consider its liability for costs and is not bound to pay the costs it would have faced had it accepted within the 21 days. In this instance, the Court declined to disallow a proportion of the claimant’s costs for reasons of the defendant’s conduct and made clear that each case would be considered on its own facts.  Defendants who deliberately accept a Part 36 offer late may gain themselves an opportunity to make submissions on costs but will still need to work hard to persuade the Court that the usual provisions of Part 36 should not apply.

Historically there has been some ambiguity around applying the costs consequences for “near miss offers”. However, there is increasing evidence such as the High Court’s decision in JLE v Warrington & Halton Hospitals NHS Trust [2019] EWHC 1582 (QB) that where a claimant beats its own Part 36 offer by only a very small margin relative to the size of the claim the full cost consequences of Part 36 will apply. Persuading the Court that it is unjust to award a claimant the Part 36 costs consequences in full is a high hurdle to overcome and one that is likely to be rarely achieved.

Provided parties get their offers right, they remain the best option for a guaranteed outcome on costs in the event of success. Defendants will benefit from costs (including any recoverable pre-action costs) from the date on which the relevant period expired and interest on those costs. For claimants, as is well known, the gains are even higher as they receive:

• interest on the awarded sum at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;
• indemnity costs (including any recoverable pre-action costs) from the date on which the relevant period expired;
• interest on those costs at a rate not exceeding 10% above base rate; and
• an additional amount of 10% for awards up to £500,000 and for awards over £500,000, 10% of the first £500,000 and 5% of any amount above that figure up to £75,000.
• Such favourable rewards can only be gained from the Part 36 regime. Of course, making a Part 36 offer will not be appropriate in all cases and circumstances, and there will be situations where a party prefers to make a global without prejudice save as to costs offer to settle (or Calderbank offer). If it is not accepted but beaten at trial the Court will have discretion to apply what weight it deems appropriate to an unaccepted offer.

Such favourable rewards can only be gained from the Part 36 regime. Of course, making a Part 36 offer will not be appropriate in all cases and circumstances, and there will be situations where a party prefers to make a global without prejudice save as to costs offer to settle (or Calderbank offer). If it is not accepted but beaten at trial the Court will have discretion to apply what weight it deems appropriate to an unaccepted offer.

Should you require any advice or assistance in relation to costs contact our Costs Team.