This article contains the text of a lecture I gave at a 4 New Square costs event, and an article published in Eversheds’ in house costs magazine. It considers the requirement that a Part 36 Offer must be a “genuine offer to settle”.
Part 36 is a section of the Civil Procedure Rules which dictates the detailed procedures for, and effects of, a formal offer to settle a court claim or part of it. Offers can be made without complying with the Part 36 procedure, but will often not have the same effect.
CPR 36.17 sets out the normal consequences of a Part 36 Offer which has not been accepted. In summary:
(a) by sub-rule (3), where a claimant fails to beat a Defendant’s part 36 Offer he gets his costs from the end of the relevant period of the offer and interest on those costs, unless the court considers this unjust.
(b) by sub-rule (4), where the claimant does at least as well as his own Part 36 Offer, he gets interest on the sum awarded at an enhanced rate, costs on the indemnity basis, interests on costs at an enhanced rate and the additional amount up to £75,000, unless the court considers this unjust.
In considering whether those normal consequences would be unjust, the court must have regard to the factors in sub-rule (5). These include, at the end of the list, a new factor introduced by rule changes in force from 6 April 2015:
(5) In considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4) above, the court will take into account all the circumstances of the case including –
(a) the terms of any Part 36 offer;
(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;
(c) the information available to the parties at the time when the Part 36 offer was made;
(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated;
(e) whether the offer was a genuine attempt to settle the proceedings.
It seems therefore that the Rules Committee had identified a concern that parties were making offers which were not genuine offers, solely to try to get the benefits under these provisions of Part 36. This raises the question of how the “non-genuine” offers will be identified.
In Jockey Club Racecourse v Wilmott Dixon  EWHC 167 there was a claim against the designer/builder of the new grandstand roof at Epsom racecourse. The Claim was initially pleaded at £400,000. The Claimant made a Part 36 Offer to settle the issue of liability on a 95% basis in its favour. In the case, there was no possibility of a reduction for contributory negligence. Liability was subsequently resolved by consent entirely in the Claimant’s favour.
The Claimant sought the usual benefits under CPR 36.17(4) and the Defendant argued that that would be unjust. Edwards-Stuart J had to resolve 2 issues:
(a) was this a valid Part 36 offer, where 95% liability was not an available outcome?
(b) was it a genuine attempt to settle liability within the meaning of CPR 36.17(5)(e)?
The Judge answered both questions positively. In the first place, it was a valid Part 36 Offer because an offer did not need to reflect an available outcome. Such offers were often made on the basis that most claimants prefer certainty to the ordeal of trial and uncertainty of its outcome: Huck v Robson  1 WLR 1340.
Secondly, and more importantly for our purposes, the offer was a genuine attempt to settle. The Judge endorsed the dictum of Henderson J in AB v CD  EWHC 602 (Ch):
“a request to a defendant to submit to judgment for the entirety of the relief sought cannot be an “offer”…the offer must contain some genuine element of concession on the part of the claimant, to which a significant value can be attached in the context of litigation…the concept of a settlement must, by its very nature involve an element of give and take”
In the present case, the Judge held that there was a genuine element of concession worth significant value, because in a claim worth £400,000 a concession of 5% was worth £20,000.
The difficulty for us, of course, will be in knowing where the boundaries lie for a concession of significant value. The judgment suggests that the key factor is not the percentage reduction itself, but value of that reduction in a given case, so that it may not be possible always to say that a 5% reduction is sufficient to make an offer a genuine one: say perhaps the claim is worth £1,000, so that a 5% reduction would only be £50. But knowing where to draw the line seems subjective. And if the percentage itself is not determinative, that might suggest that in a £10 million case, an offer to accept 99.8% would be genuine, because the discount would be worth £20,000, the same amount as in this case. I would tentatively venture to suggest, however, that such an offer should not be considered as genuine, because in the context, the reduction would be considered immaterial, or de minimis.
The judgment also raises a question mark as to how this principle would apply in relation to defendants’ offers. Imagine the position where a defendant makes a Part 36 Offer to pay £1. At first blush it sounds a trivial amount. But significantly, the offer carries with it under Part 36 the liability to pay the Claimant’s costs if accepted. Assuming the offer is made some time into the dispute, that may be a concession of real value: we know from experience that sometimes (perhaps quite often) even a “drop hands” offer may be accepted because the risk of avoiding liability for adverse costs is considered valuable. I would therefore suggest, less tentatively this time, that a defendant’s Part 36 offer to pay £1 should be considered a genuine offer.
The test applied by the court would seem to have provided fertile ground for further disputes, so the best advice I can give is: watch this space!
18 October 2016