Legal costs: a beginner’s guide to Part 36 Offers
In this beginner’s guide, I discuss some of the most important aspects of Part 36 offers, an aspect of legal costs.One of the major advantages which lawyers have over litigants in person is their knowledge of the complex civil procedure rules. The most devastatingly deployed weapon in the arsenal is the Part 36 Offer. Litigants consulting a direct access barrister in civil cases should always ask to discuss whether such an offer could assist in their case.
The civil procedure rules are divided into parts, with each part dealing with a different topic. So, for example, Part 6 deals with service of court documents, Part 23 deals with applications to court, and Part 44 deals with legal costs. Part 36 gives its name to a particular type of offer.
Consider this situation: a claim for £100,000 is made against you, which is grossly exaggerated. At trial, your arguments are successful, and the damages which are awarded against you are knocked down to £15,000. Who pays the costs of the action? The answer, perhaps counter intuitively, is that, normally, you do: despite your having defeated much of the claim, the court will still say that the Claimant has been successful in recovering damages, and costs go to the successful party. The way to protect yourself from this is to make a Part 36 Offer.
You can always make an offer to settle litigation in any terms you want, and the court may take the offer into account when it exercises its discretion at the end of the case in determining who pays the costs. However, Part 36 provides a special procedure for making a particular type of formal offer, which, in certain circumstances has automatic and potentially drastic consequences.
For Defendants, the Part 36 Offer is the way to avoid paying the Claimant’s costs, and to obtain payment of their own costs, even where the claim is not wholly defeated. The rules state that a Part 36 offer must be open for acceptance for at least 21 days. If the Claimant fails to beat the Part 36 Offer at trial, he will be required to pay the Defendant’s costs from the end of that 21 day period. So in the hypothetical situation I described above, let us imagine that the claim was commenced on 1 January 2016, seeking £100,000, and judgment was awarded at trial on 1 August 2017 in the sum of £15,000. Now introduce the fact that on 1 February 2017 the Defendant made a Part 36 Offer to pay the Claimant £20,000 in damages. The result would be that as the Claimant failed to beat the Defendant’s Part 36 Offer, the Claimant would now have to pay the Defendant’s costs from 22 February 2017 right through to trial, (although the Defendant would still have to pay the Claimant’s costs up to 22 February 2017).
The trial is often the stage at which the biggest proportion of the legal costs are incurred, but it can readily be seen that the earlier the offer is made by the Defendant, the greater the proportion of the costs which it brings into play, and therefore the greater the risk for the Claimant in continuing with the claim and not accepting the offer. If you leave it too late, and make the offer less than 21 days before trial, it might have no effect at all. That it is why it far better to consult a direct access barrister as early as possible to discuss Part 36 Offers. A well-pitched Part 36 Offer at the outset of the case, even before proceedings have been issued in court, can put the Claimant at risk of the whole of the costs of the action.
Claimants can also make Part 36 Offers. The offer needs to be a genuine offer, meaning that it has to make some concession – an offer to accept 100% of your claimed damages would not be effective, but an offer to accept 95% probably would be (see my separate post on genuine Part 36 Offers https://verycivilbarrister.co.uk/part-36-genuine-offer-to-settle). If the Claimant does at least as well as his offer at trial, the court (unless, exceptionally it considers this unjust) will award him a whole package of benefits:
(a) costs on the indemnity basis from the end of the 21 day period;
(b) an increased rate of interest from the end of the 21 day period;
(c) an additional 10% of his damages (up to a maximum limit).
So if your claim was for £100,000, you made a Part 36 Offer of £80,000, and you are awarded damages of £90,000, you would then be awarded an additional £9,000. Legal costs on the indemnity basis, rather than the standard basis, can make quite a difference, as the costs are not subject to the test of proportionality, which can lead to substantial reductions. Again, it can be seen that the earlier the offer is made, the better, since then the indemnity costs and increased rate of interest run for a longer period.
Part 36 is a self-contained set of rules: to be a compliant Part 36 Offer, the offer needs to be in writing and to comply with certain formalities – if it does not, it will not have the consequences set out above; there are restrictions on withdrawing an offer once it has been made, and on accepting an offer in certain situations.
The key to making a Part 36 Offer is of course in pitching it at exactly the right level: as a Claimant, you do not want to concede too much, but you need to go low enough that you have a good chance of beating your offer. As a Defendant, you need to go just high enough that the Claimant is put under pressure by being made to think that if it does not all go his way at trial, he might do worse than the Part 36 Offer. You therefore need to have an accurate assessment of the possible outcomes at trial.
Very often, litigation is all about legal costs. It is therefore a very good idea to seek specialist advice in relation to Part 36 Offers, at the earliest opportunity.
10 August 2017