Part 36 and "genuine attempts to settle"

Where a claimant obtains a judgment which is at least as advantageous as the claimant’s Part 36 offer the court will award, unless it considers it unjust to do so:

• Interest on damages at 10% above base rate;
• Costs on the indemnity basis;
• Interest on costs at 10% above base rate:
• An “additional amount” of 10% of the first £500,000 and 5% of any amount above that figure (subject to the limit of £75,000)

Whilst these consequences incentivise claimants to make and defendants to accept well placed Part 36 offers, the rule was open to abuse such as where a claimant makes a Part 36 offer to accept 100% or marginally less than 100%.  

As a result, on 6 April 2015, CPR 36.17(5) was amended so that when considering whether it would be unjust to impose the above consequences, the court must now consider, (e) “whether the offer was a genuine attempt to settle the proceedings”.

So what amounts to a “genuine attempt” to settle?

In AB v CD [2011] EWHC 602 (Ch) the court decided that a Part 36 offer of 100% of the full value of the claim should not attract the usual Part 36 consequences even though the claimant argued that a 100% offer was “at least as advantageous” as the judgment. 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.

In Jockey Club Racecourse Limited v Willmott Dixon Construction Limited [2016] EWHC 167 (TCC),  Mr Justice Edwards-Stuart was asked to determine whether the claimant’s Part 36 offer was a genuine offer to settle. The claimant served a Part 36 offer (with the claim form) to settle the issue of liability on the basis that the defendant would accept liability to pay 95% of the claim for damages to be assessed.

Following the Court of Appeal’s decision in Huck v Robson [2003] 1 WLR 1340, the judge found that it was a purely commercial offer and not merely a tactical step. Even though the discount was modest, in the context of the original claim of £400,000 it still amounted to £20,000 which could not be described as “derisory”. Whilst the Racecourse’s offer was hardly generous, it was not “all take and no give”.

It follows that whilst a valid Part 36 offer may be made on a purely commercial basis, it needs to contain some genuine element of concession to which a significant value can be attached in the context of the litigation.

But what about where a claimant makes a Part 36 offer to accept an amount very marginally higher than the defendant’s expired Part 36 offer?

In an example case where liability was initially disputed but now proceeds on quantum alone:

• The defendant makes a pre-litigation Part 36 Offer in the sum of £5,250.
• The 21 day period for acceptance expires and the claimant commences proceedings.
• After disclosure and exchange of witness evidence the claimant makes a marginally higher Part 36 offer of £5,300.

Is the claimant’s “marginal Part 36 offer” a “genuine attempt to settle” or is it a poorly disguised attempt to avoid the consequences of late acceptance of a well-pitched Part 36 offer - and what should a defendant do about it?

It is clearly disproportionate to incur further costs to trial over £50 in damages. The real issue is the entitlement to costs since the expiry of the defendant’s offer.

When we are faced with one of these “marginal Part 36 offers” we seek to agree quantum and request a hearing to determine the entitlement to costs. So far the claimants have compromised the issue over entitlement to costs but we can see the issue of whether the claimant has made a “genuine offer to settle” being tested at some point.