PART 36: WHAT HAPPENS WHEN THE OTHER SIDE’S OFFER IS BETTER THAN YOUR OWN?
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This is all dealt with in my Personal Injury Reforms course this May, which can be booked here
Accepting a defendant’s higher offer
A claimant makes a Part 36 offer of £3,000.00 and this is not accepted within time.
A year later the defendant makes a Part 36 offer of £4,000.00, even though the claimant’s original offer of £3,000.00 remains available for acceptance.
What is the claimant then to do?
On the face of it, the answer is obvious – the claimant accepts an offer which is £1,000.00 more than their own unwithdrawn offer, which is still capable of acceptance.
However accepting a defendant’s Part 36 offer appears to restrict the claimant to ordinary costs, that is on the standard basis, or in a fixed costs case – fixed costs- whereas if the defendant had simply accepted the claimant’s one year old offer, for a lower sum, the defendant then risks being ordered to pay indemnity costs for the whole of the period of late acceptance.
The difference between fixed or standard costs and indemnity costs may well exceed the extra damages that the defendant is offering.
If the claimant does not accept the defendant’s offer then the defendant is free to accept the earlier offer and although the claimant’s solicitor stands to get more costs the client loses out and it is hard to see how such a course of action could be justified.
If the claimant solicitor immediately withdraws its own offer, so that the defendant cannot accept it, and then declines to accept the defendant’s offer, then it is back to square one with the claimant being at risk of failing to beat the defendant’s Part 36 offer but the defendant being at no risk of indemnity costs because there is no claimant’s offer on the table.
This is now happening quite a lot and the issue needs to be addressed, especially as fixed costs spread to other areas of work and to cases with a higher value.
As this happens there may be a very considerable advantage in the defendants making a Part 36 offer slightly above the claimant’s Part 36 offer.
Accepting a claimant’s lower offer
Of course this can work the other way round.
A defendant makes a Part 36 offer of £4,000.00 and a year later the claimant makes a Part 36 offer of £3,000.00 and if the defendant accepts that sum then the claimant avoids the adverse costs consequences of accepting a defendant’s offer late and also gets its costs for that one year period.
Wording along the following lines would deal with the problem:
“Where a claimant accepts a defendant’s Part 36 offer which is at least as high as its own outstanding Part 36 offer then the consequences shall be the same in terms of costs and additional damages etc. as if the defendant had accepted late the claimant’s offer save that the level of damages shall be that in the defendant’s offer.
Where a defendant accepts a claimant’s Part 36 offer which is lower than or equal to the defendant’s earlier unwithdrawn Part 36 offer then the costs consequences shall be the same as if the claimant had accepted the defendant’s offer late, save that the amount of damages will be that in the claimant’s lower offer.”
Set-off on late acceptance
A claimant accepts a defendant’s Part 36 offer late and thus is liable for the defendant’s costs from the date of expiry of the Part 36 offer to the date of late acceptance.
There is no time limit in relation to the defendant paying the claimant’s pre-Part 36 costs and therefore the defendant can withhold all the costs until its own post Part 36 costs are quantified.
However, in those circumstances, is the paying party allowed to withhold damages by way of set-off against post Part 36 expiry costs? A paying party would wish to do so if it expects its post Part 36 costs to be greater than the claimant’s pre Part 36 costs.
CPR 36.6(2) provides:
“(2) A defendant’s offer that includes an offer to pay all or part of the sum at a date later than 14 days following the date of acceptance will not be treated as a Part 36 offer unless the offeree accepts the offer.”
The general rule is that a paying party must make payment within 14 days of acceptance of the offer and there appears to be no provision for a paying party to withhold damages, as compared with costs, by way of potential set-off.
Part 36 offer v non-Part 36 offer
A defendant makes a non-Part 36 offer early on of £5,000.00 and very much later the claimant, who has ignored the offer, makes a Part 36 offer of £5,000.00 which the defendant accepts.
Does the defendant have to pay all of the costs or can they successfully argue that they should only pay costs up to the time of their non-Part 36 offer, relying on CPR 44.2 (4)(c) which says that the court must take into account any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply?
In my view when, in those circumstances, the defendant accepts the Part 36 offer then they accept the costs consequences and therefore have to pay the claimant’s costs.
Had there been no offer by the claimant and therefore no acceptance by the defendant then the defendant’s offer could have been taken into account by the court in determining the issue of costs.
However on the defendant’s acceptance of the claimant’s offer, albeit in the same sum, then the court will not be dealing with the principle of costs.
Part 36 is of extreme complexity but CPR 36.2 reads:
“(2) Nothing in this Section prevents a party making an offer to settle in whatever way that party chooses, but if the offer is not made in accordance with rule 36.5, it will not have the consequences specified in this Section.
(Rule 44.2 requires the court to consider an offer to settle that does not have the costs consequences set out in this Section in deciding what order to make about costs.)”
CPR 36.13 reads, where appropriate:
“(1) Subject to paragraphs (2) and (4) and to rule 36.20, where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings (including their recoverable pre-action costs) up to the date on which notice of acceptance was served on the offeror.
(Rule 36.20 makes provision for the costs consequences of accepting a Part 36 offer in certain personal injury claims where the claim no longer proceeds under the RTA or EL/PL Protocol.)”
Thus that rule applies whether it is the claimant’s offer, or the defendant’s offer, which is accepted as the reference there is to the offeror and not the claimant or defendant whereas other provisions refer to the claimant or defendant.
My view is that a valid Part 36 offer must trump a non-Part 36 offer. If it were otherwise then a defendant can make an offer that has no legal consequences but then seek to rely on it to avoid the costs consequences of the claimant’s valid Part 36 offer.
To interpret the provisions in any other way would render Part 36 largely meaningless, but there is a tension between CPR 36 and the general provisions on costs.
This has arisen in a number of cases, including the key issue of whether a claimant is entitled to indemnity costs on late acceptance by a defendant generally and whether a claimant is entitled to indemnity costs on obtaining judgment in a fixed costs case.
The latter point has been found in claimants’ favour in the Court of Appeal case of Broadhurst v Tan and Taylor v Smith  EWCA Civ 94 (23 February 2016).
Thus my view is that the defendant does indeed have to pay all of the costs.
Withdrawing Part 36 offer by email
In Thompson v (1) Reeve (2) The Motor Insurance Bureau (3) Mid Essex Hospital Services NHS Trust, Queen’s Bench Division of the High Court, Claim number HQ14P03864 20 March 2017
Master Yoxall allowed CPR 3.10 to be used to rectify the claimant’s admitted error in withdrawing a Part 36 offer by email where the parties receiving the notice had not indicated in writing that they were willing to accept service by email.
Thus the Claimant’s withdrawal of the Part 36 offer was deemed valid, which meant that it was not capable of acceptance by the defendants.
The situation arose due to the recent change in the discount rate.
So the MIB and the NHS Trust – both state/quasi state bodies sought to use a technicality to avoid a very severely and negligently injured child from getting the correct level of damages.
It would be nice if the NHSLA and the MIB behaved other than in this way.
Proposed amendment to the Civil Procedure Rules
“ Any body which does not consent to service by email shall recover no costs and should always be liable to pay costs on the indemnity basis.”
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