PART 36: TENSION BETWEEN BEATING AN OFFER BY ANY AMOUNT, HOWEVER SMALL, AND GENUINE ATTEMPT TO SETTLE

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There have been no fewer than three instances in under two months of the courts refusing to award a claimant the extras when the claimant had beaten its own offer, but by a small amount, with the Courts in all three cases holding that the offers were not genuine attempts to settle the proceedings, which is a factor that the court must take into account in considering whether it would be unjust to award the extras.

Two of the decisions are High Court decisions, and although each case will depend upon its facts, there is a pattern developing.

In

Sleaford Building Services Ltd v Isoplus Piping Systems Ltd [2023] EWHC 1643 (TCC)

the Technology and Construction Court, part of the High Court, held that a claimant’s offer to accept 99.9% of its claim, with the balance being interest, was not, viewed objectively, a genuine attempt to settle the proceedings.

The Court said:

“The obvious point to make here is that the offer, if accepted, required Sleaford to pay the whole of the principal amount decided by the adjudicator to be due, namely £323,502.32. That is not really much of a concession at all in circumstances where, as in this case, adjudication enforcement tends to produce an all or nothing outcome save in severance cases, which this is not. In reality, all that Isoplus was offering was to forego interest for a short period. In some cases, foregoing interest may amount to a genuine and realistic element of compromise but this is not such a case.”

This is a variation on the theme, in that here the claimant had won the case and was enforcing the decision of an Adjudicator.

Now, it seems that even where a claimant has judgment, they must make some significant concession in order to achieve the benefits of Part 36.

That does not seem right.

In

Rawbank SA v Travelex Banknotes Ltd [2020] EWHC 1619 (Ch)

the Chancery Division of the High Court accepted that a 99.7% offer was a genuine attempt to settle a very strong case where there was clearly no defence.

Here, it was not just a question of it being a very strong case; the case had already been decided in the claimant’s favour.

In

Yieldpoint Stable Value Fund, LP v Kimura Commodity Trade Finance Fund Ltd [2023] EWHC 1512 (Comm)

the Commercial Court, part of the Kings Bench Division of the High Court held that a Part 36 offer made by the claimant and beaten at trial was not a genuine attempt to settle the proceedings, within the meaning of CPR 36.17(5)(e) and that it was therefore, not unjust to disallow the normal Part 36 consequences where a claimant matches or beats its own offer.

The Court said that it was a “pay up now, accept that you are wrong” ultimatum, rather than a genuine attempt to settle.

This is the second such decision and in the last couple of months I reported the first one –

Gohil -v-Advantage Insurance Company, Birmingham County Court, 11th May 2023

as

PART 36: SEVEN PENCE DISCOUNT NOT GENUINE OFFER TO SETTLE

where a claimant who had beaten her own offer by just 7 pence was denied the extras, as set out in CPR 36.17(4)(a) to (d).

Here, the claimant had succeeded at trial in its claim for repayment of $5 million, that is around £3.9 million plus interest and argued that the judgment was more favourable than its offer of $4.9 million which represented 99% of the principal claim, which dropped to 96% after interest was taken into account.

The Court referred to the “starkly binary nature” of the claim, that is it was all or nothing, and the fact that at the time the Part 36 offer was made, the outcome was far from obvious, with witness statements still to be exchanged.

The judgment said that the case was “up for grabs to the end”.

“This was not a case where a very high claimant offer reflected a very strong prospect of the claimant succeeding at trial. The parties were diametrically and evangelically opposed in terms of their characterisation – and, I sensed, subjective understanding – of the deal they had concluded. A discount of 1% is meaningless in such context.”

The Court concluded that the Part 36 offer was not genuine, although he noted this did not reflect any impropriety or cynical manipulation by the claimant or its lawyers.

The claimant took a legal risk of the defendant accepting the Part 36 offer but did not create a meaningful chance of settling the dispute ahead of the trial and the defendant was never likely to accept the Part 36 offer.

This is a difficult area in need of clarification by way of Statutory Instrument, in advance of the massive extension of Fixed Recoverable Costs in October 2023, and the accompanying complete change in the Part 36 provisions.

Clearly there is a difference between an offer in relation to essentially special damages only, where the amount claimed is quantified and quantifiable, as compared with general damages.

Thus, if in a commercial case, a claimant seeks £1 million but makes a Part 36 offer for £999,000, one can see policy reasons for not allowing the extra enhancements set out in CPR 36.17(4)(a) to (d).

However, if the claim is in general damages, which are uncertain, and the claimant offers to accept £999,000 but at trial achieves £1 million, then the claimant would expect to receive the enhancements.

However, the Civil Procedure Rules do not distinguish between general damages and special damages in relation to Part 36.

Maybe they should.

There is also a tension between a specific cash offer and a percentage offer.

The courts have adopted different approaches in relation to percentage offers, with some courts taking the view that an offer to accept a 100%, in circumstances where the claimant then wins completely at trial, is a situation where the claimant has matched its offer and should get the enhancements.

Other courts have taken a different view.

The legislative history is interesting in that originally a claimant had to beat its own offer, rather than match it, but Parliament changed that so that a claimant only had to match its own offer.

In the case of

Carver v BAA Plc [2008] EWCA Civ 412 (22 April 2008)

not referred to in the judgment here, the Court refused to award the claimant Part 36 extras where she had only beaten her own offer by a small amount.

That decision was the subject of severe criticism and Parliament statutorily repealed it and CPR 36.17(2) provides:

“(2) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.”

That seemed to have resolved matters.

However, Parliament then inserted a fresh CPR 36.17(5)(e), a rule amendment taking effect in April 2015 which means that in considering whether it will be unjust to award the claimant the enhancements within that same subrule, the Court must consider whether the offer was a genuine attempt to settle the proceedings.

There is a clear, and unresolvable tension between those two provisions.

This is the fault of the rule, and not the courts who have the unenviable task of interpreting a rule which is inherently internally contradictory.

The Court here did go through the post-April 2015 decisions, which show different attitudes by different courts on apparently identical facts and rightly rejected any criticism of a party for making an offer and using it as a “tactical step” and pointed out that such procedural behaviour for tactical purposes is both encouraged and supported in the interest of promoting settlement of disputes.

The Court then appeared to contradict itself by saying:

“That said, an offer which is a cynical attempt to manipulate the Part 36 regime and apply pressure on an adversary is unlikely to be effective for such purposes.”

The burden of proof or persuasion under CPR 36.17(5)(e) rests upon the offeree. Proof of injustice under CPR 36.17(4) is a “formidable obstacle” to an offeree who finds themselves on the wrong side of a judgment: see Webb v. Liverpool Women’s NHS Foundation Trust [2016] EWCA Civ 365; [2016] 1 WLR 3899.

The Court here said that the Part 36 regime incentivizes the making and acceptance of constructive offers of settlement, that is those which can be said to have a meaningful impact upon the chances of avoiding a trial or “further consuming curial resources towards trial” and that cases decided under CPR 36.17(5)(e) invariably concern a “very high claimant offer”, that is an offer involving a very small or negligible discount against the gross value of the claim and/or waiver of accrued interest.

“19. The fact that a judge in another case upheld a 99.7% offer (Rawbank SA v. Travelex Banknotes Ltd. [2020] EWHC 1619 (Ch); [2020] Costs L.R. 781) or a 95% offer (Jockey Club Racecourse Ltd. v. Willmott Dixon Construction Ltd. [2016] EWHC 167 (TCC); [2016] 4 WLR 43) or a 90% offer (JMX v. Norfolk & Norwich Hospitals NHS Foundation Trust [2018] EWHC 185 (QB); [2018] 1 Costs L.R. 81) does not inform, still less dictate, how I should approach my evaluation of the Part 36 Offer in the present case. These decided cases provide illustrative guidance, no more.

With effect from 1 October 2023, in cases covered by Fixed Recoverable Costs, that is virtually all civil litigation valued at  £100,000 or less, there will be no order for indemnity costs when a Part 36 offer is matched or beaten, but rather a straight 35% uplift on costs.

Given that we are now into percentages, and given the tension set out above, it is now worth considering a graded incentive/penalty structure?

For example, on a quantum offer, if a claimant beats it by, say, under 5%, maybe the uplift on costs should be only 10% and 2% on damages.

If the claimant beats its offer by between 5% and 10% then those figures could be doubled etc.

This would encourage claimants to make more acceptable offers, as the more they beat their offer by, the greater the enhancements. Likewise, there will be little benefit in making an offer that concedes almost nothing, as the enhancements would be almost nothing.

Of course, no claimant is forced to make any offer at all, and therefore, is not being forced to jettison a significant part of its claim.

90% LIABILITY PART 36 OFFER VALID: MUNDY CASE DISTINGUISHED

In

Chapman v Mid and South Essex NHS Foundation Trust (Re Costs) [2023] EWHC 1871 (KB) (20 July 2023)

the King’s Bench Division of the High Court held that a claimant’s offer to accept 90% of damages in a clinical negligence case where there was a subsequent liability trial, but not yet a quantum trial, was a valid Part 36 offer.

Here the offer was made on 22 December 2022 and the judgment on liability was handed down on 30 May 2023.

The offer was described in the letter from the claimant’s solicitors as

 “an offer to settle the liability and causation issues in this action for 90% of damages assessed on a 100% liability basis, that is with a deduction of 10% from the full value of the claim”.

The claimant won on a 100% basis and so obtained a judgment “at least as advantageous” to her as a Part 36 offer.

The High Court held that if it was a valid offer, then it would not be unjust to make those orders referred to in CPR 36.17(3) and (4) that are applicable at this stage, where no quantum trial has taken place, and therefore, no determination of damages to be awarded to the claimant has occurred.

Clearly the items in CPR 36.17(4)(a) and (d) relating to enhanced interest on damages and an uplift on damages respectively did not apply, but the provisions relating to indemnity costs and enhanced interest on those costs did apply.

So far, so good.

The potential problem was the heavily criticised decision in

Mundy -v- TUI UK Ltd [2023] EWHC 385 (CH)

Technically distinguishing that decision, the High Court here effectively rejected it.

Here is the relevant, and important, part of the judgment in this case.

“28. However, the factual context of Mundy is important. This was that the Claimant had made two separate Part 36 offers (one based on a 90/10 liability split and one to accept £20,000 pounds in settlement of the claim) and the Defendant had made a Part 36 offer of £4000 in full settlement. The Claimant was ultimately awarded £3,805.60 but nevertheless argued that the judgment was at least as advantageous to him as the proposals in his 90/10 offer: [1] and [6]-[8]. At [32], Collins Rice J identified a “particular difficulty” with the Claimant’s position, namely that it seemed to:

“…cut across the binary structure of CPR 36.17(1) by contemplating a situation in which the answer to both limbs could be “yes”: A claimant can have failed to beat a defendant’s money offer, but still have beaten or equalled his own liability offer. That raises the problematic prospect of subsections (3) and (4) both applying in circumstances where it is far from obvious that this is in the contemplation of the rule at all”.

29. While Collins Rice J did discuss 90/10 liability offers in general terms at [36]-[42], I do not understand her judgment as purporting to hold that Part 36 consequences cannot flow from such offers made in different factual circumstances from those before her, and any such finding would be obiter in any event. Collins Rice J’s analysis was based on the difficulty of comparing monetary offers with liability offers of this kind. While such a difficulty may arise in claims such as Mundy where liability and quantum issues are tried together and both liability and monetary offers have been made, the analysis does not apply in this case given that a split liability trial had been ordered and the only substantive offer made by either party was the Claimant’s 90/10 liability split offer.

30. Further, in Mundy at [36], Collins Rice J appeared to acknowledge that a 90/10 liability offer could be effective in cases where there was a “genuine question of issues-based liability”. There was, until judgment, a genuine prospect of a finding on split liability as between the parties in this case. I did not find that the contributory negligence argument in relation to the Dr Bopitiya claim was one that did not have “the slightest prospect of success” as in Mundy at [11]. Although Mr Post now advances that contention, the Defendant had maintained this allegation at trial and my rejection of it was based on my decision as to the point at which the Claimant would have undergone surgery but for Dr Bopitiya’s negligence, all matters that were heavily contested by the Defendant at trial.

31.In any event, Mundy is distinguishable from this case because the manner in which the Claimant’s 90/10 offer applied to the causation issue had been made clear in correspondence and was reflected in the liability judgment.

32. For these reasons I do not accept that the reasoning in Mundy is applicable here. In my judgment the Claimant’s 22 December 2022 offer was a valid one for Part 36 purposes.

COMMENT

A welcome, correct and sensible judgment.

It still leaves open the issue of how to split liability and quantum costs.

Even where there is a liability trial, there is inevitably work done on quantum and the successful Part 36 offeror appears to get the benefit of indemnity costs on all the work done after the expiry of the period for accepting the Part 36 offer.

It is hard to see how any other method would work, without a huge amount of work on splitting the bill into quantum and liability work.

I predicted that the flawed decision in Mundy would be thrown in the faces of claimant by defendants.

It was here.

I set out my writeup of the distinguished- that is it has been distinguished by another court, not that it was a distinguished judgment- which appeared at 819 of the Newsletter in Issue 150 here.

PART 36 AND LIABILITY: JUST HOW WRONG CAN THE HIGH COURT BE?

In

Mundy -v- TUI UK Ltd [2023] EWHC 385 (CH)

the Chancery Division of the High Court, on appeal from Swindon County Court, got the law on Part 36 offers and liability just about as wrong as is possible.

The decision is so hopelessly flawed and in conflict with numerous Court of Appeal decisions, that it is per incuriam – that is wrongly decided – and can be ignored, and indeed is being ignored, by other courts.

However, successful claimants will now have this decision thrown in their faces by losing defendants, so it is necessary to deal with it.

The County Court and the High Court arrived at the right conclusion, that is on the facts here that the claimant should not get the CPR 36.17 enhancements, but for the wrong reasons, and it is those wrong reasons which are likely to cause problems in other liability offer cases under Part 36.

It was said that there was no previous High Court authority on the point, which is nonsense.

The claimant brought a holiday sickness claim against the defendant holiday company and made two Part 36 offers on the same day:

1) £20,000 inclusive of interest and special damages;

2) liability on a 90% / 10% basis in his favour.

The defendant made a Part 36 offer of £4,000.

None of the offers was accepted and the matter went to trial, and the claimant won on a 100% liability basis, but only recovered £3,805.60.

Thus, the claimant had beaten its own liability offer, but had recovered less than 20% of its own quantum offer and had failed to beat the defendant’s quantum offer.

The claimant submitted that as it had beaten its liability offer, it should get the Part 36 enhancements.

Here, the defendant had pleaded contributory negligence, and therefore, whatever the position in matters generally, it was obviously entirely reasonable and sensible for the claimant to make a liability offer, accepting a degree of clinical negligence.

The Court, bizarrely, said that the defendant’s plea of contributory negligence was “a hopeless idea” and that

“… no competent legal adviser could have regarded the contributory negligence plea as having the slightest chance of success.”

It, therefore, held that the Claimant’s offer was not a genuine offer to settle, but “a plainly tactical device, to take advantage of a foolish piece of pleading”.

That is one of the most bizarre statements by a court in English legal history.

A claimant sues. The defendant argues contributory negligence. The claimant accepts a degree of contributory negligence.

However, the court, talk about descending into the arena, rejects the whole concept of contributory negligence.

Furthermore, having stated that the defendant’s pleading of contributory negligence was foolish, it then punishes the claimant for making a Part 36 offer on liability, and beating it.

The whole judgment makes Alice in Wonderful look rational.

Thus, the Court treated the offer as for 90% of the quantum claim, and the claimant had failed to recover 90% of the £20,000 that he had offered by way of a quantum settlement.

Thus, the claimant had not beaten his own offer.

In fact, the claimant had achieved at Court, more than 90% of the amount offered by the defendant.

The matter becomes somewhat complicated in that if the claimant was held to have beaten his own 90% offer, and was entitled to the enhancements, including a 10% uplift on damages, then he would have beaten the defendant’s quantum offer as well.

So there are two separate issues.

Many of the cases involve a claimant making a quantum offer which equates to 95%, 99%, or whatever, of the total claim and these are not liability offers.

In these cases, the issue has been whether such an offer, giving very little discount, is a genuine offer to settle.

I have dealt with this extensively in

PART 36: 2023 SPECIALS – PART 12 – GENUINE OFFER TO SETTLE

However, there are very many cases on the issue of liability alone.

A claimant used to have to beat its own offer to succeed, but following a change in the law by Parliament, now only has to match its own offer.

Before that change, courts had held that where an offer of 100% liability had been made, and the claimant had won, that that counted as a win for Part 36 purposes, as the claimant could not have done any better.

In other cases, a claimant who had made a liability offer and won the first part of a split trial was refused any extras by the court at that point, because it was unaware whether the defendant had made a quantum offer, which the claimant may then fail to beat at the quantum hearing.

That is, of course, what happened here, albeit not after a split trial.

Clearly there is a tension between offers where both parties win, that is a claimant beats its own Part 36 liability offer, but fails to beat a defendant’s quantum offer, which is the position in this case.

In those circumstances, it is a matter of judgment for the court, and for it to exercise its discretion under CPR 36 .17(4) to decide whether it is unjust to award the enhancements.

This will happen in other scenarios.

A claimant may make a Part 36 offer in relation to special damages, and beat it, but fail to beat a defendant’s overall quantum offer.

It is strongly arguable that the claimant should get enhancements in relation to special damages, as all of that work would have been saved had the special damages offer been accepted.

Any other outcome is absurd.

A claimant could make a very reasonable offer on special damages, which would have saved, say 50 hours work but fails to beat the defendant’s overall quantum offer.

Not only does the claimant risk not getting the enhancements but has to pay the defendant’s costs from the date of the expiry of the defendant’s offer, including for those 50 hours work on special damages, which was entirely unnecessary.

Of course, it can work the other way round; a defendant makes a perfectly good offer on special damages which the claimant fails to accept, then the claimant beats its overall offer on damages, and gets indemnity costs for all the unnecessary work in relation to special damages.

If Parliament, and the Civil Procedure Rules Committee, had intended that, then the rule can be simple:

“An offer can only be for quantum, and only for the whole of the case, and any issues within the case cannot be dealt with by way of a Part 36 offer”.

In fact, all the rules, and the whole tenor of Part 36, is exactly the opposite.

Consequently, it is most definitely not all or nothing, and there can indeed be different winners of different stages of the litigation.

This should not come as any surprise to anyone, as throughout protracted litigation, it is common for the eventual winner to nevertheless lose, and have costs orders made against it, in relation to certain interlocutory matters.

A claimant who has failed to beat a defendant’s quantum offer, but has beaten its own liability offer, should certainly not be the sole winner.

One option is to award the claimant the enhancements of indemnity costs and enhanced interest thereon, between expiry of its liability offer, and the defendant’s unbeaten quantum offer if made later.

If the defendant’s unbeaten quantum offer comes first, then there is no reason why the claimant should get any enhancement as it could have resolved the whole matter by acceptance of that offer and without the need to carry on and make a liability offer.

For a court to hold that a liability offer cannot be made, is plain wrong.

The law is clear, both in Part 36 itself, and in previous decisions.

CPR 36.2(3) states that a Part 36 offer may be made in respect of the whole, or part of, or any issue that arises in a claim, counterclaim or other additional claim or an appeal or cross-appeal from a decision made at a trial.

That is all encompassing.

CPR 36.3(c) defines a trial as meaning:

“any trial in a case whether it is a trial of all issues or a trial of liability, quantum or some other issue in the case” (my bold).

Thus, liability is specifically stated in CPR 36 to be an issue, which very obviously it is, and as we have seen, CPR 36.2(3) provides that a Part 36 offer may be made in respect of any issue.

Furthermore, what is the point of defining a trial as including a liability trial if an offer on liability cannot be made?

A claimant offer a 50 – 50 liability settlement.

That is not accepted by the defendant and the matter goes to a liability trial and the court finds in favour of the claimant on a 75% / 25% basis.

If the Part 36 offer cannot be made, does the defendant then get the costs of that liability trial for having established 25% contributory negligence, even though the claimant had offered 50%?

On the reasoning in this case, the answer is yes, and that is mad.

CPR 36.5(4) states:

“(4) A Part 36 offer which offers to pay or offers to accept a sum of money …”

That clearly envisage non-monetary offers, e.g. on liability.

CPR 36.12 reads:

“Acceptance of a Part 36 offer in a split-trial case

36.12

(1) This rule applies in any case where there has been a trial but the case has not been decided within the meaning of rule 36.3.

(2) Any Part 36 offer which relates only to parts of the claim or issues that have already been decided can no longer be accepted.

(3) Subject to paragraph (2) and unless the parties agree, any other Part 36 offer cannot be accepted earlier than 7 clear days after judgment is given or handed down in such trial.”

What else can this possibly refer to except a liability offer, with the issue of liability having been decided?

Maybe I have missed something. Are courts now routinely hearing quantum trials before liability trials in split-trial cases?

I do not think so.

Suppose a claimant makes a 50% liability offer at the outset and the defendant makes no offer, and the claimant wins at trial.

Why should that claimant not get the enhancements when it was prepared to jettison half of the claim in order to settle it?

Had the claimant offered a quantum settlement of 99%, it would get the extras, but offering a 50% liability concession does not get the claimant those extras.

Again, it is irrational and very clearly not what Parliament intended, nor what the Civil Procedure Rules say.

How does it operate in a claim where there is no monetary offer?

Part 36 specifically recognizes that there can be Part 36 offers in such cases, as CPR 36.17 (4)(d)(ii) specifically provides that the 10% uplift in such cases shall be on costs, there being no damages to uplift.

I completely recognize that this is a difficult rule, but it is also the most important rule, by a million miles of the Civil Procedure Rules.

The legal profession and the population of England and Wales deserve better than this.