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Part 36 offers - three new cases you NEED to be aware of

30 September 2020
William Mackenzie discusses three recent decisions which practitioners should be aware of. Part 36 is a ‘self-contained code’ and it is intended to give certainty as to its operation. However, as you will see from the following cases, challenges are still being made to the operation of these rules with judicial determination still being required on interpretation.

When Lord Justice Jackson introduced his amendments to part 36, the intention was to bring a degree of certainty to Part 36. However, I fear that as time goes by, we are starting to see that uncertainty creeping back in.

Costs Consequences where the claimant has made an offer of 99.7%

Back in 2011the court decided in AB v CD [2011] EWHC 602 (Ch) that a Part 36 offer of 100% of the full value of the claim should not attract the usual Part 36 consequences. However, earlier this year in Rawbank SA v Travelex Banknotes Ltd [2020] EWHC 1619 (Ch) Mr Justice Zacaroli ordered that the defendant pay enhanced interest and indemnity costs as result of failing to beat the Part 36 offer which had applied a discount of just 0.3% to the claim.

In Rawbank, the claimant had brought a claim for breach of contract and at the same time made a Part 36 offer to accept of 99.7% of the claim. Judgment was entered for the claimant who thereafter sought the additional costs benefits of beating a Part 36 offer. The defendant argued it was not a genuine offer and referred to AB v CD in support of their argument that there must be some genuine element of concession.

The court considered the usual factors under CPR 36.17(4) and rejected the submission that it was not a genuine attempt to conclude matters. The court noted there was no dispute as to the level of quantum (only whether the sums were payable in principle) and that there was no defence to the claim. In other words, a discount of any amount would involve the claimant giving up something which it had a near-certainty of obtaining.

However, because the defendant would have had trouble paying the sums due if they had accepted the claimant’s Part 36 offer (as a result of insolvency and they delayed accepting the offer to explore restructuring options) the judge decided that he would order the defendant to pay indemnity costs and interest from 25 May 2020. This was a point at which the judge felt the defendant should have accepted the offer. 

Accordingly, if you are faced with a modest Part 36 concession, it would be at your peril to dismiss this. The judgment shows that if there is a genuine concession the court will allow some, if not all of the Part 36 benefits to the successful party.

Can you make a valid ‘drop hand’ Part 36 offer

In Akinola v Oyadare and Anor [2020] EWHC 2038 (Ch) Deputy Master Henderson held that although the defendant’s offer met the technical requirements of CPR 36.5 a walk away offer was outside the scope of Part 36 “for a more fundamental reason”. He said, “the usual meaning of "drop hands" is that the claim or claims should be discontinued with each side bearing its own costs. That would be inconsistent with Part 36. Further, there is no procedure for "withdrawing" a claim.”

Part 36 also requires costs consequences to follow as a result of an acceptance and for the claim to be stayed. The judge said that an offer to withdraw the claim is inconsistent with the procedure to stay the claim (the proceedings would no longer exist for the stay to remain) and as such it could not be treated as a valid Part 36 offer. 

This decision shows that it is not permissible to make a valid Part 36 offer to ‘drop hands’. Any offer for parties to ‘walk away’ from the litigation will need to be made by means of a Calderbank offer, and concluded with a Tomlin/Consent Order. It should be noted that the court will still consider any drop hands offers pursuant to CPR 44.2(4)(c) but it does mean that the costs consequences will not be automatic.

How should a withdrawn Part 36 offer be treated? Well, of course, that depends…

In Blackpool Borough Council v Volkerfitzpatrick Ltd [2020] EWHC 2128 (TCC) HHJ Davies had to consider what the effect of a withdrawn Part 36 offer should be. 

The defendant had made what would have been a ‘successful’ Part 36 offer of £750,000, as the claimant only recovered £631,510.25 at trial. However, the defendant had withdrawn the Part 36 offer before the trial.

My colleague Nicola Critchley has previously covered this decision in detail here. However, it is worth repeating that the test the court will apply is whether the offeree acted reasonably or unreasonably in failing to accept the offer while it was on the table.

A withdrawn Part 36 offer cannot be disregarded entirely. The court must put itself into the position of the claimant at the time and not simply decide the case by reference to hindsight; but the focus must be on the reasonableness of the refusal by reference to the facts and matters relevant to the merits of the claim as they ought reasonably to have appeared to the claimant at that time, not by reference to wider commercial factors.

Please contact William Mackenzie, Costs Lawyer.

Further Reading