THE NEW PART 36: PART 5: WAS THE OFFER A "GENUINE ATTEMPT" TO SETTLE PROCEEDINGS?

One addition to the rule is a further factor for the court to take into account when considering whether or not the usual costs, and other consequences, of Part 36 should apply.

THE NEW CPR 36.17: COSTS CONSEQUENCES FOLLOWING JUDGMENT

CPR 36.17 sets out the consequences if a party fails to beat a Part 36 offer.  The normal rule is that a court must impose the cost, and damages, penalties under Part 36 “unless it is unjust to do so”.

THE FACTORS THE COURT TAKES INTO ACCOUNT

(5) In considering whether it would be unjust to make the orders referred to in paragraphs
(3) and (4), the court must take into account all the circumstances of the case including—
(a) the terms of any Part 36 offer;
(b) the stage in the proceedings when any Part 36 offer was made, including in
particular how long before the trial started the offer was made;
(c) the information available to the parties at the time when the Part 36 offer was
made;
(d) the conduct of the parties with regard to the giving of or refusal to give information
for the purposes of enabling the offer to be made or evaluated; and
(e) whether the offer was a genuine attempt to settle the proceedings.

(The new section is in bold).

DOES THIS NEW SECTION HAVE ANY RELEVANCE?

The court is only considering this discretion when a party has failed to beat a Part 36 offer. It is difficult to see how, if that offer has not been beaten, the losing party can argue that the offer it failed to beat was not a genuine attempt to settle the proceedings.

WHAT’S THE POINT OF THIS?

It is difficult to see what “mischief” this new provision is designed to deal with. This issue has been considered in the case law.

In Huck -v- Robson [2002] EWCA Civ 398 the Court of Appeal considered whether an offer by a claimant of 5% liability was a genuine offer of settlement. The trial judge had refused to award indemnity costs to the claimant who had recovered 100%.  The judge held that a finding of 5% contributory negligence was not a finding a judge would have made.  Jonathan Parker LJ (in a dissenting judgment) stated:-

1. At the same time, it is in my judgment implicit in rule 36.21 that, consistently with the philosophy underlying Part 36 (to which I have already referred), in order to qualify for the incentives provided by paragraphs (2) and (3) of the rule a claimant’s Part 36 offer must represent at the very least a genuine and realistic attempt by the claimant to resolve the dispute by agreement. Such an offer is to be contrasted with one which creates no real opportunity for settlement but is merely a tactical step designed to secure the benefit of the incentives. That is not to say that the offer must be one which it would be unreasonable for the defendant to refuse; that would be too strict a test, and would introduce considerations of punishment and moral condemnation which (on the authority of Petrotrade and McPhilemy) are irrelevant in the context of paragraph (3) of rule 36.21. Indeed, the terms of the offer may reflect a degree of optimism and confidence on the part of the claimant/offeror. Provided only that the offer represents a genuine and realistic offer to resolve the dispute by agreement, it is for the claimant to decide at what level to pitch his offer. In some cases, an offer which allows only a small discount from 100 per cent success on the claim may be a genuine and realistic offer; in other cases, it may not. It is for the judge in every case to consider whether, in the circumstances of that particular case, and taking into account the factors listed in paragraph (5) of rule 36.21, it would be unjust to make the order sought.

However the majority view in that case was that a 5% offer of contributory negligence was reasonable (in a case where the defendant was found 100% liable).

Tuckey LJ stated:

1. I think it is clear that the judge deprived the Claimant of indemnity costs simply because liability would never have been apportioned 95:5. Jonathan Parker L.J. says that this was within the judge’s discretion because such an offer did not create any real opportunity for settlement in a case where there was no real possibility of any outcome other than 50:50 or an outright win for the Claimant (paragraphs 63 and 65). Schiemann L.J. says that the fact that no judge would apportion liability 95:5 is irrelevant. A defendant can choose not to accept such an offer but if the Claimant beats it there is nothing unjust in awarding indemnity costs.
2. I think Schiemann L.J. is right about this. I do not think that the court is required to measure the offer against the likely outcome in a case such as this. In this type of litigation a Claimant with a strong case will often be prepared to accept a discount from the full value of the claim to reflect the uncertainties of litigation. Such offers are not usually based on the likely apportionment of liability but merely reflect the reality that most claimants prefer certainty to the ordeal of a trial and uncertainty about its outcome. If such a discount is offered and rejected there is nothing unjust in allowing the claimant to receive the incentives to which he or she is entitled under the Rules. On the contrary, I would say that this is a just result.
3. I would however add that if it was self-evident that the offer made was merely a tactical step designed to secure the benefit of the incentives provided by the Rule (e.g. an offer to settle for 99.9% of the full value of the claim) I would agree with Jonathan Parker L.J. that the judge would have a discretion to refuse indemnity costs. But that cannot be said of the offer made in this case, which I think did provide the Defendant with a real opportunity for settlement even though it did not represent any possible 

Schiemann L.J. stated

1. In particular I agree that a claimant who has bettered his Part 36 offer has a prima facie entitlement to indemnity costs. The general presumption that a successful claimant only receives costs on the standard basis is displaced by Part 36.21(4).
2. The crucial question to be addressed by the judge in the present case was that posed in Part 36.21(4) : will it be unjust to award the claimant his costs on an indemnity basis? It is important to bear in mind that this is the way the question is phrased. The question is not : will it be unjust notto award the claimant his costs on an indemnity basis?
3. The Judge addressed this question in the passages quoted by Parker L.J. in his paragraphs 24 – 27. The Judge identifies the following consideration as the circumstance which drove him to the view that to award the claimant costs on the indemnity basis would be unjust, namely, the fact that it was inevitable that the defendant would reject the offer made by the claimant. I do not accept that this is a relevant, still less a conclusive, factor in deciding whether the award of costs to the claimant on the indemnity basis would be unjust.
4. It is not clear whether the judge arrived at his view in the light of (1) his impression of the defendant formed at the trial or (2) what he understood to be the claimant’s understanding at the time he made the offer of the likely reaction of the defendant or (3) what a reasonable defendant to a road traffic accident would do when faced with an offer by the claimant to settle the question of liability on the basis of a proportion 95:5 or (4) what a reasonable defendant would have done if the had been the driver of the defendant’s car at the time of the crash and had been subsequently faced with this Part 36 offer or (5) a view that it was inevitable that if the case were fought the judge would not apportion liability 95:5.
5. As to (1), this seems to me irrelevant to the question whether it is just to deprive a claimant of the indemnity costs to which he is prima facieentitled. The answer to that question should not depend on the forensic fortitude of a particular defendant. As to (2), we were not told of any relevant evidence on this point. But in any event I consider it irrelevant. Again, the answer to the question whether it is just to deprive a claimant of his indemnity costs should not depend on the claimant’s understanding of the defendant’s forensic fortitude. As to (3), again this seems to me irrelevant. Part 36.21(5) tells the judge to take into account all the circumstances of the case. There is no suggestion that other traffic accidents are relevant. As to (4), I do not categorise the defendant’s reaction in the present case as unreasonable. Nor would he have been behaving unreasonably if he had accepted the claimant’s Part 36 offer. I however see nothing unjust in awarding a claimant his indemnity costs in circumstances where the defendant chooses not to accept an offer to settle for less than that to which the claimant is entitled. If it was consideration (5) which motivated the judge then in my judgement he fell into error. I accept that it was all but inevitable that no judge would apportion liability 95:5 but this seems to me an irrelevant consideration.
6. Nevertheless, I accept, like my Lords, that circumstances can exist where, notwithstanding that a claimant has recovered in full after making a Part 36 offer for marginally less, he will not be awarded costs on the indemnity basis. I do not consider that Part 36 was intended to produce a situation in which a claimant was automatically entitled to costs on the indemnity basis provided only that he made an offer pursuant to Part 36.10 in an amount marginally less than the claim.
7. The judge had a discretion. Unlike Parker L.J. but like Tuckey L.J. I consider that in the present case the Judge approached the exercise of his discretion on a wrong basis. The judge was unduly influenced by the probable fact that no judge, if the case came to trial, would decide that liability should be split 95:5. I regard this conclusion, although correct, as irrelevant. We are therefore entitled to exercise this discretion afresh.
8. LikeTuckey L.J., I do not consider it just in the circumstances of the present case to deprive the claimant of costs on the indemnity basis. Justice in the individual case is what Part 36.21(5) bids us to take into account; not justice in general as between claimants and defendants or views as to social policy in general.

ANOTHER EXAMPLE

This issue was considered again by Norris J in Wharton -v- Bancroft [2012] EWHC 91 (Ch). This was a disputed will case where the claimant had made a Part 36 offer to settle.

1. I now turn to the question of costs from and after 7 May 2010. On 16 April 2010 Maureen made a Part 36 offer (a) to execute a Deed of Variation under which each of the Daughters would receive a legacy of £5000 and (b) would be entitled to payment of their costs (assessed on the standard basis) out of the estate which would otherwise pass to Maureen. Implicit in the offer was that Maureen would also bear the executors’ costs of the litigation. The beginning of the letter explained that Maureen was “confident that [the Daughters] case has no merit whatever” and that the offer was made to avoid lengthy and expensive litigation. The offer was rejected.
2. It is common ground that this was a technically correct Part 36 offer. CPR 36.14(1)(b) applies because the judgment which Maureen has obtained as against the Daughters is better than her Part 36 offer. CPR 36.14 (3) says that in such circumstances “the Court will unless it considers unjust to do so order that the Claimant is entitled to [her costs] on the indemnity basis from the date on which [the Part 36 offer] expired”.
3. Mr Cousins QC submits that it would be “unjust” to make that order because this was not a real Part 36 offer. In Huck v Robson [2002] EWCA Civ 398 Jonathan Parker LJ suggested (at paragraph [63]) that a Part 36 offer must present a genuine and realistic attempt by the offeror to resolve the dispute by agreement (as opposed to making a offer which created no real opportunity for settlement but was merely a tactical step designed to secure the benefit of the incentives provided by Part 36). The other members of the court did not agree with that formulation though Tuckey LJ said (at [71])

“If it was self evident that the offer made was merely a tactical step designed to secure the benefit of the incentives provided by the rule (eg an offer to settle for 99.9% of the full value of the claim) I would agree with Jonathan Parker LJ that the Judge would have a discretion to refuse indemnity costs”.

1. The concept is not an easy one to apply. All Part 36 offers are tactical in the sense that they are designed to take advantage of the incentives provided by Part 36. A low offer in a case where the offeror considers that the offeree’s position has no merit cannot be written of as self evidently “merely a tactical step”. But the principle has no application here. The sum to be received by each of the Daughters was small. But the offer was not derisory. On the available figures (and having regard to the fact that the Daughters were conducting the litigation on a CFA with a 100% uplift and with the benefit of ATE Insurance, the premium on which was an undisclosed percentage of their costs) the real effect of the offer (although calculated as a nuisance value offer) was of the order of £200,000 (ignoring the fact that Maureen would be bearing her own costs and those of the executors). I see no reason on that ground (or taking into account the matters to which my attention is directed in CPR 36.14(4)) why it would be unjust to order costs on the indemnity basis.”

DOES THIS NEW RULE MERELY CODIFY THE CASE LAW?

It probably does.  However a knowledge of the pre-existing case law will probably be essential to anyone making submissions on this basis.