WHAT IS THE IMPACT OF A WITHDRAWN PART 36 OFFER ON COSTS? IT DEPENDS: COURT CONSIDERS THE RELEVANT TEST

August 3, 2020 · by · in Costs, Part 36

In the judgment today in  Blackpool Borough Council v Volkerfitzpatrick Ltd [2020] EWHC 2128 (TCC)  HHJ Stephen Davies, sitting as a judge of the High Court, considered the effect of a withdrawn Part 36 offer.  There is an important consideration of the approach the court should take to a withdrawn offer and how the offer of  the “reasonableness” of rejecting that offer should be considered.

“… it does seem to me that: (a) 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 (b) 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”

 

THE CASE

The claimant brought an action for some £6 million relating to construction of a tram depot.  There were a number of defendants and third and fourth party proceedings. The defendant made a Part 36 offer and then withdrew it.  The claimant failed to “beat” the withdrawn offer. The issue arose as to the impact of the withdrawn offer on costs.

THE JUDGMENT
    1. The third point is the costs consequence of withdrawing a Part 36 offer. Part 36.9 permits a party making a Part 36 offer to withdraw it if not accepted. In the case of a Part 36 offer made by a defendant which is withdrawn the automatic costs consequences under Part 36.17(1)(a) and (3) cannot apply (see 36.17(7)(a)). It may still, however, properly be taken into account as a relevant circumstance under CPR 44.2(4)(c).
    2. The editors of the current 2020 edition of Civil Procedure (the White Book) include a commentary on this in the notes at 36.10.4 and 44.2.19, to which I have been referred and which I have read. For present purposes it suffices to note that:
(a) The Court of Appeal has explained that, following a change to the wording of the rule in 2007, there should be no presumption, as may have been understood was the effect of the earlier decision of that court in Trustees of Stokes Pension Fund v Western Power Distribution (Southwest) Plc [2005] EWCA (Civ) 854, that a claimant who should have accepted a Part 36 offer within the 21 day period should have to pay the subsequent costs incurred by the defendant even after the Part 36 offer is withdrawn.
(b) As Jackson LJ observed in Thakkar v Patel [2017] EWCA Civ 117 at paragraph 23: “The effect of [Trustees of Stokes Pension Fund v Western Power Distribution (Southwest) Plc [2005] EWCA (Civ) 854; [2005] 1 WLR 3595, and Owners and/or Bareboat Charterers and/or Sub Bareboat Charterers of Samco Europe v Owners of MSC Prestige [2011] EWHC 1656 (Admlty)] is that where a purported Part 36 offer under the pre-April 2015 CPR is withdrawn, the crucial question is whether the offeree acted reasonably or unreasonably in failing to accept the offer while it was on the table. In both of those cases, the claimants acted unreasonably. Accordingly, the court made costs orders favourable to the defendants”.
(There is an important issue as to what is meant by acting reasonably or unreasonably in this context which I address further below.)

THE APPLICATION OF THESE PRINCIPLES TO THE FACTS OF THIS CASE

The judge considered the question of the basis on which the “reasonableness” of the claimant’s view should be assessed.
  1. If I ask myself the question, following Thakkar v Patel, whether the claimant acted reasonably or unreasonably in failing to accept the offer while it was on the table, the answer may be different dependent on the investigation mandated by the exercise. In oral submissions I raised the question whether or not the question of reasonableness is to be considered by reference to the claimant’s reasonable perception of its own interests or by reference simply to the eventual outcome of the case.
  2. On the facts of this case that is potentially an important distinction. It can now be seen from the principal judgment that with the benefit of hindsight the offer was extremely well judged because, in the context of a multi-million pound case, the offer was just under £120,000 more generous than the judgment for these items. I do not think it unfair to conclude, given the many decisions I had to make along the way to reaching my individual awards for these items, that the defendant’s solicitors could not possibly have anticipated my decision on each of those issues so as to reach their offer figure by the same or even a similar approach. Instead the offer must have been made on the basis of a broad-brush gut instinct which proved to be an extremely impressive prediction of the eventual outcome. If the Part 36 offer had not been withdrawn the question of the reasonableness of the claimant’s decision not to accept it would not normally be relevant because the defendant would automatically be entitled to its costs from the expiry of the relevant 21 day period for acceptance.
  3. Mr Bowdery submitted that the claimant’s approach was reasonable in the light of the circumstances then known or reasonably discoverable by the claimant. He submitted that the claimant was sensible not to accept what he contended was plainly an opening shot made in advance of the mediation. He submitted that this was demonstrated by the fact that post mediation the defendant made a proposal which, had all parties accepted it, would have resulted in the claimant obtaining £250,000 for the cold formed components alone and £1,620,000 in total. The claimant was reasonably entitled to conclude that the prospects of pushing on to trial and succeeding on any one of the big ticket items radically outweighed the advantages of accepting a very modest offer for all bar the tram door and wave form cladding panels claims.
  4. If this was the right approach to take then I would have considerable sympathy with the argument. If not, then it is all irrelevant and, whatever the commercial rationale for adopting that strategy, it is irrelevant if it subsequently transpires that the Part 36 offer is a good one.
  5. So far as I can tell the question is not addressed head on either in Thakkar v Patel itself or in the two authorities referred to by Jackson LJ in paragraph 23 of his judgment in that case. In Stokes it was plain that the claimant had rejected the offer on the basis of an exaggerated claim for which it ought to have known there was no proper basis. In the Samco Europe case Teare J found at [29] that the claimant was able to assess whether the offer of apportionment of liability should be accepted because they had already made their own offer. In Thakkar itself (where the impact of the defendant’s counterclaim meant that the defendant did better than their withdrawn Part 36 offer) the Court of Appeal upheld the trial judge’s finding that because there had been no disclosure or exchange of evidence relating to the counterclaim it was not an offer which was easy for the claimant to accept [24]-[26].
  6. On the basis of these authorities and by reference to my assessment of the underlying principle behind this approach it does seem to me that: (a) 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 (b) 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.
  7. On that basis the claimant was in a position to undertake its own assessment and valuation of the case. It had the benefit of its own investigations, of the Socotec results (the first set being provided on 9 August 2019 and the draft report on 3 September 2019), of its own experts’ views (including those which Dr Clarke must have formed in advance of the meeting of experts to discuss the reports which was held on 15 August 2019) and of advice from its legal team. There was nothing which the defendant had which the claimant did not. True it was that by this stage there had been no disclosure or exchange of other evidence. However, this was not a case where the claimant needed evidence from the defendant to assess the strength of its own case and nor was there a counterclaim. It follows in my judgment that it knew or, at least, was in a position to know that in the light of the Socotec testing results its case had become significantly weakened on all three of its big ticket claim items and that as a result there were real risks that if it went to trial it would not recover more than was on offer.
  8. It follows that I must and do conclude that the claimant acted unreasonably in the sense in which that term should be used for these purposes in rejecting the offer. It was taking a commercial risk in the knowledge that it could end up recovering less than the amount of the offer.
  9. This is plainly a significant finding. It follows that the starting point is that the claimant ought to pay the defendant’s costs of all issues save for the tram doors and the wave form cladding panels from 21 days after service of the Part 36 offer, which I assume would be from 6 September 2019 onwards. There was some discussion about the defendant’s costs of the additional claims as against RPS in relation to the cold formed components and against Caunton (the defendant does not seek such costs as regards Range). I am satisfied that these should be included because they were incurred after this date principally as a result of the claimant’s failure to accept the Part 36 offer. They are also, I have no doubt, relatively modest insofar as separate from the costs of the main action so that it would be unhelpful to seek to separate them out.
  10. Are there any other factors which should lead to a different conclusion? The only obvious factor is the fact that the Part 36 offer was withdrawn for what were – I have concluded – tactical reasons connected with the application to render the claimant’s liability expert evidence inadmissible. However, that has no particular significance since – as I have also found – there is no basis for thinking that it would have been accepted after that date even if not withdrawn. The subsequent Part 36 offers and WPSATC exchanges are of no relevance in my view. Whilst as I have said I sympathise to some extent with the claimant’s frustration that it was not made aware of Caunton’s Part 36 offer or that no-one attempted to bridge the gap on receipt of its counter-offer of £280,000, the fact remains that all this would have been irrelevant had the claimant accepted the initial offer, and the claimant is as much itself to blame as the other parties for attempting to squeeze another £30,000 rather than simply informing all parties that it would accept £250,000 and costs.
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