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Part 36 Uncertainty

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Part 36 of the Civil Procedure Rules which govern civil litigation procedure in England and Wales contains provisions which enable either party to the proceedings to make an offer to settle the dispute.  The provision can have far reaching consequences if the offer is not accepted and the case goes to trial.

In the case of a Defendant’s Part 36 Offer, if a Claimant fails to obtain a Judgment which is more advantageous to him than the Defendant’s Offer, the Court may order that the Defendant is entitled to his costs usually from 21 days after the offer was made together with interest on those costs.

In the case of a Claimant’s Part 36 offer, if Judgment is as least as advantageous to the Claimant as the proposals contained in the Claimant’s offer, the consequences can include (i) enhanced interest on the whole or part of any money awarded at a rate not exceeding 10% above base rate for some or all of the period starting usually 21 days after the offer was made and/or (ii) costs on an indemnity basis (meaning a higher proportion of costs will usually be recovered) and/or (iii) interest on those costs at a rate not exceeding 10% above base rate.  When used appropriately Part 36 can prove to be a potentially powerful tactical weapon in a litigant’s armoury. However, recent cases show that litigants need to get the technicalities right in order to obtain the full benefit of Part 36 and to ensure that the intended effect of their offer is not lost.

In Gibbon v Manchester City Council [2010] EWCA Civ726 and L.G. Blower Specialist Bricklayer Limited v Reeves [2010] WL 2516369 the Court of Appeal decided two related appeals about the terms of Part 36 Offers.

The Court of Appeal held that Part 36 is a self-contained code which is technical and therefore needs to be read and applied carefully.  Concepts which would usually apply in making a normal contract do not apply. For example:

  1. A Part 36 Offer needs to be expressly withdrawn by notice in writing to the recipient of the offer.  It is not impliedly withdrawn by later offers or by rejection by the recipient of the offer.
  2. It is therefore possible to have a series of Part 36 Offers in different terms all open at the same time.  It is preferable for the offeror to make clear whether further offers are intended to vary an earlier offer or to stand along side it.

In the Gibbon and LG Blower appeals, the Court commented that it may seem anomalous that a party should be able to make several offers in different terms, all of which may at any one time be capable of acceptance, but that is what Part 36 provides for, allows and intends.  The Court said that an offer of £10,000.00 made at an early stage in proceedings may be more valuable than an offer of £12,000.00 made at a much later stage in the case depending on the amount of costs that have been incurred in the meantime and prevailing rates of interest.  There is no reason why a party should not make more than one offer and leave it to the other party to decide which, if any, to accept.

It follows therefore that Part 36 Offers should be kept under regular review because the offer remains on the table and available for acceptance until the offeror himself chooses expressly to withdraw it by written notice.  An offer which appears unattractive when made and which is therefore rejected may become more attractive as the proceedings progress and the parties reassess the strength of their respective cases.  Part 36 allows the Defendant (or for that matter a Claimant) to decide whether to leave his offer open for acceptance or to withdraw it and to make another offer later. 

The Court also commented on a principle set out by a differently composed Court of Appeal in the case of Carver v BAA Plc [2008] EWCA Civ412, [2009] 1 W.L.R.113.  In Carver the Court concluded that when asking itself whether the Judgment was “more advantageous” to the Claimant than the Part 36 Offer, the Court should take into account all aspects of the case, including emotional stress and financial factors, such as the incurring of unrecoverable costs.  It therefore held that the Judge below had been right in that case to look at the matter broadly and take into account that an additional £51.00 obtained by the Claimant after trial was more than offset by the irrecoverable costs incurred by the Claimant in continuing to contest the case for as long as she had.  The Court also found that the trial judge was also entitled to take into account the added stress to the Claimant as she waited for the trial and the stress of the trial process itself. 

The decision in Carver has been much criticised for introducing unwelcome uncertainty into the operation of Part 36.  The Court of Appeal in Gibbon and L G Blower noted that it was bound to follow the decision in Carver although it was not entirely clear whether it fully agreed with the decision. The Court said that where the offer had been beaten by a very small amount and there was clear evidence that the successful party had suffered adverse consequences of pursuing the case to Judgment those factors may be sufficient to outweigh success in pure financial terms but those cases were likely to be rare.  In most cases obtaining a Judgment for an amount greater than the offer was likely to outweigh all other factors.  Lord Justice Carnwath in Gibbons and LG Blower said that he shared the difficulty of some commentators with the Carver decision, but argued that Carver should not be interpreted as opening the way to a wide ranging investigation of emotional and other factors in every case, even where the financial advantage is significant. In other words, the Court recognised it was bound by the Carver decision but argued its effect was not that great.

The Court commented that certainty is to be commended “…especially, perhaps, in a procedural code which must be understood and followed by ordinary citizens who wish to conduct their own litigation”. It seems that we are still a long way from that because the Rule remains so technical and potentially complex. Despite the uncertainty, a Part 36 offer remains a potent and useful weapon in civil litigation because it can help to apply pressure to another party and encourage an early settlement, but careful consideration and ongoing review of offers remain important.

If you have any questions about making offers in relation to a dispute, whether in Part 36 form or otherwise, please contact John Mackle who is a senior associate solicitor in the litigation department at Clarion on 0113 336 3336 or john.mackle@clarionsolicitors.com or another member of the litigation department on 0113 246 0622 or via our website.

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