Source: https://kerryunderwood.wordpress.com/2017/03/23/part-36-what-happens-when-the-other-sides-offer-is-better-than-your-own/
Timestamp: 2017-12-17 08:01:06
Document Index: 62409097

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PART 36: WHAT HAPPENS WHEN THE OTHER SIDE’S OFFER IS BETTER THAN YOUR OWN? | Kerry Underwood
This is all dealt with in my Personal Injury Reforms course this May, which can be booked here
Accepting a defendant’s higher offer
A claimant makes a Part 36 offer of £3,000.00 and this is not accepted within time.
A year later the defendant makes a Part 36 offer of £4,000.00, even though the claimant’s original offer of £3,000.00 remains available for acceptance.
What is the claimant then to do?
On the face of it, the answer is obvious – the claimant accepts an offer which is £1,000.00 more than their own unwithdrawn offer, which is still capable of acceptance.
However accepting a defendant’s Part 36 offer appears to restrict the claimant to ordinary costs, that is on the standard basis, or in a fixed costs case – fixed costs- whereas if the defendant had simply accepted the claimant’s one year old offer, for a lower sum, the defendant then risks being ordered to pay indemnity costs for the whole of the period of late acceptance.
The difference between fixed or standard costs and indemnity costs may well exceed the extra damages that the defendant is offering.
If the claimant does not accept the defendant’s offer then the defendant is free to accept the earlier offer and although the claimant’s solicitor stands to get more costs the client loses out and it is hard to see how such a course of action could be justified.
If the claimant solicitor immediately withdraws its own offer, so that the defendant cannot accept it, and then declines to accept the defendant’s offer, then it is back to square one with the claimant being at risk of failing to beat the defendant’s Part 36 offer but the defendant being at no risk of indemnity costs because there is no claimant’s offer on the table.
This is now happening quite a lot and the issue needs to be addressed, especially as fixed costs spread to other areas of work and to cases with a higher value.
As this happens there may be a very considerable advantage in the defendants making a Part 36 offer slightly above the claimant’s Part 36 offer.
Accepting a claimant’s lower offer
Of course this can work the other way round.
A defendant makes a Part 36 offer of £4,000.00 and a year later the claimant makes a Part 36 offer of £3,000.00 and if the defendant accepts that sum then the claimant avoids the adverse costs consequences of accepting a defendant’s offer late and also gets its costs for that one year period.
Wording along the following lines would deal with the problem:
“Where a claimant accepts a defendant’s Part 36 offer which is at least as high as its own outstanding Part 36 offer then the consequences shall be the same in terms of costs and additional damages etc. as if the defendant had accepted late the claimant’s offer save that the level of damages shall be that in the defendant’s offer.
Where a defendant accepts a claimant’s Part 36 offer which is lower than or equal to the defendant’s earlier unwithdrawn Part 36 offer then the costs consequences shall be the same as if the claimant had accepted the defendant’s offer late, save that the amount of damages will be that in the claimant’s lower offer.”
Set-off on late acceptance
A claimant accepts a defendant’s Part 36 offer late and thus is liable for the defendant’s costs from the date of expiry of the Part 36 offer to the date of late acceptance.
There is no time limit in relation to the defendant paying the claimant’s pre-Part 36 costs and therefore the defendant can withhold all the costs until its own post Part 36 costs are quantified.
However, in those circumstances, is the paying party allowed to withhold damages by way of set-off against post Part 36 expiry costs? A paying party would wish to do so if it expects its post Part 36 costs to be greater than the claimant’s pre Part 36 costs.
CPR 36.6(2) provides:
“(2) A defendant’s offer that includes an offer to pay all or part of the sum at a date later than 14 days following the date of acceptance will not be treated as a Part 36 offer unless the offeree accepts the offer.”
The general rule is that a paying party must make payment within 14 days of acceptance of the offer and there appears to be no provision for a paying party to withhold damages, as compared with costs, by way of potential set-off.
Part 36 offer v non-Part 36 offer
A defendant makes a non-Part 36 offer early on of £5,000.00 and very much later the claimant, who has ignored the offer, makes a Part 36 offer of £5,000.00 which the defendant accepts.
Does the defendant have to pay all of the costs or can they successfully argue that they should only pay costs up to the time of their non-Part 36 offer, relying on CPR 44.2 (4)(c) which says that the court must take into account any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply?
In my view when, in those circumstances, the defendant accepts the Part 36 offer then they accept the costs consequences and therefore have to pay the claimant’s costs.
Had there been no offer by the claimant and therefore no acceptance by the defendant then the defendant’s offer could have been taken into account by the court in determining the issue of costs.
However on the defendant’s acceptance of the claimant’s offer, albeit in the same sum, then the court will not be dealing with the principle of costs.
Part 36 is of extreme complexity but CPR 36.2 reads:
“(2) Nothing in this Section prevents a party making an offer to settle in whatever way that party chooses, but if the offer is not made in accordance with rule 36.5, it will not have the consequences specified in this Section.
CPR 36.13 reads, where appropriate:
“(1) Subject to paragraphs (2) and (4) and to rule 36.20, where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings (including their recoverable pre-action costs) up to the date on which notice of acceptance was served on the offeror.
(Rule 36.20 makes provision for the costs consequences of accepting a Part 36 offer in certain personal injury claims where the claim no longer proceeds under the RTA or EL/PL Protocol.)”
Thus that rule applies whether it is the claimant’s offer, or the defendant’s offer, which is accepted as the reference there is to the offeror and not the claimant or defendant whereas other provisions refer to the claimant or defendant.
My view is that a valid Part 36 offer must trump a non-Part 36 offer. If it were otherwise then a defendant can make an offer that has no legal consequences but then seek to rely on it to avoid the costs consequences of the claimant’s valid Part 36 offer.
To interpret the provisions in any other way would render Part 36 largely meaningless, but there is a tension between CPR 36 and the general provisions on costs.
This has arisen in a number of cases, including the key issue of whether a claimant is entitled to indemnity costs on late acceptance by a defendant generally and whether a claimant is entitled to indemnity costs on obtaining judgment in a fixed costs case.
The latter point has been found in claimants’ favour in the Court of Appeal case of Broadhurst v Tan and Taylor v Smith [2016] EWCA Civ 94 (23 February 2016).
Thus my view is that the defendant does indeed have to pay all of the costs.
“ Any body which does not consent to service by email shall recover no costs and should always be liable to pay costs on the indemnity basis.”
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How about when the claimant makes a Part 36 offer in a pre litigation case, the defendants replies saying that they don’t accept the offer, but pay the same amount of the offer in settlement. This is designed to avoid paying any legal costs.
Sent from my Sony Xperia™ smartphone Mohammed Patel Director MRH Solicitors ltd
Issue and get costs – seek them on the indemnity basis and if appropriate seek a wasted costs order against the solicitor. Part 36 is part of the Civil Procedure Rules approved by Parliament and which specifically allows for a Part 36 offer to be made at any time and to have costs consequences.
What about the scenario where a Claimant makes a part 36 which the Defendant does not accept within 21 days and them makes their own Part 36 on the same terms as the Claimant to avoid indemnity costs. Apply for indemnity and wasted costs?
Yes – and argue abuse of process, but I cannot guarantee success.
You won’t like this Kerry, but isn’t the solution to the first conundrum not to award indemnity costs against the late-accepting party?
(As an aside: I am surprised that anyone working on FT PI cases can afford to spend the time on the cases required to make the difference between indemnity and fixed costs worth fighting about).
The reverse scenario is less of a problem because D ought to be able to judge whether the £1,000 saving on damages is worth the additional costs.
I think you’re being harsh on the Defendants in Thompson. It is an adversarial system and the point was a sound one; the Claimant required the court’s indulgence to remedy the problem (an indulgence which I have no doubt was correctly granted on the facts).
Unsurprisingly I disagree in principle, but maybe not in practice.It would make a claimant’s Part 36 offer almost meaningless. You make a good point re the difference between fixed costs and indemnity costs though – in an ordinary case that is well run one might expect fixed costs to be higher than indemnity costs, in which case there should be little problem.
I would have hammered the defendants in the Thompson case with indemnity costs for the whole action. It may be an adversarial system but part of the duty of emanations of the state is to protect those lacking capacity, as the court here rightly did.
I will blog on that case in more detail soon.
Small point: I don’t think the Claimant in the Thompson case lacked capacity. The judgment states that she was 14 in 2008 i.e. 23 now and does not state that she was acting by an LF. Had she lacked capacity, the issue would presumably never have arisen because the “agreement” could not have bound her absent court approval.
True – but she was a child at the time of the accident and the admittedly negligent medical treatment.
Hi Kerry- what are your thoughts on the following scenario:
Part 36 offer accepted out of time. Was accepted in writing, acceptance merely accepted the Part 36 offer was silent on cost provision.
Payment of damages not received within time stipulated in Part 36.
In the meantime normal cost provision in Part 36 agreed.
Because payment of damages not received in time we made application for judgment and argued abuse of process by the other party so should not be entitled to indemnity costs from point when they would under Part 36.
The other party have said the that acceptance of the P36 was not made until costs agreed. We have said that this cannot be correct.
I do not fully understand the situation, that is how the issue of indemnity costs has come up.
If a claimant accepts a Part 36 offer out of time, then the claimant has to pay costs from the date of expiry of the time for accepting the offer until the date of acceptance, but that will be on the standard basis and not the indemnity basis, unless otherwise ordered by the court and that will be rare.
The point about a claimant accepting late, or failing to beat a defendant’s offer at trial, is that the claimant has won but is deprived of their own costs for the post-Part 36 period and also has to pay the losing party’s costs from the date of expiry of the Part 36 offer.
Part 36 has its own rules in relation to costs and there is no need for any correspondence concerning costs when the Part 36 offer is accepted; indeed to try and avoid the normal consequences of Part 36 would not be a valid acceptance.
As far as I am aware there is no case law on what happens in relation to the costs provisions of Part 36 if damages are not received in time.
My view is that the starting point would be that that the normal costs consequences flow, but the court will be free to make a different order. It would be absurd and disproportionate if late payment of damages by, say, one day, led to the loss of costs for two years or whatever.
It is nonsense to say that Part 36 is not accepted until costs are agreed. It almost never happens that costs are agreed within 14 days of an offer of damages being accepted.
An offer is accepted and then costs are subject to detailed assessment, or provisional assessment, or negotiation or whatever. That statement is entirely wrong.
From what you have said I presume that you are acting for the claimant as you have made the application for judgment. As stated a late accepting claimant is only liable to pay costs on the standard basis and not the indemnity basis.
On the subject of accepting a defendant’s higher offer, what is the scenario when the defendant’s higher offer is not made pursuant to Part 36?
So for example, claimant Part 36 offer £3,000 in Feb 2016. Offer never withdrawn. A year later the defendant enters into without prejudice settlement negotiations. Defendant offers £5,000 on the telephone. Claimant accepts in writing. Parties file consent order which, annoyingly, is silent on basis of costs. It simply reads “The Defendant do pay the Claimants costs to be the subject of detailed assessment if not agreed.”
In discretion of court. Part 36 itself requires court to take into account a non-Part 36 offer, but clearly it carries less weight. You have exceeded your own Part 36 offer and should seek indemnity costs, while being aware that there is no definitive decision on entitlement to indemnity costs in such circumstances in the absence of judgment. Defendant was unwise not to make a formal Part 36 offer. All dealt with in detail in my new book: Personal Injury Small Claims, Portals and Fixed Costs.
Thank you for taking the time to respond Kerry. That is precisely what we’ve done, other side are disputing the claim for indemnity costs.
Pleasure Ian. Please let me know how you get on.
Provisional Assessment requested at Derby, hearing date TBA
Thanks Ian – please let me know how you get on.
Hi Kerry – PA listed for October!
Defendant has served amended PODs today however. A bit naughty being so late in the day. I know PD 13.10 of CPR 47 says no permission required but how does this work in provisional? Do we serve a reply saying we object to the inclusion and leave it for the Court to decide?
Provided that the Points of Dispute were originally served in time then, as you say Practice Direction 47: 13.10(2) provides that permission is not required to vary a Bill of Costs, Points of Dispute or a reply but the court may disallow the variation or permit it only upon conditions, including conditions as to the payment of any costs caused or wasted by the variation.
Thus, yes, you should state that you object to the variation and advise the court accordingly.
Provisional assessments are a species of detailed assessment, but with the matter being decided on paper rather than at a provisional hearing.
Given that the provisional assessment is still two months away, the court may decide that you are not seriously prejudiced by the amendment to the Points of Dispute, and the court has the power to punish the Defendant in costs in any event.