Part 36 Liability Offers: A Warning
July 7, 2021
We are all familiar with Part 36 offers… or at least we think we are. A recent case has taught me that the provisions of CPR 36 are rather less than clear when it comes to making offers on liability alone, and that in some circumstances a claimant would be better advised to make a Calderbank offer.
Part 36 Offers
The basic scheme of Part 36 is well-known. Its aim is to encourage parties to make reasonable settlement offers, with a carrot and stick approach to the consequences. In the case of a claimant’s offer, acceptance within the relevant period (usually 21 days) will entitle the claimant to recover his costs (CPR 36.13(1)). Acceptance after expiry of the relevant period requires the court to determine the liability for costs, unless agreed, but the claimant must be awarded his costs unless it would be unjust to do so (CPR 36.13(4)(b) and (5)). If the offer is not accepted, and the claimant obtains judgment at least as advantageous as the proposals contained in his offer, the court must, unless it considers it unjust to do so, order that the claimant is entitled to Part 36 interest, indemnity costs, interest on those costs and an additional amount calculated as a percentage of the award (CPR 36.17((1)(b) and (4)). All 4 consequences should follow (Telefonica UK Ltd v OFCOM  EWCA Civ 1374). Where the offer is made less than 21 days before trial, those consequences will only apply if the court abridges the relevant period (CPR 36.17(7)(c)).
In the case of a defendant’s offer, acceptance within the relevant period will likewise entitle the claimant to recover his costs (CPR 36.13(1)), including an offer relating to part only of the claim if the claimant abandons the balance (CPR 36.13(2)). Acceptance after expiry of the relevant period requires the court to determine the liability for costs, unless agreed, with the claimant being awarded costs up to the expiry of the relevant period, but paying the defendant’s costs thereafter, unless it would be unjust (CPR 36.13(4)(b) and (5)). If a defendant’s offer is not accepted, and the claimant fails to obtain a more advantageous judgment, the court must, unless it considers it unjust, order that the defendant is entitled to costs from the expiry of the relevant period, together with interest on those costs (CPR 36.17(1)(a) and (3)). Again, if the offer is made less than 21 days before trial, the court will need to abridge the relevant period (CPR 36.17(7)(c)).
The offer must be made in accordance with the mandatory requirements of CPR 36.5 (CPR 36.2(2)). There is no longer a discretion to treat a non-compliant offer as a Part 36 offer, although the court must consider any other offer when exercising its discretion as to costs under CPR 44.2.
So far, the rules are straightforward and easily understood. To take a simple example, suppose a claimant has a claim for £100,000, with a 50% prospect of success. Such a claimant could make a Part 36 offer of £50,000 (reflecting the chance of losing or winning), confident in the knowledge that, if accepted (whether within or outside the 21 day period), he recovers his costs, and if rejected but bettered at trial, he recovers £100,000 plus the 4 consequences under CPR 36.17(4).
Split Trials and Liability Offers
But suppose that a split trial of the issues of liability and quantum has been ordered. The claimant might seek to resolve the issue of liability by making a Part 36 offer to accept 50%. Such an offer relates to part only of the claim. CPR 36.13(4)(c) provides that where a Part 36 offer which does not relate to the whole of the claim is accepted at any time, the liability for costs must be determined by the court, unless agreed by the parties. The automatic entitlement to costs on acceptance under CPR 36.13(1) is displaced. If, of course, there was a dispute as to whether the defendant was liable at all, the claimant could be reasonably certain that the court would order that costs follow the event. But suppose primary liability was admitted, and the argument related to contributory negligence. If the claimant, recognising the risk of such a finding, is willing to make a Part 36 offer to accept 75% of his claim, can he ensure his entitlement to costs? Whilst he might argue that he is the overall winner, might the defendant not argue that, by accepting the offer, it has succeeded on the issue of contributory negligence?
Similarly, under CPR 36.13(4)(a), where a Part 36 offer made less than 21 days before trial is accepted, the liability for costs must be determined by the court unless the parties have agreed the costs.
Further complications arise if, as appears to be increasingly common, the defendant alleges that the claimant has been fundamentally dishonest in the presentation of his damages claim. If such an argument succeeds, the claim must, under s.57 of the Criminal Justice and Courts Act 2015, be dismissed in its entirety unless the court is satisfied that the claimant would suffer substantial injustice. In such circumstances, the claimant will be ordered to pay the defendant’s costs, subject to deduction of the amount of damages that would otherwise have been awarded (s.57(5)).
Can a claimant make a Part 36 offer carrying an entitlement to costs where fundamental dishonesty is alleged? If it is a monetary offer relating to the entire claim, he will be automatically entitled to costs on acceptance (CPR 36.13(1)), which makes it attractive to do so, although unlikely to be accepted by the defendant. Suppose, however, that the offer is not accepted, a finding of fundamental dishonesty is made at trial, but the court is satisfied (because it is a high-value claim) that the claimant would suffer substantial injustice if the claim were dismissed. If the judgment is more advantageous than the claimant’s offer, would the court conclude that the claimant should be rewarded for making a reasonable settlement proposal, or that it would be unjust for the 4 consequences under CPR 36.17(4) to follow?
A number of these questions were thrown into sharp focus by the recent case of Shaw v Wilde, heard by HHJ Bird sitting as a judge of the High Court in Manchester. The Claimant suffered very serious orthopaedic injuries to all 4 limbs when a car emerged from a side road into collision with his motorcycle. Primary liability is not in dispute, but at a late stage the Defendant was permitted to amend its Defence to raise allegations of contributory negligence, based upon the opinion of an accident reconstruction expert that the Claimant was speeding. Those allegations were firmly denied, and accident reconstruction evidence obtained on behalf of the Claimant cast significant doubt upon them. A split trial was ordered, listed on 1 July 2021.
In the meantime, primarily based upon covert surveillance evidence, the Defendant alleged that the Claimant had been dishonest as to the extent of his disability and the needs arising from his injuries, such that it would seek dismissal of the entire claim under s.57. Those issues are not due to be tried until next year.
Recognising the weakness of the Defendant’s case on contributory negligence, but aware that the risk of such a finding could not be ruled out, the Claimant sought to compromise the issue by making a liability offer proposing a 5% discount for the litigation risk. When it became apparent that the Defendant was unwilling to negotiate, the Claimant made a further offer dated 17 June 2021 (less than 21 days before trial), expressed to be under Part 36, in the following terms:
“The Claimant now offers to settle the issue of contributory negligence on the basis of a 75%/25% apportionment in the Claimant’s favour, together with payment of his costs of the liability issue on the standard basis.”
The letter went on to set out the potential consequences in the event of acceptance, and the consequences in the event that it was bettered at trial, by reference to Part 36.
The Claimant’s view at the time was that such an offer complied with Part 36. The uncertainty under CPR 36.13(4)(c) regarding costs liability for an offer relating only to part of the claim could be avoided by including a requirement to pay costs. CPR 36.14(3) provides that, if accepted, the claim will be stayed as to that part upon the terms of the offer. There would accordingly be no need for the court to determine costs under CPR 36.13(4)(a) or (c), since the Defendant would have agreed to pay costs by accepting the offer.
The Defendant’s initial response was that the proposed division of liability was acceptable, but that it was unable to accept the offer on a Part 36 basis due to the issue of costs. Two days before the liability trial, however, the Defendant purported to accept the offer of a 75%/25% apportionment, but on the basis that the liability for costs must be determined by the court under CPR 36.13(4)(a). The Defendant further contended that liability costs must be reserved to the judge determining the issue of fundamental dishonesty.
The Claimant disputed that there had been a compromise, and withdrew his offer.
HHJ Bird, sitting as a judge of the High Court, concluded that the offer, although intended to be made within the confines of Part 36, was not a Part 36 offer, since it included a costs provision which was inconsistent with Part 36 – Mitchell v James  EWCA Civ 997; Ho v Adelekun  EWCA Civ 1988. He rejected the Defendant’s contention that, despite a misunderstanding as to the costs provisions, the offer should be construed as a valid Part 36 offer in accordance with C v D  EWCA Civ 646. The judge held that the reasonably informed observer would have no hesitation in concluding that the offer required, in return for an acceptance of the 75%/25% apportionment, that the Defendant pay the Claimant’s costs. It could not be read in any other way without deleting the words “together with payment of his costs of the liability issue”. It was not legitimate to ignore those words in order to shoehorn the letter into a Part 36 box into which it did not fit.
Difficulties associated with the interpretation and application of Part 36 have resulted in a steady stream of amendments, together with substantial reforms in 2007 and 2015. A significant body of case law has also developed.
In particular, in Mitchell v James the CA held that the draftsman did not intend terms as to costs to be included in a Part 36 offer. In that case the claimant’s offer provided for each party to bear its own costs, a provision that was inconsistent with Part 36. Although that decision was based upon an earlier version of the CPR, it remains good law – see Ho v Adelekun.
On the other hand, where a party makes an offer that is intended to be a 36 offer but an ambiguity arises as to its construction, the court should prefer the construction, if possible, that would give effect to the stated intention and allow the offer to be effective – see C v D, in which an offer expressed to be “open for 21 days” was reasonably construed within the context of Part 36 as meaning that it would not be withdrawn for 21 days, rather than as a time-limited offer (which was not permitted by Part 36 at that time). In Dutton v Minards  EWCA Civ 984, the “validate if possible” principle was applied so as to construe an offer to pay £25,000 “plus your clients’ reasonable costs” as a Part 36 offer, since there would have been an automatic entitlement to costs under what is now CPR 36.13(1) had it been accepted. The proposal was not, therefore, inconsistent with Part 36. Similarly, in Ho v Adelekun, an offer of settlement with costs in accordance with CPR 36.13 “to be subject to detailed assessment if not agreed” was interpreted as a Part 36 offer to pay fixed costs, which was accordingly not incompatible with Part 36.
In Shaw v Merthyr Tydfil CB  EWCA Civ 1678, however, it was stressed that there are limits to this approach. The language of what is now CPR 36.5 is mandatory, such that an offer which did not satisfy those highly prescriptive requirements was not a Part 36 offer, even though the letter described it as one. As Elias LJ observed:
“There is no justification for treating an offer whose terms are wholly inconsistent with a Part 36 offer as though it were consistent with that provision and it is fanciful, in my judgment, to say that a mandatory requirement is satisfied when no reference is made to it at all. I see no basis at all for assuming that a reasonable solicitor would have understood the offer as being intended to comply with Part 36 when its detailed terms are at odds with that provision.”
For similar reasons, Pepperall J in Essex CC v UBB Waste (Essex) Ltd  EWHC 2387 (TCC), following an extensive review of the authorities, doubted whether a de minimis exception existed, and rejected the suggestion that the recipient of an invalid offer might be estopped from later challenging it.
What are the Lessons to be Learnt?
1. Part 36 is a self-contained procedural code, whose provisions must be strictly complied with if Part 36 offers are to be effective as such.
2. Part 36 can undoubtedly be used to a claimant’s advantage when making a monetary offer in settlement of the entire claim. There is a guarantee of costs if it is accepted, and significant advantages to be gained following non-acceptance if judgment is at least as advantageous as its proposals.
3. Considerable caution must, however, be exercised before making a Part 36 liability offer, since an offer which does not relate to the whole of the claim carries no automatic entitlement to costs.
4. Whilst there is no express prohibition within Part 36 on the inclusion in an offer of a term as to costs, there is clear authority that any such term, if inconsistent with the provisions of Part 36, means that the offer cannot be a Part 36 offer.
5. If liability is fully in dispute, a Part 36 liability offer is likely to be effective. Whilst there would be no automatic entitlement to costs on acceptance, such that they must be determined by the court in the absence of agreement, it is difficult to see in a straightforward case how the court would be justified in departing from the normal principle that costs follow the event. If the offer is not accepted, but is bettered at trial, the claimant will enjoy the additional benefits of CPR 36.17(4).
6. On the other hand, if the only issue in dispute is contributory negligence, a claimant will be better advised to make a Calderbank offer including provision as payment of his costs, in order to avoid leaving the determination of the costs liability to the court in the event of acceptance, as would apply to a Part 36 offer under CPR 36.13(4). There is a risk in such circumstances of the defendant arguing that it should be treated as the winner on the issue of contributory negligence, and entitled to recover its costs against the claimant.
7. Where fundamental dishonesty is raised, the claimant should be wary of making a Part 36 liability offer alone. If accepted, in the absence of agreement between the parties, the court might well determine that costs should await the outcome of the fundamental dishonesty issue. Either the claimant should make a monetary offer to settle the entire claim, which would carry an automatic entitlement to costs under CPR 36.13(1) if accepted; or, if it is intended to try and compromise the issue of liability, he may prefer to make a Calderbank offer including terms as to costs.
8. Regrettably, the effective use of Part 36 often requires not only a thorough understanding of its provisions, but also a knowledge of the considerable case law which it has generated.