Case Alert -  EWHC 185 (QB)
Judge considers whether Part 36 offer was a genuine attempt to settle
The court can take various factors into account when deciding whether it would be unjust to order the usual Part 36 costs consequences. A new factor was added in April 2015 under 36.17(5)(e): "whether the offer was a genuine attempt to settle the proceedings". Even before the addition of that factor, though, there was caselaw to the same effect.
In this case, the claimant offered to accept 90% of his claim and went on to beat that offer at trial. The defendant argued that the usual Part 36 costs consequences should not be applied because the offer "did not reflect any realistic assessment of the risks of the litigation" (ie it was significant under-evaluation of the litigation risk) and the offer letter did not explain why only a 10% discount was being offered (something which the White Book suggests would be prudent in such a situation).
The judge held that an argument about how a party perceives the litigation risk will hardly ever succeed: "How one side perceives the risks in a piece of litigation … will almost invariably be different from the way the other side perceives them". The court should adopt a broad brush approach, rather than a mini-trial as to how the case should have looked to the offeror at the time of the offer.
Furthermore, a letter of the kind suggested by the White Book is not a requirement and the judge said that "I do wonder whether in most cases it would assist. I can see the letter prompting a reply (sometimes expressed in language that does not help the settlement process) and it may be thought better simply to leave it to the recipient of the offer to assess the offer as it stands".
The offer here had been a genuine attempt to settle: 10% is not a token discount and, as the claim ran into several million pounds, also represented a significant amount of money.
The judge was also critical of the parties' written submissions about what had taken place at negotiation meetings. The content of those discussions would normally be privileged (although no objections were made here to the disclosure of this information) and the judge thought that reference to such content "in most cases…would not assist deciding whether an offer was a genuine offer of settlement" (although a failure to negotiate at all can affect the exercise of the court's discretion). The judge also awarded interest on indemnity costs of 5% above base rate.
COMMENT: The argument that a successful Part 36 offer was not a genuine attempt to settle is a very difficult one to run. In Jockey Club v Willmott Dixon, an offer of 95% of the claim in an "all or nothing" was held to be a genuine attempt to settle, even though the claimant was unlikely to have been awarded 95% at trial. In reaching that decision, the court took into account not only the percentage of the claim being discounted but also what that equates to in monetary terms (and so this factor is generally less of an issue in large value claims). Only "extreme" offers are likely to fail. It is easy to see why claimants in an "all or nothing" type case are subject to scrutiny, since claimants only have to equal their Part 36 offer in order to obtain the enhanced Part 36 costs consequences to which claimants are entitled (hence a claimant could be tempted to "offer" to accept 100% of its claim in such a case). However, where some concession is being made, it is arguable that, since this exercise is only being conducted because the offeror has achieved a better outcome than its offer, the offer cannot have been unreasonable in the first place.