Part 36 offers are a tactical way of putting pressure on a party to a settle a dispute, by virtue of the cost sanctions that can flow from failure to accept a reasonable offer. Part 36 offers must strictly adhere to a set of formal requirements in order to benefit from these consequences and a recent case, Gulati and others v MGN Ltd , raised the question whether placing a time limit on a settlement offer takes it outside the Part 36 regime.
In Gulati, the claimants had brought proceedings against the defendant for infringement of their privacy rights, primarily through phone hacking. The defendant conceded liability. During the pre-action period, one of the claimants made a part 36 offer to settle for a given sum. The offer stated that it would be withdrawn after 21 days. The defendant made a counteroffer which was rejected and then the claimant's solicitor made it clear that the original offer was no longer available.
The case went to court and the claimant was awarded a higher sum than either of the previous offers. The claimant then sought indemnity costs: a claimant’s crucial benefit flowing from the making of a good part 36 offer. The claimant argued, firstly, that under CPR 36.17(1) (b) she had secured a judgment that was at least as advantageous as her original offer; and, secondly, that pursuant to CPR 44.3 and 44.2(4) (c) the court could take into account the defendant’s conduct and the refused offer when using its discretion to assess costs on the indemnity basis.
Before the case was heard, the claimant accepted that the cost consequences of a part 36 offer will no longer apply where the offer has been withdrawn . Whilst CPR 36.9(4) (b) allows for the automatic withdrawal of part 36 offers in accordance with the terms of the offer, the consequence is that the offeror is no longer entitled to automatic cost benefits as if the offer continued to exist.
The claimant therefore sought to argue that weight should be given to the defendant’s failure to accept what ultimately turned out to have been a good offer when costs were considered under the general costs rules at CPR 44 . To try to bolster its case, the claimant also relied on other various alleged procedural failings and misconduct on the part of the defendant.
In the particular case, the apparent episodes of unreasonable conduct were held not to be serious enough to merit an indemnity costs award and the existence of a one-time part 36 offer that had since been withdrawn was found to be of no great significance. The judge went on to state that such an offer can play a part in a general assessment of the reasonableness or unreasonableness of a party’s conduct and the question of costs, but it cannot be treated equally to a true part 36 offer purely by virtue of the fact it has been beaten. Had the offer in the case not been withdrawn, it would have remained a true part 36 offer and, upon the claimant securing a higher amount in the court, indemnity costs would have been available.
Parties involved in civil ligation continue to frequently employ part 36 offers as a means of focusing the parties’ attention and efforts on settlement. It is often reasonable, and even perhaps tactically advisable, to consider placing time constraints on offers to encourage swift resolution. The Gulati case, however, serves as a warning that, in so doing, parties risk losing the beneficial cost consequences of a true part 36 offer. The case is also a useful reminder of the fact that a non-part 36 offer really does have a significantly lesser standing when it comes to the question of assessment of costs, something which can be overlooked in practice.
If you are considering making or accepting any offer or in any pre- or post- action settlement negotiations, you should take expert legal advice – both to maximise any cost protection and tactical options or advantages that might be available to you, and to ensure that any existing cost benefits are not inadvertently compromised or lost.