Part 36 Offers: when tactics fail
When contemplating, and, during the course of, litigation parties are actively encouraged to settle their dispute without the matter proceeding to trial. Whilst parties can choose to make an offer to settle in any manner they wish, Part 36 of the Civil Procedure Rules has been designed to encourage parties to attempt to resolve matters at an early stage by making formal offers to settle that meet specific criteria. Part 36 offers can be tactically advantageous to the offering party and can result in financial consequences to parties that refuse a reasonable and genuine offer to settle.
Typically, if a Claimant’s Part 36 offer is not accepted and the Claimant succeeds in obtaining a Judgment at least as advantageous as the terms of their previous Part 36 offer, the court will usually order that the Claimant is entitled to the following:
- Interest on the whole or part of any sum of money awarded (excluding interest) at a rate not exceeding 10% above base rate for some or all of the period starting 21 days after the date the offer was made;
- Costs on the indemnity basis from 21 days after the date the offer was made and interest on those costs at a rate not exceeding 10% above base rate; and
- An additional amount, up to a maximum limit of £75,000, calculated at 10% of the first £500,000 of damages awarded and 5% of any amount above those figures.
(Collectively the “Part 36 Enhancements”)
The indemnity basis is a method of costs assessment that is more favourable to the receiving party. It can additionally mean that the receiving party is not bound by any costs budget the court has imposed.
In light of the above, making a reasonable offer under the Part 36 regime has many benefits, including encouraging parties to settle at an early stage and is, tactically, a very important step in proceedings. However, parties should always be cautious, when making a Part 36 offer, that it is a reasonable and genuine attempt to settle, so that they can reap the Part 36 Enhancements on offer.
The question of whether a Part 36 offer was a genuine attempt to settle and whether a Claimant was entitled to the Part 36 Enhancements due to “beating” their Part 36 offer was raised in Yieldpoint Stable Value Fund, LP v Kimura Commodity Trade Finance Fund Ltd  EWHC 1512.
In Yieldpoint, the Claimant issued proceedings against the Defendant for the recovery of US$5 million, plus interest. The Claimant made a Part 36 offer (the “Offer”) for $4.95 million which was 99% of the principal debt. The Offer was made prior to witness statements being exchanged and when it was “far from obvious” (according to the Judge) as to what the outcome of the claim would be.
The Claimant succeeded in its claim for repayment of $5 million plus interest and sought an order in relation to the Part 36 Enhancements as they had obtained a Judgment more advantageous than the Offer.
The Judge, however, refused to award the Claimant the Part 36 Enhancements and noted that “an offer which is a cynical attempt to manipulate the Part 36 regime and apply pressure on an adversary is unlikely to be effective for such purposes.” Further, the Judge was not satisfied that the Offer was a genuine attempt to settle the claim.
Whilst there are important tactical considerations that parties should consider when making Part 36 offers, including the timing and the amount, the decision in Yieldpoint highlights how these tactics can fail when an offer is clearly not genuine. Courts will generally not reward, Part 36 offers that are close to the value of the claim. Had the Claimant in Yieldpoint made a genuine offer that was, for example, 80% of the principal debt, then the outcome in the case could have been very different. The ruling in Yieldpoint reinforces the fact that parties should take time to properly consider a Part 36 offer that they wish to make, and when to make it, in order to ensure that the offer is reasonable and genuine and reap the benefits of the Part 36 Enhancements. This is certainly not an easy process and we would therefore recommend that you take expert legal advice if you are considering either making a Part 36 offer, or have received one as part of an ongoing dispute.
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Articles are intended as an introduction to the topic and do not constitute legal advice.