Part 36 offers – Tactical weaponry or tool for settlement?

Part 36 of the Civil Procedure Rules (“CPR”) sets out a self-contained procedural ‘code’ for offers made in accordance with its provisions, so called ‘Part 36 offers’.

Part 36 offers can be a useful tactical tool in a Claimant’s armory. If a Defendant fails to ‘beat’ a Part 36 offer at trial, automatic cost consequences flow, which entitle a Claimant to an award of costs, far in excess of any cost order that would be made on a standard basis. The consequences of a Part 36 offer begin from the relevant period, which must be at least 21 days from the date of the Part 36 offer.

CPR 36.17(3) provides that a Court must, unless it considers it unjust to do so, order that the Claimant is entitled to costs on the following basis:-

• interest on the whole or part of any sum of money awarded, at a rate not exceeding 10% above base rate for the period starting with the date on which the relevant period expired;
• costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;
• interest on those costs at a rate not exceeding 10% above base rate; and
• an additional amount, which shall not exceed £75,000, calculated either as (i) for awards of up to £500,000, 10% of the amount awarded (ii) for awards in excess of £500,000, 10% of the first £500,000 and 5% of any amount above that figure, subject to the limit of £75,000.

In considering whether it would be ‘unjust’ to make such an order, the Court must take into account all of the circumstances of the case including:-

• the terms of any Part 36 offer;
• the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;
• the information available to the parties at the time when the Part 36 offer was made;
• the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and
• whether the offer was a genuine attempt to settle the proceedings.

The recent case of Yieldpoint Stable Value Fund, LP v Kimura Commodity Trade Finance Fund Ltd [2023] EWHC 1512 (Comm), has put these considerations in the spotlight.

The Claimant sought payment of a debt in the sum of $5,000,000 plus interest. The Claimant made a Part 36 offer to settle the claim for $4,950,000 including interest which was equivalent to 99% of the principle debt or 96% of the value of the total claim including interest.

The Claimant was successful at trial and the Defendant was ordered to pay $5,000,000 plus interest and costs. Whilst the Defendant failed to beat the Claimant’s Part 36 offer, Stephen Housman KC sitting as High Court Judge held that it would be unjust for the Claimant to benefit from the enhancements under CPR 36.17 on the basis that the Claimant’s Part 36 offer was not a genuine attempt to settle, particularly in the context of it being an ‘all or nothing’ case. He found 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”.

Comment

There will always be a tactical element to Part 36 offers. However, in recent cases the Court does appear to be more critical of parties taking tactical steps aimed at achieving greater cost recovery, instead of a genuine attempt at settlement. Yieldpoint provides a salient reminder that Part 36 is intended to reward constructive offers of settlement.

The Judge was clear that his decision should not dissuade parties from using the Part 36 mechanism but rather it should be “an encouragement to make offers at a level not so perilously close to the full value of the claim in a case of such adversarial intensity”.