Part 36 of the UK Civil Procedure Rules is designed to encourage parties to settle their disputes, whether in the middle of ongoing litigation or before litigation has commenced. The rule involves a mechanism in which one party makes an offer to settle a dispute, and if the offer is not accepted and the declining party fails to achieve a better result at trial, there are (usually) significant cost consequences. For example, if a claimant makes an offer that is not accepted by the defendant, and the claimant then achieves a judgment that is as good as or better than the terms of their Part 36 offer, the court will typically order that the defendant is liable for the claimant’s costs from the date of expiry of the relevant notice period of the offer, which will be assessed on the indemnity basis. In addition, interest on those costs can be awarded at a rate of up to 10% above base rate, and the claimant may also be entitled to an additional amount, which for money claims is calculated as 10% of the first £500,000 of the sum awarded to the claimant and 5% of any amount above that up to a maximum of £75,000.
However, in the recent case of ‘Gohil v Advantage Insurance Company Limited’ (Birmingham County Court Case No. F38YM149, 11 May 2023), the Court’s decision casts some doubt on this usual application of Part 36 costs consequences. The claimant, after bringing a small value claim for a road accident, had prepared a schedule of her fixed costs which amounted to £4,307.07 and then made an offer under Part 36 to settle the matter for £4,307.00, a mere 7 pence lower (or at 99.999% of the full value of the claim). The claimant then applied under CPR 36.17 for these costs consequences to be ordered against the defendant.
It is worth noting here that CPR 36.17(2) specifically states that “in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly”. Despite this, there is also flexibility in the rule’s application, provided at CPR 36.17(5) which states that the court must take into account all the circumstances of the case in deciding whether to make an order with the consequences noted above, including whether the offer was a genuine attempt to settle the proceedings.
The defendant in the matter challenged the application for the additional costs consequences using CPR 36.17(5), and in particular argued that the offer was not a genuine attempt to settle the matter.
District Judge Griffith in Gohil agreed, noting that in offering a mere 7p less than her fixed costs schedule, the claimant had used the Part 36 offer as a tactical step to seek the costs consequences noted above, rather than a genuine attempt to settle the dispute.
The court took guidance from the Court of Appeal judgment in Huck v Robson [2002] EWCA Civ 398, in which Lord Justice Jonathan Parker noted that that a Part 36 offer “must represent at the very least a genuine and realistic attempt… to resolve the dispute by agreement”. Despite the fact that the claimant obtained a judgment ‘at least as advantageous’ as her offer, and so was technically in line with the basis for ordering the costs consequences sought, the court took the view that the offer did not represent a genuine attempt to resolve the proceedings.
Judge Griffith stated that the reduction of 7p was “tantamount to asking the defendant to completely capitulate its position and was not a genuine attempt to settle the proceedings“. Thus, the additional awards normally conferred by CPR 36.17 did not apply, as the discount offered no real opportunity for settlement.
A further example of judicial departure from the costs consequences under Part 36 was seen in the recent case of Yieldpoint Stable Value Fund LP v Kimura Commodity Trade Finance Fund Ltd [2023] EWHC 1512 (Comm), in which Stephen Houseman KC explored a situation where the Claimant offered settlement at 99% of the claim’s value. Interestingly, however, the Judge noted specifically that a Part 36 offer being purely a “tactical step” was not determinative, as “all Part 36 offers are made for tactical purpose”. When reviewing the Defendant’s challenge, and taking the surrounding context of the claim into account, the judge agreed that the offer was not a genuine attempt to settle the dispute ahead of trial and so set the costs award at 70% of those claimed rather than awarding the costs consequences sought for failure to accept the offer.
While the Gohil ruling is not binding, it serves as a warning to lawyers who previously assumed that beating a Part 36 offer would invariably result in costs benefits. It underscores that the courts will scrutinise whether the offer constituted a genuine and realistic attempt to resolve proceedings, rather than merely looking at whether the offer was beaten. Therefore, any perceived manipulation of the Part 36 procedure for tactical gain could result in the denial of the usual benefits, even if the offer is technically beaten. This case, and the Yieldpoint case highlight that the courts are willing to look to the purpose of Part 36, encouraging genuine attempts to settle disputes, rather than the black letter text of the rule itself.
Alec Cairney
