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Staying on the right side of Part 36: lessons learned

Part 36 of the Civil Procedure Rules (CPR) provides ample incentive for litigants to give a little ground. For claimants, making a “beatable” Part 36 offer can result in significant benefits. A claimant obtaining a judgment that is “at least as advantageous” as their Part 36-compliant settlement offer can ask the court to award:

  • Interest on the judgment sum at a rate of up to 10% above base rate from the expiry of the relevant period.
  • Costs on the indemnity basis (and interest on those costs at a rate of up to 10% above base rate).
  • An additional sum up to a limit of £75,000.

A defendant in receipt of a Part 36 offer, which is realistically “beatable” by the claimant, is incentivised to engage.

This blog reflects on two recent cases in which a claimant advanced (and subsequently beat at trial) a Part 36 offer that was not accepted by the defendant. The litigants’ approach to negotiations (and the court’s response to the way that they engage with Part 36) is considered in particular.

The perils of not giving a little ground

The recent case of OMV Petrom SA v Glencore International AG demonstrates a willingness on the court’s part to flex its muscles where it considers that a party has unreasonably refused to engage in settlement negotiations.

Following the conclusion of the substantive claim, the claimant was awarded interest on the judgment sum from the expiry of the relevant period to judgment at a rate of 4.5% above base rate per annum. At appeal, the claimant argued that interest should be awarded at the maximum rate permitted by CPR 36: 10% above base rate per annum. The claimant drew the court’s attention to the conduct of the defendant (which included “fighting… to the bitter end in an entirely unreasonable manner” and “lying” and was later described by the Court of Appeal as “deplorable, if not outrageous”). The claimant argued that an award of interest pursuant to Part 36 should not be “compensatory”; rather, the court should exercise its discretionary powers in such a way as to “disapprove of and discourage unreasonable conduct”.

While the Court of Appeal was loathe to characterise the award of interest under Part 36 as penal, it found that the court had the discretion to include a “non-compensatory element” to interest, so long as this was proportionate to the circumstances of the case. It was “by no means automatic” that a 10% uplift would always be appropriate, since the effects of such a high interest rate would need to be considered in the context of any other awards granted to a claimant pursuant to Part 36. However, a “higher” rate (which we presume to mean a rate with an uplift of or approaching 10%) may be justified in order to provide defendants with an incentive to:

“… engage in reasonable settlement discussions and mediation aimed at achieving a compromise, to settle litigation at a reasonable level and at a reasonable time, and to mark the court’s disapproval of any unreasonable or improper conduct”.

In this instance, the Court of Appeal considered that it would be “hard to imagine” a case where an enhanced interest rate of 10% above base rate per annum would be more justified. The defendant had not only ignored the claimant’s Part 36 offer to settle the claim, but had refused to engage in settlement discussions with the claimant, using a “vast asset base to seek to frustrate [the] claimant’s attempts to reach a compromise solution”.

The claimant’s efforts to find a solution that was palatable for each party were either rebuffed or ignored by the defendant. The court awarded an enhanced rate of interest of 10% above base rate on the judgment sum and the claimant’s costs.

When giving even a little ground may be enough

The above case may be compared to Jockey Club v Willmott Dixon, which considered whether the claimant’s Part 36 offer was a “genuine attempt to settle the proceedings” in accordance with CPR 36.17(5)(e).

Wary of the so-called “cynical offers”, the 2015 revisions to the CPR armed the court with the ability to account for whether it would be unjust to award Part 36 cost benefits to a claimant.

The claimant offered to accept 95% of the value of the claim. However, the defendant did not accept the claimant’s offer, but subsequently conceded liability. The court considered whether the claimant’s offer, which approached a requirement for “total capitulation” on the part of the defendant, could be considered an offer at all.

The court found that, while the claimant’s offer was “hardly generous”, the 5% discount offered by the claimant was not, given the value of the claim, “derisory”. The offer included an element of concession such that it could not be considered “all take and no give”. The claimant’s Part 36 offer was held to be valid and the claimant was awarded indemnity costs (albeit it reserved its position in relation to an award of interest).

Conclusion

The tactical advantages of a well-timed Part 36 offer are clear and, given the rewards available to successful offerors and the potential penalties for offerees, it is little wonder that this section of the CPR continues to be tested through the courts. We anticipate that this will remain a hotly contested area in years to come.

It is our opinion, however, that the two very different cases considered above are consistent in their demonstration that, as a device intended to motivate parties to consider alternatives to trial, Part 36 does exactly what it says on the tin. While Petrom shows that negotiations must not be a one-sided exercise (and that a litigant should ignore an opponent’s effort to engage with it at its peril), Jockey Club demonstrates that, in some circumstances, even a little “give” may be enough to ensure that a litigant falls on the right side of Part 36 and, consequently, whether or not the imposition of adverse costs consequences on an opponent would be unjust. Therefore, whether a litigant is making an offer, or is on the receiving end of one, it must take care to ensure that their actions fall within the spirit of Part 36 by giving genuine consideration to settlement.

 

 

CMS Cameron McKenna LLP Philip Woodfield Kimberly Hedtke

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