HT-2023-000006 - [2024] EWHC 2914 (TCC)

This Part contains a self-contained procedural code about offers to settle made pursuant to the procedure set out in this Part (“Part 36 offers”).

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Form and content of a Part 36 offer

A Part 36 offer must—

be in writing;

make clear that it is made pursuant to Part 36;

specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs in accordance with rule 36.13 or 36.23 if the offer is accepted;

state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue; and

state whether it takes into account any counterclaim.

(Rule 36.7 makes provision for when a Part 36 offer is made.)

Paragraph (1)(c) does not apply if the offer is made less than 21 days before the start of a trial.

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A Part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest until—

the date on which the period specified under rule 36.5(1)(c) expires; or

if rule 36.5(2) applies, a date 21 days after the date the offer was made.

A Part 36 offer to accept a sum of money may make provision for accrual of interest on such sum after the date specified in paragraph (4). If such an offer does not make any such provision, it shall be treated as inclusive of all interest up to the date of acceptance if it is later accepted.

Costs consequences following judgment

Subject to rule 36.24, this rule applies where upon judgment being entered—

a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer;

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For the purposes of paragraph (1), 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.

Subject to paragraphs (7) and (8), where paragraph (1)(a) applies, the court must, unless it considers it unjust to do so, order that the defendant is entitled to—

costs (including any recoverable pre-action costs) from the date on which the relevant period expired; and

interest on those costs.

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In considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4), the court must take into account all 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….

It is plain that the court's discretion to depart from Part 36.14(2), constrained as it is by a precondition that its full enforcement would be unjust, is much more circumscribed than the court's broad discretion under Part 44. Furthermore, the four specific considerations identified in paragraph (4)(a) to (d) disclose a common thread which focuses the injustice analysis upon the circumstances of the making of the offer and the provision or otherwise of relevant information in relation to it, rather than upon the general conduct of the proceedings by the parties. Nonetheless, I consider that the requirement to take into account all the circumstances of the case does enable the court to take a broader view in an appropriate case, so that it is not entirely disabled from having regard to questions of justice or injustice arising from the manner in which the offering party has made use of its costs expenditure prima facie now recoverable from the unsuccessful offeree, in the pursuit of its defence to the claim. If that were not so, then the protection of a generous Part 36 offer would enable the offering party to conduct its part in the litigation at the offeree's potential expense without regard to the obligations and constraints which the achievement of the overriding objective now place upon civil litigants. I recognise that, to a limited extent, the process of detailed assessment may be of assistance, but it seems to me to be wrong in principle to exclude the trial judge from modifying the otherwise rigorous consequences of Part 36.14(2) where satisfied that aspects of the offering party's conduct of the litigation subsequent to the making of the offer have not served the interests of justice. 

These differences in my judgment require this Court to consider the meaning and effect of Part 36.14 untrammelled by the decision in Kastor. My view as to the meaning of Part 36.14 is supported by the substantial line of authority to the effect that Part 36 is now a self-contained code, see, e.g., Ward LJ in Shovelar v Lane [2011] EWCA Civ 802 [2012] 1 WLR 637 at paragraph 52:

… Part 36 is a separate, self-contained code. It must be applied as such. If the offer is one to which the costs consequences under Part 36 apply, then it cannot be taken into account under Part 44 because, although CPR 44.3(4)(c) requires the court to have regard to "any payment into court or admissible offer to settle", those words are qualified by the words which follow namely 'which is not an offer to which costs consequences under Part 36 apply'. Part 36 trumps Part 44."

In deciding what costs order to make under 36.14, the Court does not first exercise its discretion under Part 44. Its only discretion is that conferred by Part 36 itself. The alternative construction requires the Court first to exercise its discretion under Part 44, on the basis of all the circumstances of the case, and then to exercise its discretion under Part 36, again having regard to all the circumstances of the case. This makes no sense.

It follows from the above, and in particular that Part 36 is a self-contained code, that the discretion under 36.14 relates not only to the basis of assessment of costs, but also to the determination of what costs are to be assessed. I agree with the Judge that Part 36 does not preclude the making of an issue-based or proportionate costs order. However, a successful claimant is to be deprived of all or part of her costs only if the court considers that would be unjust for her to be awarded all or that part of her costs. That decision falls to be made having regard to "all the circumstances of the case". In exercising its discretion, the court must take into account that the unsuccessful defendant could have avoided the costs of the trial if it had accepted the claimant’s Part 36 offer, as it could and should have done.

I was not referred to any authority on the application of the injustice test under Part 36.14. For present purposes, the principles which I derive from the authorities are as follows:

The question is not whether it was reasonable for the claimant to refuse the offer. Rather, the question is whether, having regard to all the circumstances and looking at the matter as it affects both parties, an order that the claimant should pay the costs would be unjust: see Matthews v Metal Improvements Co. Inc [2007] EWCA Civ 215, per Stanley Burnton J (sitting as an additional judge of the Court of Appeal) at paragraph 32.

Each case will turn on its own circumstances, but the court should be trying to assess "who in reality is the unsuccessful party and who has been responsible for the fact that costs have been incurred which should not have been." : see Factortame v Secretary of State [2002] EWCA Civ 22, per Walker LJ at paragraph 27.

The court is not constrained by the list of potentially relevant factors in Part 36.14(4) to have regard only to the circumstances of the making of the offer or the provision or otherwise of relevant information in relation to it. There is no limit to the types of circumstances which may, in a particular case, make it unjust that the ordinary consequences set out in Part 36.14 should follow: see Lilleyman v Lilleyman (judgment on costs) [2012] EWHC 1056 (Ch) at paragraph 16.

Nonetheless, the court does not have an unfettered discretion to depart from the ordinary cost consequences set out in Part 36.14. The burden on a claimant who has failed to beat the defendant's Part 36 offer to show injustice is a formidable obstacle to the obtaining of a different costs order. If that were not so, then the salutary purpose of Part 36, in promoting compromise and the avoidance of unnecessary expenditure of costs and court time, would be undermined.

… the essential purpose behind Part 36 is to visit consequences upon parties of whom it can properly be said that they ought to have settled by accepting the other party’s offer, rather than taken the matter to trial ….

Furthermore, in making his determination, the judge did not take into account, as he should have, the fact that the defendant could have avoided all the costs of the trial by accepting the claimant’s favourable Part 36 offer. The considerations to which I referred apply even more strongly in relation to her costs after the effective date, when the question is not whether it is just for her to be awarded all her costs, but whether it would be unjust for that award to be made.