Reserving Determination Of Costs In Light Of A Successful Part 36 Offer

During the course of litigation, the parties should always think about settling if possible. In fact, there is an obligation on the parties’ representatives to encourage their clients to try and engage in settlement negotiations at all times before proceeding to trial.

This is to ensure that cases are dealt with proportionately, which is one of the aims of the “overriding objective” in the Civil Procedure Rules 1998. Reaching settlement not only avoids the inherent risks that things may not go your client’s way at trial but for the parties, it will avoid much of the significant legal cost associated with going to trial and the prospect of paying the other side’s legal fees if they lose. Settlements can also be flexible in that they may include binding terms that would not ordinarily be within the power of the trial Judge, for instance, the chance to include any matters that are in dispute outside of the key issues in the claim.

What is a Part 36 Offer?

During the course of negotiations, one party will make a settlement offer to their opponent, and in doing so they may also obtain some cost protection or – in specified circumstances – an increased degree of cost recovery. A Part 36 offer is a specific type of offer that can be made during litigation. Part 36 refers to the rules in part 36 of the Civil Procedure Rules 1998.

Part 36 offers attract adverse costs and consequences if they are rejected and the offeror gets a better result than the terms of the offer at trial. However, in order to be eligible they must be presented in a prescribed format.

If the offering party beats the terms of that offer at trial they shall be entitled to recover costs on an indemnity basis, to interest of 10% on any monetary sum and a 10% increase in costs from the date the relevant period of the offer ended (usually 21 days unless it was made very close to trial). On the other hand, if a party fails to accept a Part 36 Offer which was better than the outcome at trial then recovery of their own costs from the date the relevant period ended shall be prevented. The use of Part 36 offers is therefore a tactical part of litigation and where possible should be used to the advantage of either party.

Costs are typically determined by the Court at the end of a trial. Each party shall be able to make submissions as to their position on costs at which point they will notify the Court of without prejudice negotiations for further consideration. In the recent case of Woodgate v Woodgate, the Judge considered a request to save the benefits of a Part 36 Offer until later, with the Court making an order initially for the other side to pay the winner’s “base costs”.

Woodgate v Woodgate

Case background

This case involved a dispute between the personal representatives of an estate and the Claimant sought an order to have the Defendant removed as personal representative, to give an account of their handling of the estate, and to appoint an independent administrator in their place. The Claimant was successful but a further hearing was necessary as there were a number of queries in relation to the Defendant’s account. At the end of that hearing the Court invited the parties to make written submissions on costs for determination on paper at a later date.

Within those submissions, the Claimant requested permission to apply for additional relief available by way of Part 36 at a later date as he believed the Defendant had failed to “beat” the terms of an earlier Part 36 offer, and wanted to put further pressure on the Defendant ahead of the next hearing. The Court had to determine whether it had the power to make a costs order, whilst allowing the Claimant a chance to return to Court to seek additional relief.

The Court held that any additional relief should be awarded at the time of the costs order and not later, and permission to return to the issue at the next hearing was refused. The Court had to further consider whether the offer made was a genuine Part 36 Offer – sometimes this is not always clear depending on the way in which the offer is presented. Although the prescribed format was not used, the offer proposed that the Claimant would accept a specified sum from the estate plus their legal costs to date.

The Court held this could not be a valid Part 36 offer as it did not actually relate to the order the Claimant was seeking in the claim itself and that it related to how the estate would be split. Even if the offer related to the claim, which it did not, the Court noted the sum offered would be significantly better than the final split of the estate, and therefore the Claimant would require a significant increase in the value of the estate property for it to have been successful in any event. In light of those points, the Claimant’s submission for permission to return for additional relief was refused.

This case provides that the determination of costs and any costs consequences under the part 36 rules must be dealt with together. The case also highlights the technicalities of a Part 36 offer and the need for them to strictly comply with the rules.