Don't be greedy - a claimant's Part 36 offer to accept only slightly less than the sum claimed could provide no costs benefit

If a claimant makes a Part 36 offer of settlement which is not accepted by the defendant, and the claimant goes on to get a judgment which is “at least as advantageous” as that offer, it is entitled to significant costs benefits. This means there is a strong incentive for claimants to make Part 36 offers, even where they consider that they have a very strong case, or have an “all or nothing” case where they will either win the whole amount or nothing. In three recent cases, however, the courts have held that claimants who made offers for just slightly less than the sum being claimed would not get those costs benefits.

According to the Part 36 rules, if a claimant gets a judgment which is at least as advantageous as its own Part 36 offer, it gets:

• Enhanced costs from the end of what is called the “relevant period” which is normally 21 days after the offer was made (i.e. any costs assessment is on the more generous “indemnity basis” than the usual “standard basis”).
• Interest on the judgment sum and on the costs incurred after the relevant period (up to a maximum of 10% above base rate).
• An additional amount based on a percentage of the judgment sum (up to a maximum of £75,000).

The court can however order the above costs benefits not to apply if it would be “unjust to do so”, and one of the factors the court takes into account in deciding if this is the case is whether the offer was “a genuine attempt to settle the proceedings”.

The three recent cases:

• Gohil v Advantage Insurance Company Limited (11 May 2023, Birmingham County Court)
  The claimant was claiming fixed costs of £4,937.07 and made a Part 36 offer of £4,937, so only 7p less than the full amount, or 99.999%. The Birmingham County Court had no problem deciding that this was not a genuine offer to settle, saying that “a reduction of 7p was tantamount to asking the defendant to completely capitulate its position”, and that “the discount offered presented no real opportunity for settlement but [appeared] to be merely a tactical step designed to secure the benefit of the incentives”.

• Yieldpoint Stable Value Fund v Kimura Commodity Trade Finance Fund (Commercial Court)
  The sums involved were larger in this case. The claim was for USD5m plus interest, and it was an "all or nothing" claim, turning on the correct interpretation of a contract. The claimant’s Part 36 offer was for USD4,950,000, so a not insignificant reduction of USD50,000 on the claim, although it was still 99% of the claim. However the offer was made inclusive of interest, and once this was taken into account (calculated to 21 days after the offer was made), the offer was to accept 96% of the claim (so a discount of over USD200,000). The Commercial Court decided that this offer was not a genuine offer to settle. The judge said that caselaw on this issue showed that a very high claimant offer may only be vindicated where the claim itself was obviously very strong and could be so characterised at the time of the relevant offer, and this was not the case here, so that a discount of only 1% was "meaningless" and amounted to saying "pay up now, accept that you are wrong". Why did the judge not take into account the effect of the interest? He said that the fact that the offer involved foregoing a six-figure sum of interest was “potentially meaningful”, but that was not how the offer was pitched, and that the inclusion of interest within the settlement sum lacked any context or calculation. This is a surprising conclusion, as there is no requirement in Part 36 to explain the basis of the reasoning for the offer.

• Sleaford Building Services v Isoplus Piping Systems (Technology and Construction Court)
  This was a case in the Technology and Construction Court, where the claimant sought enforcement of an adjudicator’s decision, and adjudication enforcement tends to produce an "all or nothing" outcome. The claim was for £323,502.32 and the claimant’s Part 36 offer was to accept the same sum as the amount claimed – however it was also inclusive of interest, which meant waiving 10 days’ interest worth £350 at the date of the offer. Less surprisingly, the court held that this was not a genuine offer – taking account of the interest concession, the offer was to accept payment of 99.99% of the claim.

It is perhaps understandable that the court in Gohil found that the claimant’s offer to accept 99.999% of the claim (7p less than the full amount) was found not to be a genuine offer to settle. The Court of Appeal in Huck v Robson [2002] EWCA 398 had said that an example of when it might be self-evident that an offer was not a genuine one was an offer to settle for 99.9% of the full value of the claim. 

Takeaways

What these cases show is that claimants should not assume that getting a judgment at least as advantageous as their Part 36 offers will give them the Part 36 costs benefits, if their offer was only to accept a very small discount on their claim. However claimants should not be deterred from making high claimant offers in "all or nothing" cases where they are confident their claim is very strong, but if they are making any concession in relation to interest it may be wise to spell this out in the offer letter.