Think twice before withdrawing a Part 36 offer

A recent High Court decision illustrates the drawbacks of withdrawing a Part 36 offer to settle, namely the potential loss of some or all of the costs benefits that would otherwise have arisen if the opponent fails to beat the offer: Uwug Limited (in liquidation) v Ball [2015] EWHC 74 (IPEC).

In this case, the defendant withdrew his Part 36 offer four months after it was made. The case went to trial and the claimant's damages were less than the amount offered. As a result, the claimant was not awarded his costs from the date the court said he should have accepted the offer. However, he was not ordered to pay the defendant's costs from that date, as would almost certainly have been the case if the offer had not been withdrawn.

Background

Under CPR 36.14, where a claimant fails to obtain a judgment that is more advantageous than a defendant’s Part 36 offer, the court will (unless it considers it unjust to do so) award the defendant its costs from the date on which the relevant offer period expired.

The favourable costs consequences set out in CPR 36.14 do not apply to a Part 36 offer that has been withdrawn. However, under CPR 44.3, the court must have regard to such an offer when it decides what order to make about costs.

In this case, the defendant (a litigant in person) made a Part 36 offer (Offer 1) of £15,000. Four months later he withdrew that offer, but later he made a new Part 36 offer in identical terms (Offer 2). The claim went to trial and the claimant was awarded around £3,000.

Decision

The judge (His Honour Judge Hacon in the Intellectual Property Enterprise Court) awarded the claimant his costs up to expiry of the relevant offer period for Offer 1, but no further. That was on the basis that the claimant should have accepted the offer, which would have saved further cost and time.

However, he did not award the defendant his costs from that date, as he took the view that he should not treat Offer 1 as if it was never withdrawn. He commented that litigants in person, like all litigants, must live with the consequences of ill advised procedural decisions.

The claimant did not resist an order that he pay the defendant's costs from expiry of the relevant offer period for Offer 2.

Comment

This decision is a reminder that where a Part 36 offer is withdrawn, or where an offer to settle falls outside Part 36 from the outset, it will not carry the automatic costs protection that applies under Part 36.

In exercising its discretion on costs, the court may sometimes apply similar costs sanctions as would apply to a valid Part 36 offer (see for example Brit Inns Limited (in liquidation) v BDW Trading Limited [2012] EWHC 2489 (TCC), considered here). However, the only sure way to obtain the costs advantages of Part 36 (which the court must award unless it considers such an order to be “unjust”) is to make an effective Part 36 offer and to keep that offer on the table. Where an offer is made outside Part 36, or a Part 36 offer is withdrawn, the court has a wide discretion and the result is much more difficult to predict.