The dangers of time-limited Part 36 offers

A recent High Court decision suggests that a claimant's Part 36 offer to settle may have little benefit unless it is kept on the table until the conclusion of the case: Gulati & ors v MGN Ltd [2015] EWHC 1805 (Ch).

In this case, the claimant made a Part 36 offer which was expressed to be automatically withdrawn after 21 days. Although the claimant beat the offer at trial, she was not awarded indemnity costs - as she almost certainly would have been (together with other costs benefits) if the offer had remained on the table.

We have previously highlighted the drawbacks for parties withdrawing Part 36 offers (both claimants' offers and defendants' offers). The present decision shows that those drawbacks apply equally regardless of whether an offer is withdrawn during the course of the action or (as is permitted under recent reforms to Part 36) made subject to a time limit from the outset. The drawbacks for a claimant are particularly stark, given that Part 36 introduced the concept of costs sanctions to incentivise claimants' offers, and cases such as the present suggest that the court has no jurisdiction to award those sanctions simply by analogy to Part 36. 

Background

In December 2014 the claimant made an offer to settle her phone hacking claims against the defendant. The offer was said to be an offer under CPR Part 36. It stated "After 21 days, this offer is withdrawn" and, after the 21-day period had expired, the claimant confirmed the withdrawal of the offer.

At trial the claimant was awarded damages greater than the amount she had offered to accept. She applied for an order for indemnity costs from the date the offer should have been accepted.

Where a claimant obtains a judgment that is more advantageous than its Part 36 offer, the court must (unless it considers it unjust to do so) order the costs consequences set out in CPR 36.17, including indemnity costs and enhanced interest from the date on which the relevant offer period expired, and an additional amount of up to £75,000 calculated as a percentage of the amount awarded. (In fact, CPR 36.17 is the relevant rule in the new version of Part 36, which applies to offers made on or after 6 April 2015, but the case appears to have proceeded on the basis that the new version of Part 36 applied.)

It was accepted that, because the Part 36 offer had been withdrawn automatically at the end of the 21 day period, the costs consequences set out at CPR 36.17 did not apply to it (CPR 36.17(7)(a) provides that the costs consequences do not apply to an offer that has been withdrawn). However, the offer could be taken into account in exercising the court's general discretion on costs under CPR 44.3.

The claimant submitted that she was entitled to an award of indemnity costs in part because of the defendant's unreasonable conduct (relating to disclosure, pleadings and cross-examination) which she said was sufficiently out of the norm to justify an award of indemnity costs, and in part because of the Part 36 offer.

Decision

The court (Mann J) rejected the application for indemnity costs. None of the conduct factors relied on amounted to unreasonable conduct that was so far out of the norm as to require indemnity costs. Most of the were not impressive, the judge said, but "not impressive" was not enough.

As for the Part 36 offer, it ceased to be an offer which attracted Part 36 costs consequences when it was withdrawn. To make an order for indemnity costs in those circumstances, absent any other unreasonable behaviour justifying the order, would be to by-pass the Part 36 requirements and go against the thrust of Court of Appeal authority. The judge commented:

"It therefore seems to me that, as a beaten offer, Ms Frost's one-time Part 36 offer has no great significance. It could play a part in a general assessment of the reasonableness or unreasonableness of the defendant's conduct, but it cannot be elevated to a position comparable to a living Part 36 offer merely because it has been beaten."