Part 36 offers to settle: very high claimant offer did not bring costs benefits as not a genuine attempt to settle

A recent High Court decision shows that a claimant who makes a very high Part 36 offer may be deprived of the benefits available to a claimant who beats their own offer, particularly where the level of the offer was not justified by the strength of the claim as it would have been perceived at the time of the offer: Yieldpoint Stable Value Fund, LP v Kimura Commodity Trade Finance Fund Ltd [2023] EWHC 1512.

Under CPR 36.17(4), where a claimant obtains judgment which is at least as advantageous as its Part 36 offer, the court must (unless it considers it is "unjust" to do so) order that the claimant is entitled to certain enhancements: indemnity costs; enhanced interest on both damages and costs; and an additional amount of up to £75,000 calculated as a percentage of the judgment sum. When deciding whether it would be "unjust", the court must take into account all the circumstances of the case including (under CPR 36.17(5)(e)) whether the offer was a "genuine attempt to settle the proceedings”.

In the present case, the court held that it would be unjust to award the Part 36 enhancements as the offer was not a genuine attempt to settle. The decision contrasts with a number of cases (for example here and here) where the courts have upheld very high claimant offers, illustrating that the question of whether an offer was a genuine attempt to settle involves a fact-specific assessment.

The court emphasised that its conclusion should not be taken to discourage claimants from making Part 36 offers, but rather to encourage them to make offers "at a level not so perilously close to the full value of the claim in a case of such adversarial intensity".

Background

The claimant succeeded in its debt claim against the defendant for repayment of US$5 million plus interest accrued as from 31 March 2022. There was an alternative claim in damages, but it was clear that it was an "all or nothing" claim.

In its submissions on costs, the claimant relied on a Part 36 offer it had made in January 2023, in which it offered to settle the claim for US$4,950,000 inclusive of interest. This represented 99% of the principal amount of the claim, or around 96% if interest was taken into account.

Decision

The High Court (Stephen Houseman KC sitting as a High Court judge) held that it would be unjust to award the claimant the Part 36 enhancements. The judge was satisfied that, when analysed in its proper context, the Part 36 offer was not a genuine attempt to settle the proceedings in accordance with CPR 36.17(5)(e).

While all Part 36 offers are made for tactical purposes, and such behaviour is encouraged in the interests of promoting settlement, the judge commented that "an offer which is a cynical attempt to manipulate the Part 36 regime and apply pressure on an adversary is unlikely to be effective for such purposes". The judge noted that there was a danger in glossing the words of the rule, but said it was clear that Part 36 incentivises the making (and acceptance) of "constructive offers of settlement", i.e. those which can be said to have a meaningful impact on the chances of avoiding a trial.

The burden is on the offeree to persuade the court that it would be "unjust" to award the Part 36 enhancements, and this is a "formidable obstacle” (as per Webb v Liverpool Women’s NHS Foundation Trust [2016] EWCA Civ 365, considered here).

Although there have been cases in which very high claimant offers (with a small or negligible discount to the amount claimed) were found to be effective under Part 36 , they did not dictate, or even inform, how the judge should evaluate the offer in the present case. They were no more than illustrative guidance.

However, a theme that emerged from the decided cases was that a very high claimant offer could only be justified where it was obvious at the time of the offer that the claim was, objectively, very strong. A marked disconnect between the amount of the offer and the offeror’s reasonable contemporary perception of the strength of their case might suggest that it was not a genuine attempt at settlement. The trial judge will be uniquely placed to conduct this assessment as they will have a feel for how strong the claim was, especially in an "all or nothing" case like this one. Judges will generally take a "broad brush" view rather than allowing parties to call evidence or obtain disclosure on the point.

In the present case the outcome of the case was far from a foregone conclusion at the time of the offer, so it could not be said that the very high offer reflected a very strong prospect of success at trial. Given the parties' diametrically opposed positions as to the merits of the case, a discount of 1% would have been meaningless as a settlement offer. As the judge put it, if the offer had been presented by the claimant at the outset of a mediation, it would have been clear that everyone was in for a long day or night ahead.

The judge emphasised that his conclusion that the Part 36 offer was not a genuine attempt to settle did not imply any criticism of the claimant or its legal team. However, it meant it would be unjust to award the Part 36 enhancements.