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We always recommend mediating or at least making an offer to settle a case. Offers made under Part 36 can result in the opponent having to pay costs even if they succeed, if they fail to beat the offer. In some respects the Part 36 rules turn litigation into a game of poker.

One such case was that of Shah & Anor v Shah & Anor in which the Claimant made a Part 36 offer to the Defendant to settle the case for £1 (plus payment of their legal costs).

As with many litigants, the parties were involved in an ‘intense and protracted’ family dispute. The claimants made a claim for £30,000 damages.

The Judge had found for the Claimant at trial and awarded the Claimant only £10 damages, which was above the Part 36 offer by £9, but still nowhere near £30,000.  He then ruled that the Part 36 offer had been operative and so the usual rules about costs penalties applied. That meant that the Defendant had to pay the Claimant’s costs from the date of the Part 36 £1 offer, despite only having to pay £10 damages.

The claimants’ costs were now more than £200,000.

The defendants had argued that the normal Part 36 consequences should not follow because the £1 proposal was ‘not a genuine offer to settle the value of the claim; it is simply an attempt to game the system in terms of obtaining a costs order.

The judge said that ‘I cannot depart from the default position under CPR 36.17 simply because the rules themselves may appear harsh or produce a harsh result.’ So even though this was harsh on the Defendant who would have a costs bill of over £200,000 plus their own costs to pay, they should have accepted the genuine offer of £1 made by the Defendant.

This illustrates the importance of trying to resolve cases early on and preferably mediating or at least considering offers seriously even if they appear to be very low.

The Defendant could have avoided this costly outcome if it had engaged a mediator at an early stage and negotiated a sensible settlement. It is of course possible that they did mediate and failed to resolve the case, in which case the assessment of risk may have left something to be desired.

In any event this is a case where in some respects it does not appear that a “just” result has occurred. However it is “just” in the sense of being in accordance with the rules. The Court was following the rules which are designed to reward settlement. A more “just” outcome taking into account only the merits of the case would have been a compromise whereby the Claimant recovered a small amount and their legal costs. The Defendant forfeited this outcome by failing to be reasonable and resulting in additional costs which the Court considered they should pay.