We reported a case recently where the judge refused to apply part 36 consequences where a Claimant had made a part 36 offer close to the whole of the claim amount.
In two other recent decisions the Court has affirmed this approach.
In Yieldpoint Stable Value Fund, LP v Kimura Commodity Trade Finance Fund Ltd [2023] EWHC 1512 (Comm) a High Court Judge found that it was not unjust to disallow the normal Part 36 consequences in a case wherever a claimant’s offer contained a relatively small discount in relation to damages.
Also, in Sleaford Building Services Ltd v Isoplus Piping Systems Ltd [2023] EWHC 1643 (TCC) the judge held that a claimant’s offer to accept 99.9% of its claim was a valid Part 36 offer. However it was held to be unjust for the normal Part 36 consequences to apply.
In the Yieldpoint case, the claimant succeeded at trial. The claimant had made an offer which represented 96% of the claim. The issue arose as to whether the normal Part 36 consequences should follow.
The judge considered the terms of the offer, which amounted to an offer to settle for 96% of the final award.
Yieldpoint sought the sum of US$4,950,000 (defined as the “Settlement Sum“) inclusive of interest. This represented 99% of the principal claim.
(ii) When accrued interest – calculated at the expiry of the 21 day acceptance period (30 January 2023) – is factored in, this proportion drops a few percentage points. Quite how far it drops depends on whether (and, if so, how) interest at the contractual rate in clause 11.5 of the MPA should be compounded. That was one of the disputed matters resolved – in favour of Kimura, as it happens – at the consequentials hearing. On this basis, the Part 36 Offer represented about 96% of the claim value as at 30 January 2023.
(iii) The Part 36 Offer stated as follows in the second paragraph:
“Our client is confident that it has a strong case against your client, and is entitled to substantial damages, as set out in the Particulars of Claim.“
(iv) The fourth and final bullet point under the heading “Terms of the Offer” stated:
“The Settlement Sum is inclusive of interest“.
(v) No indication was given as to the amount of accrued interest at such date or the daily rate of accruing interest or whether/how interest was claimed to be compounded pursuant to clause 11.5 of the MPA.
The judge held that this was not a genuine attempt to settle the claim, saying:
“My conclusion should not be taken as any kind of discouragement to claimants making Part 36 offers. It is, if anything, an encouragement to make offers at a level not so perilously close to the full value of the claim in a case of such adversarial intensity.”
The terms of the Part 36 Offer gave the judge some cause for concern in an all or nothing case.
“The real concern for me, however, is whether the Part 36 Offer was a genuine attempt to settle the claim given the starkly binary nature of this dispute and its far from obvious substantive prognosis in January 2023 or indeed at trial itself.”
The judge was satisfied that the Part 36 Offer was not a genuine attempt to settle the proceedings when analysed in its proper context. On this basis, he concluded that it would be “unjust” to grant the Claimant any of the enhancements in CPR 36.17(4)(a)-(d).
The judge explained that
“CPR 36.17(5)(e) itself was inserted by rule amendment taking effect in April 2015, as explained in White Book 2023 at 36.17.6. This provision is not confined to so-called ‘100% offers’ made by claimants seeking to avail themselves of CPR 36.17(4) when they obtain a monetary judgment “at least as advantageous” as their own prior offer: CPR 36.17(1)(b). Nor is it necessary to show that an offer is being used as a “tactical step” in this context; cf. Huck v. Robson [2002] EWCA 398; [2003] 1 WLR 1340. As has been observed, all Part 36 offers are made for tactical purposes – such procedural behaviour is both encouraged and supported in the interests of promoting settlement of disputes. That said, 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 burden of proof or persuasion under CPR 36.17(5)(e) rests upon the offeree. Proof of injustice under CPR 36.17(4) is a “formidable obstacle” to an offeree who finds themselves on the wrong side of a judgment: see Webb v. Liverpool Women’s NHS Foundation Trust [2016] EWCA Civ 365; [2016] 1 WLR 3899.
The cases decided under CPR 36.17(5)(e) invariably concern what may be described as a ‘very high claimant offer’, i.e. an offer involving a very small or negligible discount against the gross value of the claim and/or waiver of accrued interest: see Telefónica UK Ltd. v. The Office of Communications [2020] EWCA Civ 1374; [2020] Costs LR 1461 per Phillips LJ at [49]. I was referred to authorities in which judges have concluded that a very high claimant offer was a genuine attempt to settle the proceedings in the specific circumstances of a case.
There is a danger in glossing the words of the rule itself, not least the risk of circularity by reference to whether or not the consequential enhancements in CPR 36.17(4)(a)-(d) will or will not become available in the event that such offer is not accepted and the claimant equals or betters it at trial. Stepping back, however, it is clear that the Part 36 regime incentivises the making (and acceptance) of constructive offers of settlement, i.e. those which can be said to have a meaningful impact upon the chances of avoiding a trial or further consuming curial resources towards trial.
The summary in the White Book at 36.17.6 is helpful. I adopt the “broad brush” approach endorsed in that commentary. A trial judge is uniquely placed to operate within such evaluative margin: they will have a feel for how strong the claim was, especially in an ‘all or nothing’ situation like the present case, and (therefore) how close the successful claimant was to ‘losing’ or failing to equal or better its own offer.
The fact that a judge in another case upheld a 99.7% offer (Rawbank SA v. Travelex Banknotes Ltd. [2020] EWHC 1619 (Ch); [2020] Costs LR 781) or a 95% offer (Jockey Club Racecourse Ltd. v. Willmott Dixon Construction Ltd. [2016] EWHC 167 (TCC); [2016] 4 WLR 43) or a 90% offer (JMX v. Norfolk & Norwich Hospitals NHS Foundation Trust [2018] EWHC 185 (QB); [2018] 1 Costs LR 81) does not inform, still less dictate, how I should approach my evaluation of the Part 36 Offer in the present case. These decided cases provide illustrative guidance, no more.
One theme that emerges from the decided cases, however, is 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:see Rawbank (above) at [30] (“clearly no defence” / “near-certainty“); Omya UK Ltd. v. Andrews Excavations Ltd. & another [2022] EWHC 1882 (TCC); [2022] Costs LR 1295 at [19]-[20] (“the defence put forward lacked credibility“).
The approach is necessarily objective and needs to be conducted free from the hindsight gifted by a trial and its known outcome, so far as possible. A marked disconnect between the discount element of an offer, on the one hand, and the offeror’s reasonable contemporary perception of the strength of their case, so far as discernible, on the other hand, may well be telling against it being a genuine attempt at settlement. The trial judge is attuned to this evaluation.
The outcome of the present case was far from foregone heading into trial last month, or indeed during 9-30 January 2023. Witness statements were not exchanged until March; both sides sought to rely upon aspects of the witness evidence in light of cross-examination at trial: see Trial Judgment [30]-[32], [38]-[39], [49], [70]-[72].
Anyone who reads the Trial Judgment will appreciate that the outcome of this dispute remained up for grabs to the end.
The judge found that this was not a case where a very high claimant offer reflected a very strong prospect of the claimant succeeding at trial. The parties were diametrically and evangelically opposed in terms of their characterisation – and, I sensed, subjective understanding – of the deal they had concluded. A discount of 1% is meaningless in such context. It amounts to saying ‘pay up now, accept that you are wrong’.
The fact that the offer involved foregoing a six-figure sum of interest was potentially meaningful, but that is not how the Part 36 Offer was pitched. On the contrary, as noted above, the stated rationale was an expectation of “substantial damages” whilst the inclusion of interest within the Settlement Sum lacked any context or calculation – it might have assumed interest added to a lower “damages” figure for example. Any forfeiture of interest would be set against the prospect of an “additional amount” of £75,000 being awarded to Yieldpoint under CPR 36.17(4)(d).
Testing the matter this way: how might a mediator or other neutral facilitator regard the Part 36 Offer if presented by Yieldpoint at the outset of or during a mediation or settlement discussion? I am confident that the answer would involve an apprehension that everybody was in for a long day or night ahead
I conclude, therefore, that the Part 36 Offer was not a genuine attempt to settle these proceedings. My conclusion implies no criticism of Yieldpoint or its legal team. The word “genuine” may suggest otherwise on the face of things, but that is not the rationale of this provision (see paragraph 21 above). There was no impropriety or disingenuity or cynical manipulation on the part of Yieldpoint or its legal team.
Ultimately this is an inquiry as to whether it is “unjust” to disallow a claimant’s expectation of consequential enhancements provided for in CPR 36.17(4). It is simply the case that Yieldpoint failed to bring itself within that beneficial post-judgment regime. It took a legal risk of Kimura accepting the Part 36 Offer, but did not thereby create a meaningful chance of settling the dispute ahead of trial. Cleansed of hindsight, Kimura was never likely to accept the Part 36 Offer.
My conclusion should not be taken as any kind of discouragement to claimants making Part 36 offers. It is, if anything, an encouragement to make offers at a level not so perilously close to the full value of the claim in a case of such adversarial intensity.”
In the Isoplus case, Isoplus had made a part 36 offer which amounted to a concession of 0.01%.
The judge in that case said that he was:
“satisfied that it would be unjust to make the orders set out in CPR r.36.17(4) because, viewed objectively, the offer was not a genuine attempt to settle the proceedings. The obvious point to make here is that the offer, if accepted, required Sleaford to pay the whole of the principal amount decided by the adjudicator to be due, namely £323,502.32. That is not really much of a concession at all in circumstances where, as in this case, adjudication enforcement tends to produce an all or nothing outcome save in severance cases, which this is not. In reality, all that Isoplus was offering was to forego interest for a short period. In some cases, foregoing interest may amount to a genuine and realistic element of compromise but this is not such a case.”
Conclusion
The Courts have sent a string signal that an offer which is close to the total amount claimed will not result in a costs sanction if it is beaten at trial.
It is interesting that the determination of whether a Part 36 offer is genuine or not is an objective matter to be decided in the discretion of the judge without hindsight. It is also interesting that the judge stepped into the shoes of a mediator to help decide whether such an offer made at the beginning of a mediation would lead to a long day ahead.
In our view, much better to have mediated than make a part 36 offer which offered no protection in costs.
I refer with gratitude to Gordon Exall, Civil Litigation Brief, 2013-2023 which highlighted this case.https://www.civillitigationbrief.com/2023/06/21/claimants-part-36-offer-was-for-96-of-the-claim-it-was-held-unjust-for-normal-part-36-consequences-to-apply/