It’s not often we find ourselves commenting on construction cases, but one recent case (1) is a reminder of the benefits of making an early claimants’ Part 36 offer.
Firstly, a reminder of what Part 36 offers are for those of you who might not be familiar with them. These are offers made under the Court rules. They can be made either by claimants or defendants. The purpose is to persuade the other party to settle the claim at an early stage before legal costs escalate. There are potential penalties if a party fails to accept a Part 36 offer which the Court determines they should have accepted. When it comes to a claimants’ Part 36 offer (which is an offer to accept a certain sum of money), if the offer is not accepted by the defendant and the claimant successfully obtains damages for more than the offer, then the claimant can be awarded enhanced interest on the claim, indemnity costs and even a further monetary sum by way of a penalty.
Turning to the recent case, the claimant builders made an early Part 36 offer of £875,000 including interest. That offer could have been accepted but the defendants chose not to accept it. At trial the claimants were successful and were awarded £802,475 plus interest of £77,372 i.e. a total of £879,847. They therefore beat the Part 36 offer by just £4,847.
In view of the above, the claimants returned to Court on the issue of costs. The defendants asked for issue based or proportional costs, arguing that the claimants only won on one head of claim and they only just beat their Part 36 offer. The judge declined to depart from the Part 36 regime and said that this was a clear case of a claimant beating its Part 36 offer and, as such, it was not unjust to apply the Part 36 consequences. The judge ordered the defendant to pay indemnity costs from the last date for acceptance of the Part 36 offer (“the relevant period”), interest on those costs and additional interest on the damages claim at 6.5% above base rate plus a monetary penalty of £65,000.
It can be seen from the above that Part 36 offers are powerful weapons. However, it is essential that such offers are carefully considered and pitched at the correct level. Part 36 offers must also be accurately worded to comply with the Court rules or they may be regarded as being invalid.
We are often asked if Part 36 offers can be retracted or revised. In short, there are issues with retracting an offer whilst the relevant period for acceptance is running. However, if the relevant period for acceptance has expired, then the offer can be retracted or it can be made on terms where it is automatically retracted. It is also possible to make revised offers which would trigger a new relevant period for acceptance with costs consequences running from the end of that new period. Past offers can also be left open for acceptance until specifically withdrawn. In theory, multiple Part 36 offers could be open for acceptance at any one time.
We would urge anyone considering making or accepting a Part 36 offer to take legal advice as this is a potentially complex area of the law and the scope for making errors is considerable.
Finally, we are often approached by clients who are under the impression that the Part 36 regime is available in arbitration. It is not. Arbitrators have a wide discretion to make costs orders under the governing rules of the arbitration or under the Arbitration Act 1996. In certain cases they may consider sealed offers made at an early stage when it comes to exercising that discretion but they do not have the same powers as judges making costs orders under Part 36 of the Civil Procedure Rules.