Part 36 offers are vital tools for Dispute Resolution. When used effectively, they can result in early settlement and significant cost savings. The intention behind Part 36 of the Civil Procedure Rules (CPR) is to encourage parties to make tactical offers. These are designed to focus the opponent’s mind on settlement. If settlement is not reached then the intention is that it should, to some extent, protect the offeror’s position on costs.
A Part 36 offer must specify a Relevant Period for acceptance of no less than 21 days. If a party accepts the offer within the Relevant Period, then the Claimant is entitled to recovery of standard costs up to the point of acceptance.
If the offer is accepted after the end of the Relevant Period, then Part 36 is silent as to whether costs from the end of the Relevant Period to the date of acceptance should be granted on a standard or indemnity basis.
Distinction between standard costs and indemnity costs is important. This is due to the effect it has on the level of costs recovered from the opposing party. If costs are assessed on an indemnity basis then benefit of the doubt is given to the receiving party about the proportionality and reasonableness of the costs. On the standard basis the benefit of the doubt is given to the party making payment. Therefore, the proportion of costs recovered on the indemnity basis is significantly higher.
Where a Defendant’s offer is accepted after the end of the Relevant Period, the costs consequences are quite straight forward. The Claimant shall be entitled to costs on a standard or fixed basis up until the end of the Relevant Period. The Defendant may then claim costs on a standard basis from the end of the Relevant Period until the point of acceptance. This encourages Claimants to consider and, where appropriate, accept Defendant’s offer promptly and is considered adequate compensation for the further costs incurred by the Defendant during the period of delay.
What happens where there is late acceptance of a Claimant’s offer is less clear. There have been a number of conflicting decisions. It had previously been thought that the Claimant was entitled to standard or fixed costs up until the end of the Relevant Period. Then, for costs incurred between the end of the Relevant Period and the point of acceptance, it was considered that the Court had a discretion to award indemnity costs. This was seen as an incentive for prompt consideration and acceptance, where appropriate, of Claimant’s offers.
The long-awaited Court of Appeal judgement in the Hislop v Perde, that was handed down this week, sought to clarify the position, particularly in relation to fixed costs. Lord Justice Coulson concluded that the Claimant was only entitled to standard costs for the period between the end of the Relevant Period and acceptance, unless there were ‘exceptional circumstances’. In this case, an 18-month delay, without explanation, in accepting the offer to settle was not considered an exceptional circumstance.
In his ruling, Coulson LJ stressed the same Part 36 rules apply to both Claimants and Defendants. He felt that the ‘exceptional circumstances’ provision still acts as a deterrent to parties delaying accepting an offer. But he stressed that there could be no ‘presumption’ that Defendants’ late acceptance of a Claimants’ Part 36 offers in general should be regarded as exceptional.
This is a positive decision for Defendants. It is presumably hoped that it will encourage more matters to settle before trial. However, it could mean more delay in Claimants’ offers being accepted, as it now appears that the likelihood of recovering costs incurred between the end of the Relevant Period and date of acceptance on an indemnity basis is extremely limited.
Written by Property Dispute Resolution Partner, Claire-Elaine Arthurs
If you have any questions or queries regarding this subject or any other dispute resolution matters, contact Claire-Elaine directly and she will be more than happy to help.
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