Don't leave it too late to accept a Part 36 settlement offer

Part 36 offers can be an important tactical tool, to either force settlement or provide cost protection if offers are not accepted. It is important to keep offers made by any party under review, as circumstances can change quickly and offers may need to be accepted or withdrawn swiftly.  However, a recent case clarifies that the court is unlikely to allow a party that sees the wind blowing against it during trial to accept an offer at that late stage.

What has happened?

In Houghton v P.B. Donoghue, the defendant had made a settlement offer under CPR 36 some months before trial.  The claimant had not accepted that offer but the defendant had not withdrawn the offer.

Two days into trial, the claimant – no doubt believing that the trial was not going in its favour – wished to accept the settlement offer.

Under CPR 36, a ‘Part 36’ offer that has not been withdrawn remains open for acceptance, but if the claimant wishes to accept after trial has started, it needs the court’s permission for that acceptance to be effective. The claimant duly applied to the court, which had to decide whether or not to grant permission to accept the offer.

What did the court decide?

The court declined to give permission to accept the Part 36 offer. The judge, referring to case law on acceptance of Part 36 offers, found that:

• Where the court is being asked to give permission to allow the claimant to accept a Part 36 offer, the relevant test is whether there has been a sufficient change in circumstances so that it would now be just to deny the claimant the opportunity to accept;
• If a litigant “see[s]? the way the wind is blowing in the trial, changes his attitude and wants to accept an offer that he previously did not want to accept“, that will be a change of circumstances that may indeed mean that it is no longer appropriate to give permission.

The judge accepted that there will be arguments in favour of giving permission – in particular that it would save the court’s time. However, once trial has commenced, much or all of the cost saving will be extinguished, and the court will often decide that it is not just to impose a settlement on a reluctant defendant.

In this case, the judge found that this was the correct approach, and declined to give permission to accept the Part 36 offer.

Practice points

This case establishes that once trial has commenced, any Part 36 offers that have been made (whether by the defendant or the claimant) are unlikely to be capable of being accepted. It may still be possible to reach agreement with the other side – even after trial but before judgment is handed down. Even though there may be a perception that trial has been gong in one way or another, until judgment is handed down, there will always be an element of uncertainty, which settlement would avoid. However, settlement at this late stage is likely to come at a premium to the party that is perceived to be ‘losing’ at trial.

The period just before trial, when the dispute tends to be at the forefront of minds and the risks are looming large, is a common time for disputes to settle. However, it is worth bearing in mind that by the start of trial, and indeed usually a week or so before that, the parties are likely to have incurred their counsel’s ‘brief fees’, which represent the majority of the legal fees for trial. It is always worth finding out when the other party’s brief fees are due, and letting the other side know when yours are due, as this can have a significant effect on the viability of settlement.

The benefits of making a Part 36 offer and then beating that offer at trial can be very significant. This is especially true for claimants’ Part 36 offers. If they beat their offer, the starting point is that they get costs on the indemnity basis (and this overriding any costs budget), enhanced interest on damages, enhanced interest on costs and a fixed sum uplift of 5-10% of the damages claimed (up to £75,000).

Although the court did not give permission to accept the offer in this case, this is also a reminder to parties that have made Part 36 offers to keep those offers under review. The balance of litigation can change dramatically at various stages, such as: disclosure, the exchange of factual witness evidence, the exchange of expert evidence and any joint experts’ meeting. It is important to re-assess the merits of a case immediately after such key events, as you may decide either to withdraw a Part 36 offer that now looks too generous, before it is accepted, or to accept a Part 36 offer that is now more attractive, before the other side withdraws it.