Part 36: "total capitulation" offers do not count

There are many good reasons for a party in dispute to reach out an olive branch with a settlement offer. Part 36 of the Civil Procedure Rules (CPR) encourages this by providing benefits if an offer that is not accepted is later beaten at trial. As the High Court has confirmed in a recent case, however, for the benefits of Part 36 to apply, an offer must be a “genuine attempt to settle”. An offer which simply invites “total capitulation” by the other side will not count, and will not attract the benefits of a Part 36 offer.

This is important for all litigants to note, but particularly claimants that are confident of a result at trial.

What is a Part 36 offer?

An offer made pursuant to Part 36 of the CPR is a useful tool, available to both claimants and defendants, to encourage settlement. This is particularly the case when one party is refusing to engage on the merits of their case, as the potential cost implications for failing to accept an offer that is ultimately beaten at trial, even if that party does not actually ‘win’, can be punishing.

The cost implications of Part 36 are intended to encourage parties to accept reasonable settlement offers during litigation, even where they believe that they may have a good chance of winning at trial.

The costs benefits afforded to a party that beats its Part 36 offer include:

• costs on the indemnity basis from the date on which the relevant period expired;
• interest on those costs at a rate up to 10% above base rate; 
• interest on any amount awarded by the Court, at up to 10% above base rate from expiry of the ‘relevant period’ (which will be 21 days or more from the date of the offer); and
• for a claimant, an additional amount, up to a maximum of £75,000, which is calculated by applying the percentage set out in Part 36.

What did the Court find?

In MVN (R on the application of) v London Borough Of Greenwich [2015] EWHC 2663 (Admin), the Court had to consider whether the claimant should be afforded all of the costs benefits of Part 36, as it had achieved a result “at least as advantageous” as its Part 36 offer. The defendant did not dispute that the claimant had achieved a result that met the terms of its offer.

In the usual course, where a claimant has achieved a result that is at least as advantageous as its offer, Part 36 states that the Court must award the claimant the cost benefits identified above, “unless it considers it unjust to do so“. One of the points that the Court must take into account when considering whether a Part 36 costs award is unjust, and the central issue that the Court considered in MVN, is whether the Part 36 offer “was a genuine attempt to settle proceedings“.

The facts of MVN are specific to immigration law. However, the important point was that the claimants’ offer was essentially the best result that it could obtain at trial (which it did ultimately achieve). This offer was held to be a demand for a “total capitulation” by the defendant, which contravenes the principle, laid down in previous cases, that an offer to settle must contain “a genuine element of concession on the part of the claimant“. The Court also noted the requirement for “give and take” in a settlement offer and rejected the claimant’s argument that the option of the defendant saving costs in the litigation fulfilled the claimant’s “give” requirement.

Accordingly, the Court held that the claimant’s offer was not a genuine attempt to settle. This decision meant that the claimant did not receive any of the Part 36 costs benefits and was awarded costs on the normal basis.

What does this mean for litigants?

MVN confirms that, in order to gain the full benefits of Part 36 following trial, a claimant must make an offer that actually contains some ‘give and take’ between the claimant and the defendant. The best way of ensuring that this is achieved is to make sure that a Part 36 offer is not simply an offer for the full value of your claim, or a request for the entirety of the pleaded relief.

Although this is a note of caution, it should not stop a confident party from making an offer. An aggressive offer may be at risk of being ineffective, but the party receiving the offer may also feel at risk, since MVN did not set out exactly what would constitute a “genuine attempt to settle” (in percentage terms, for financial claims, or otherwise).  As ever with settlement, the right level for an offer will be a tactical call, but following MVN, the risk of an offer being ineffective should be borne in mind by a party tempted to make an offer that concedes very little.