What's the rush? Late acceptance of a Part 36 offer

05 Dec 2017

The High Court has recently considered whether the ordinary costs consequences should apply for late acceptance of a Part 36 offer.   The claimant had delayed in providing critical information about the value of its claim, and later went on to accept the offer which represented only a fraction of the value of its pleaded claim.   The case of Optical Express Ltd and others v Associated Newspapers Ltd[1] makes welcome reading for other defendants in a similar situation.

Late acceptance of Part 36 offers to settle

Where a Part 36 offer is accepted after the expiry of the relevant period (usually 21 days), the court will decide on the liability for costs unless the parties agree.   Usually the court must award the claimant its costs up until the point of expiry of the relevant period, and then the offeror will pay the offeree's costs from the expiry of the relevant period up to the date of acceptance[2].  The rules on late acceptance of Part 36 offers do not specify whether costs should be on a standard or indemnity basis.

However the court does have a discretion to make a different order as to costs if it considers the usual costs consequences would be unjust, taking account of all the circumstances of the case.   

Generally the courts seem to order a claimant who accepts a defendant's Part 36 offer late to pay the defendant's costs on the standard basis unless the court considers it unjust.   Where a defendant accepts a claimant's offer late, there are conflicting decisions on whether standard or indemnity costs should apply.   The situation is even more uncertain in the context of fixed costs cases, with no consistency in the court's approach, as the following cases demonstrate.

For example, in Sutherland v Khan[3] a defendant who accepted the claimant's Part 36 offer late was liable to pay indemnity costs from the expiry of the relevant period, whereas in Hislop v Perde[4] the court awarded standard costs but made it clear that it had discretion to award indemnity costs if it chose to do so. Differing again, the judge in McKeown v Venton[5] found that there was no entitlement or discretion to award a claimant indemnity costs where a case is concluded by late acceptance of a claimant's Part 36 offer rather than by judgment at court.

Against this background of confusion and inconsistency in fixed costs cases, on a high value multi-track case the court has provided new guidance on a claimant's late acceptance of a defendant's Part 36 offer in the case of Optical Express Ltd and others v Associated Newspapers Ltd.

Facts

The claimant's case was for libel and malicious falsehood in the sum of £6.59 million due to an article the defendant published in the Mail Online. The defendant requested information about the continuing financial loss element of the claim in October 2015.   It received a response in May 2016, over six months later, by which time the claimant's claim for damages had risen to £21.5 million. Shortly after receiving this information the defendant made a Part 36 offer to settle for £125,000 – a figure which the claimant described as "wholly derisory" - but later accepted in February 2017.

Decision

The judge had to consider whether a normal costs order would be unjust, bearing in mind that the need to show injustice presents a "formidable obstacle" for defendants to overcome[6].

One of the relevant factors to take into account when considering whether the usual order would be unjust is the conduct of the parties with regard to providing information to enable the offer to be made or evaluated.

In this case, the claimant had left the defendant very much in the dark as to the scale and formulation of their claims by failing to provide the information requested, with no explanation or justification for the delay.   Had it acted reasonably in providing this information, then the defendant would have put forward the Part 36 offer to settle several months earlier in December 2015. For this reason, the judge concluded that the normal order as to costs would be unjust. The defendant was awarded standard costs from January 2016 when the notional relevant period for acceptance would have expired.

Not only that, by rejecting and later accepting the "derisory" offer which was just a fraction of the pleaded claim, the claimant had acted highly unreasonably and in a wholly disproportionate manner, a course of action which justified an award of indemnity costs from the expiry of the actual relevant period for acceptance.

Comment

Defendants are frequently prevented from making early offers to settle by a lack of information and documentation from claimants.   This case gives useful ammunition to defendants who are frustrated by claimants who fail to provide information within a reasonable timescale without an adequate explanation.  On receipt of the information, defendants should be prompt to make a Part 36 offer so that they can demonstrate it was the claimants' default that has delayed a potential settlement.

The mere fact that a Part 36 offer is accepted out of time does not in itself justify an indemnity award of costs.   However, as this case demonstrates, where there is something out of the ordinary, something unreasonable, then indemnity costs may be justified.   In this case, where there was no valid reason for its sudden volte face, the claimant's readiness to accept a sum so vastly less than pleaded was highly unreasonable and sufficient to justify an award of indemnity costs.

This decision is welcome guidance, but the discretionary element of the rules on the costs consequences of late acceptance of a Part 36 offer still make it difficult to predict how a judge will respond in any given case.


[1] [2017] EWHC 2707

[2] CPR 36.13(5)

[3] County Court at Kingston upon Hull, 21 April 2016

[4] County Court at Central London, 8 August 2017

[5] County Court at Liverpool, 12 June 2017

[6] Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch)