Part 36 Offers have long been used as a tactic in litigation to put pressure on opposing parties to accept commercially reasonable settlement offers. The consequences of failing to beat a Part 36 offer, as set out in CPR 36.17, are well known and can have a significant impact upon whichever party fails to beat an offer their opponent has made.
Per CPR 36.17(4), where a Defendant fails at trial to beat an earlier Part 36 offer made by a Claimant the Court must, unless it considers unjust to do so, order that the claimant is entitled to:
(a) interest on the whole or part of any sum of money awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;
(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;
(c) interest on those costs at a rate not exceeding 10% above base rate; and
(d) an additional amount calculated as 10% of any damages awarded up to £500,000 plus 5% of any damages awarded in excess of £500,000; subject always to a cap of £75,000.
Historically there has been an imbalance between the parties positions when making offers pursuant to Part 36. In particular, in respect of interest. A Claimant’s Part 36 offer must be expressed as inclusive of interest up to the end of the relevant period (typically 21 days from the date of the offer) per King v City of London [2019] EWCA Civ 2266. However, until recently the CPR was silent as to whether a Part 36 offer could include terms as to whether interest would accrue after the expiry of the relevant period.
CPR 36 is “carefully structured and highly prescriptive" per Moore-Bick LJ in Gibbon v Manchester City Council [2010] EWCA Civ 726. The regime is designedly inflexible - and the consequence of failing to comply with the rules prescribed in CPR 36 is that the Court is likely to refuse to order the consequences set out in CPR 36.17.
As such, and despite CPR 36 being silent on this point, Claimants have historically been reluctant to include any provision as to interest accruing after the expiry of the relevant period for fear of falling foul of the strict prescriptions of CPR 36 and thereby losing the benefits offered by CPR 36.17. The practical implication of this was that if a Claimant made a Part 36 offer at an early stage of the proceedings then the Defendant could essentially “bank” that offer for the duration of the pre-trial proceedings - providing it with an easy escape route if something unhelpful arose at a later stage (e.g. during disclosure or the preparation of witness statements). The Claimant could not withdraw the offer without losing the benefit of the CPR 36.17 consequences and yet the Defendant was free to accept the offer at a later stage of the proceedings with relatively few consequences. In some instances, such acceptance could be many months or even years after the offer was made; by which time the landscape of the case may have shifted dramatically. Accepting the offer at a later stage has little practical adverse impact upon a Defendant other than liability for the Claimant’s increased costs since the date of the offer, which it would be entitled to have assessed following the acceptance of its offer. Crucially, however, no interest would have accrued between the end of the relevant period and acceptance of the offer - in contrast to the situation if the Claimant went on to be successful at trial where the Court would typically order the losing Defendant to pay not only the Claimant’s costs but also interest on any damages awarded.
This point was, however, recently considered by the Court of Appeal in Calonne Construction Ltd v Dawnus Southern Ltd [2019] EWCA Civ 75. In Calonne, the Claimant made a Part 36 offer which provided for interest to accrue at 8% after the expiry of the relevant period. The Defendant argued that the inclusion of this provision rendered the offer an invalid Part 36 offer such that the consequences of CPR 36.17 should not follow. The Court of Appeal disagreed, and ordered that the offer was validly made in accordance with CPR 36.
Interestingly, in Calonne, the Court of Appeal expressly considered and dismissed concerns raised by the Defendant in respect of a hypothetical situation whereby a Claimant made an offer with a penal rate of interest accruing after the expiry of the relevant period - such as 25% or even 200%. The Court of Appeal held that if the offeree found the particular clause unpalatable, it would be possible for it to make its own Part 36 offer in the same terms but without the same provision for interest.
The Court of Appeal also considered the impact of such an offer on the assessment of whether an offer has been “beaten”. In particular, the Court considered whether this assessment should or should not factor in the interest stated to accrue after expiry of the Relevant Period. Crucially, the Court held that, per the decision in Purrunsing v A'Court [2016] EWHC 1528 (Ch), interest stated to accrue after the expiry of the relevant period should be ignored for the purposes of determining whether or not the Part 36 offer has been beaten.
The Civil Procedure (Amendment) Rules 2021 which came into effect from 6 April 2021 amend Part 36 to reflect the decision in Calonne. The amendment introduces a new rule 36.5(5) which states that Part 36 offers can include provision for interest to accrue after the expiry of the relevant period. If an offer is silent as to interest it will be treated as inclusive of interest up to the date of acceptance (if later accepted).
Practical Impact
The upshot of the decision in Calonne and the change to CPR 36.5(5) is significant. Claimants can now make Part 36 offers with real teeth. The Court of Appeal has considered and approved the situation whereby a Claimant can make an offer with interest accruing at a penal rate (e.g. 200%) after the expiry of the relevant period. Crucially, the Court of Appeal also held that any high / penal rate of interest is to be ignored when assessing whether or not the offer has been beaten at trial.
Faced with such an offer, Defendants will have to now think very carefully at the time the offer is made as to whether or not it is likely to be beaten at trial. That assessment cannot be kicked down the road to a later date. If it is, and a Claimant’s assessment is that it is unlikely to beat that offer at trial it will be left with the unpalatable choice to either:
(a) accept the offer together with obligation to pay the significant amount of interest that has accrued by the time of that later assessment; or
(b) refuse the offer and face the consequences of CPR 36.17.
This is a welcome change to the rules that forces Defendants faced with a commercially reasonable Part 36 offer to engage with the substance of the proceedings and conduct a proper assessment of the risks it is facing at an early stage. It allows Claimants the opportunity to make Part 36 offers that can no longer be sat on and, essentially, used as insurance against the risk of something unhelpful arising at a later stage of the proceedings.
