The perils of withdrawing Part 36 offers after trial (or any time)

The High Court has found that defendants who made a Part 36 offer, which the claimant failed to beat, should not be awarded any of their costs where the offer was withdrawn after trial and before judgment: Britned Development Ltd v ABB AB [2018] EWHC 3142 (Ch).

Had the offer remained on the table until judgment, the court would have been obliged under Part 36 to award the defendants their costs from the end of the relevant offer period, unless satisfied that such an order would be unjust. Because the offer was withdrawn, however, the Part 36 costs consequences did not apply. This decision illustrates the dangers of withdrawing a Part 36 offer, as the costs protection associated with Part 36 will be lost once the offer is withdrawn. Although the offer can still be taken into account, the result will be far less predictable given the court’s broad discretion on costs.

A party who is considering withdrawing an offer during or after trial should think twice. If the opponent wishes to accept the offer at that stage, it will require the court’s permission to do so. Depending on the circumstances, it may be better to keep the offer on the table but resist any application for permission to accept.

Before trial, of course, the opponent will not require permission to accept a Part 36 offer, even after the relevant offer period has expired. However, where a party wishes to rethink its offer on the basis that it has begun to seem too generous, the better course will normally be to vary the offer rather than withdraw it (as in those circumstances the Part 36 costs consequences should still apply unless the opponent beats the varied offer).

Background

The claimant brought a competition follow-on damages claim arising from the European Commission’s finding that the defendants had participated in an unlawful cartel relating to high voltage submarine and underground power cable projects. The claimant was awarded damages of some €13 million on the basis that, as a result of the cartel, it had been overcharged for the cable element of its projects. The claimant’s claims for lost profits and for compound interest failed.

The defendants had made a Part 36 offer to settle the litigation, which the claimant failed to beat, but the offer was withdrawn after trial and before judgment.

Under CPR 36.17, where a claimant fails to obtain a judgment that is more advantageous than a defendant’s Part 36 offer, the court must (unless it considers it unjust to do so) award the defendant its costs from the date on which the relevant offer period expired. This is subject to an exception where a Part 36 offer has been withdrawn, but under CPR 44.3 the court will still have regard to such an offer when it decides what order to make about costs.

Decision

The High Court (Marcus Smith J) found that there should be no order as to costs.

Ignoring the defendant’s Part 36 offer, the judge would have concluded that the claimant should be awarded 60% of its costs. This was on the basis that, although it was the successful party, its analysis had been rejected on the central issue in the case and it had received a fraction of the amount it was seeking.

It was, however, necessary to take into account the defendants’ withdrawn Part 36 offer. The judge found that it did not justify reversing the incidence of costs in the defendants’ favour. As he commented:

“I also have to have regard to the fact that CPR 36 is a self-contained procedural code, and that had [the defendant] wanted to ensure a costs outcome in its favour, it should not have withdrawn the offer. By withdrawing the offer it made, [the defendant], as it accepts, put itself (or, rather, put its offer) outside the CPR 36 regime.”

The judge concluded, therefore, that the defendants should not have a costs order in their favour. However, because of their early, unbeaten offer, they should not have to pay any of the claimant’s costs.

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