What changed?

An extra sanction was introduced for claimants’ Part 36 offers made on or after 1 April 2013. This is calculated as 10% of damages (where the claim is or includes a money claim) or 10% of costs for non-monetary claims.

This is however tapered down for larger claims. It is calculated as 10% of the first £500,000 of any award and 5% of the next £500,000. The maximum uplift is therefore £75,000.

How was the change implemented?

The change was implemented via a combination of section 55 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO), the Offers to Settle in Civil Proceedings Order 2013 and amendments to Civil Procedure Rule 36.14.

Why was the change introduced?

Part 36 offers are a scheme whereby either a claimant or defendant can make an offer to settle, and if the offer is refused but the opponent fails to do better than the offer by going to trial, the opponent suffers certain costs sanctions from the end of the offer period (known as the “relevant period”) – unless the court considers that it would be unjust to impose them.

Those costs sanctions vary depending on whether the offer is made by a defendant or claimant.

  • Defendant: A defendant’s offer effectively reverses the normal costs position from the date the offer should have been accepted. Normally a claimant who is awarded damages will be entitled to its reasonable costs, but where the defendant has made an effective Part 36 offer, the claimant gets its costs only up to the end of the relevant period – from that point on the claimant has to pay the defendant’s costs.
  • Claimant: As noted above, a successful claimant is normally awarded its costs anyway, so there needs to be an additional benefit / sanction where a claimant has made an effective Part 36 offer. Before 1 April 2013, that additional benefit comprised an order for indemnity costs, plus enhanced interest on both damages and costs (at up to 10% above base rate).

Lord Justice Jackson concluded that a further benefit / sanction was needed to put claimants’ and defendants’ offers on an equal footing. In his view, the consequences for a defendant of failing to accept a claimant’s Part 36 offer were much less devastating than the consequences for a claimant of failing to accept a defendant’s offer; indeed in some cases the whole benefit of the litigation for the claimant could be wiped out as a result of the adverse costs order.

The rule change was therefore an attempt to level the playing field and encourage settlement by giving claimants’ offers more “teeth”.

What are the implications for commercial parties?

Commercial claimants and defendants need to bear in mind the revised provisions when making Part 36 offers and when evaluating offers made since 1 April 2013.

The impact of the additional benefit / sanction is however less significant for higher value claims, given the tapering provisions which mean a maximum payment of £75,000.

Claimants should note that the court may be less likely to order this new sanction where a Part 36 offer is made very late in the day (see “New Part 36 costs sanction refused where claimant beat own offer made shortly before trial“).

Note: Content up to date as at 30 April 2019

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