A detailed look at the use of CPR 36 offers, and the consequences of withdrawal.
In a recent case in which I was acting for the paying party, I had drafted points of dispute and was advising in relation to making an open offer[i]. For reasons which are unimportant here I advised the client to make an open offer of their ‘best case’, in other words the amount that the bill would be reduced to if the paying party received all of the reductions it was asking for. I also advised my client to make a Part 36 offer, which was higher than the open offer, but still significantly less than the total claimed. The solicitor who instructed me asked me:-
“Is this a tactical offer which we will withdraw after 21 days?”
In short, my answer was no.
I am surprised how often I am asked whether a Part 36 offer should be withdrawn after the ‘relevant period’[ii] has expired.
A Part 36 offer may be withdrawn without the permission of the court at any time following the expiry of the relevant period, so long as it has not been accepted[iii], by serving notice of withdrawal under CPR 36.9(1).
It is of critical importance to note, however, the wording of CPR 36.17(7)(a) which provides that the costs consequences of beating a Part 36 offer do not apply where a CPR 36 offer has been withdrawn. This means that a party which makes a Part 36 offer and subsequently withdraws it will not be automatically entitled to their costs if they beat the offer at judgment or assessment.
Until April 2015 a Part 36 offer could not be automatically withdrawn[iv], and offers made before April 2015 which contain a provision for automatic withdrawal are not valid Part 36 offers. From April 2015 a Part 36 offer may contain a provision whereby it is automatically withdrawn[v].
It seems that this change is something that a lot of people have wanted for a long time, but it is unclear why.
As a Part 36 offer which is withdrawn does not have the automatic costs consequences of CPR 36.13, a Part 36 offer which contains a provision that it will be automatically withdrawn is robbed of any force. I envision the negotiation going something like this:-
Defendant Solicitor: ‘I make you an offer under Part 36.’
Claimant Solicitor: ‘Well, I had better seriously consider your offer because if I don’t accept it and then I’m awarded less I may have to pay your costs.’
D: ‘Also, if you don’t accept my Part 36 offer within 21 days it will be withdrawn, so you won’t be able to accept it after that, so you had better respond quickly!’
C: ‘Right. But if I don’t accept it and it’s automatically withdrawn then I won’t have to pay your costs if I’m awarded less than your offer. So you’re offering me all the benefits of a Part 36 offer, but with none of the risk?’
D: ‘Oh’.
This example is of course farcical, but it highlights the fundamental flaw in withdrawal of a Part 36 offer; the offer only has any force if it is left open until the conclusion of the trial or costs assessment hearing. I consider the tactical aspects of Part 36 offers further in my blog post on the tactical use of offers, however it is worth reiterating the point that a Part 36 offer should be the very best offer you intend to make in litigation and, in an ideal world, you would only ever make one.
The case of Gulati & Ors v MGN Ltd [2015] EWHC 1805 (Ch) in which the court refused an application by a claimant for costs on the indemnity basis because the claimant had withdrawn its Part 36 offer, illustrates this point well. Of course the effect to a successful claimant will be less than the effect to a defendant who beats a Part 36; to the claimant it means a difference in how costs are assessed, to the defendant it means it will not only not recover its costs but will also have to pay its opponent’s costs for that period.
Of course, there may be circumstances where it is appropriate to withdraw a Part 36 offer. An example might be where new evidence comes to light during litigation which affects quantum or prospects of success, and in those circumstances the Part 36 offer should be withdrawn as quickly as possible. If what the claimant is claiming drops below a defendant Part 36, the defendant does not want to leave it open to the claimant to accept the offer and obtain a higher amount than it could possibly be awarded at a hearing!
What should be remembered is that the ability to withdraw a Part 36 is there as a ‘get out clause’ if the landscape of litigation changes, and should be viewed as a useful provision to have but one that is rarely used.
I would point out that it is always open to a party that has made a Part 36 offer which is withdrawn (or, indeed, held not to be a valid Part 36 offer) and which it subsequently goes on to beat, to argue that the general rule that the unsuccessful party should pay the successful party’s costs[vi] should not apply, and ask the court to make another order on the basis of the Part 36 offer. However the costs consequences of CPR 36.13 are automatic; a party which beats its own Part 36 offer must be awarded its costs[vii], the only exception being if it is unjust to do so[viii].
It is trite to say that it is better to be entitled to your costs under the Civil Procedure Rules, than to have the opportunity to argue that you should get your costs before a judge. Many of you will know from bitter experience that judicial discretion can be a fickle master.
Should you have any questions, you can contact the team at CivilCosts@clarionsolicitors.com
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[i] CPR 47 PD 8.3 requires a paying party to make an offer in open correspondence when serving the points of dispute. The tactical aspects of this are, however, a topic for another time.
[ii] CPR 36.3(g) defines the relevant period as the period specified in CPR 36.5(1)(c), in other words, a period the offeror chooses during which the defendant (or paying party) will pay the claimant’s (or receiving party’s) costs, but that period cannot be less than 21 days. Consequently it is usually 21 days.
[iii] It should be noted that an Part 36 offer is accepted by service of written notice of acceptance (CPR 36.11). Thus acceptance follows the rule of service. Theoretically an offeree could serve notice of acceptance by first class post, with email confirmation, and the offeror could serve notice of withdrawal by fax before the notice of acceptance was deemed served.
[iv] C v D [2011] EWCA Civ 646
[v] CPR 36.9(4)(b)
[vi] CPR 44.2(2)(a) and (b)
[vii] CPR 36.17(3)
[viii] In practice this happens very rarely, if ever.
