Open, Calderbank and Part 36 offers considerations and tactics

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1 Open, Calderbank and Part 36 offers considerations and tactics PJ Kirby QC 1. Introduction 1.1 In detailed assessment proceedings there will, as in all disputes, be advantages in settling the matter in order to save further costs, and to avoid the uncertainty of the outcome and the stress involved in litigation. The purpose of this note is to consider the advantages and disadvantages of the different types of offer which can be made and when the same should or should not be made. 1.2 As in all litigation it is open to either party to make an open offer, a Part 36 offer or a without prejudice offer including a Calderbank offer. Unlike other litigation, within detailed assessment proceedings, there is a requirement to make an open offer. 1.3 The purpose of any Part 36 offer or without prejudice offer is to achieve a settlement on the terms offered and/or to provide some possible protection on costs in the event that the other side would have done better by accepting your offer than by taking the matter through to the hearing of the detailed assessment. 1.4 Where the costs claimed are less than 75,000 the same will be subject to a provisional assessment pursuant to CPR47.15, the provisional assessment is supposed to take place within 6 weeks of receipt of the papers but in reality that target is unrealistic and is not being met. The receiving party in a provisional assessment is required to file the offers made (those marked without prejudice save as to costs or made under Part 36 must be contained in a sealed envelope, marked Part 36 or similar offers, but not indicating which party or parties have made them) (PD (d)). It is not clear what the position is in relation to without prejudice offers that are not made save as to costs but perhaps the drafter could not think of a sensible reason why such an offer would be made! 2. Liability for costs of detailed assessment proceedings 2.1 CPR 47.20, introduced as from 1 April 2013, provides: Liability for costs of detailed assessment proceedings

2 (1) The receiving party is entitled to the costs of the detailed assessment proceedings except where (a) the provisions of any Act, any of these Rules or any relevant practice direction provide otherwise; or (b) the court makes some other order in relation to all or part of the costs of the detailed assessment proceedings. (3) In deciding whether to make some other order, the court must have regard to all the circumstances, including (a) the conduct of all the parties; (b) the amount, if any, by which the bill of costs has been reduced; and (c) whether it was reasonable for a party to claim the costs of a particular item or to dispute that item. (4) The provisions of Part 36 apply to the costs of detailed assessment proceedings with the following modifications (a) claimant refers to receiving party and defendant refers to paying party ; (b) Trial refers to detailed assessment hearing ; (c) in rule 36.9(5), at the end insert or, where the Part 36 offer is made in respect of the detailed assessment proceedings, after the commencement of the detailed assessment hearing. ; (d) for rule 36.11(7) substitute If the accepted sum is not paid within 14 days or such other period as has been agreed the offeree may apply for a final costs certificate for the unpaid sum. ; (e) a reference to judgment being entered is to the completion of the detailed assessment, and references to a judgment being advantageous or otherwise are to the outcome of the detailed assessment. (7) For the purposes of rule 36.14, detailed assessment proceedings are to be regarded as an independent claim. 2.2 However just to confuse things as from 6 April 2015 the following amendments to CPR have been made pursuant to The Civil Procedure (Amendment No. 8) Rules 2014:

3 11. In rule (a) in paragraph (4) (i) for sub-paragraph (c) substitute (c) a detailed assessment hearing is in progress from the time when it starts until the bill of costs has been assessed or agreed; ; and (ii)in sub-paragraph (d) (aa) for substitute ; and (bb)for the words after substitute to the end substitute If such sum is not paid within 14 days of acceptance of the offer, or such other period as has been agreed, the receiving party may apply for a final costs certificate for the unpaid sum. ; ; and (b)in paragraph (7), for substitute The old was revoked as from 1 April 2013 although one still occasionally sees offers made pursuant to CPR in respect of detailed assessment commenced after 1 April 2013 perhaps it s time to buy a new White Book! 3. Part 36 offers 3.1 Until 1 April 2013 Part 36 had played no role in the costs of the detailed assessment proceedings (that being the role of the old CPR 47.19) although Part 36 has always played a pivotal role in determining what costs order should be made in the substantive proceedings. 3.2 Part 36 has been amended from 6 April This note should not be considered as a comprehensive guide to the new Part 36 as the focus is on the use of Part 36 offers in the context of detailed assessment proceedings. 3.3 Part 36 is a self-contained procedural code. Part 36 is divided into 2 sections, the first being the general rules about Part 36 offers and the second being rules about offers to settle where the parties have followed the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents or the Pre-Action Protocol for Low Value Personal Injury (Employers Liability and Public Liability) Claims and have started proceedings under Part 8 in accordance with Practice Direction 8B. 3.4 CPR 36.3 is a new definition section but so far as detailed assessment proceedings those definitions have to be read in accordance with CPR

4 36.3. In this Section (a) the party who makes an offer is the offeror ; (b) the party to whom an offer is made is the offeree ; (c) a trial means any trial in a case whether it is a trial of all issues or a trial of liability, quantum or some other issue in the case; in detailed assessment proceedings trial refers to the detailed assessment hearing 1 (d) a trial is in progress from the time when it starts until the time when judgment is given or handed down; A detailed assessment hearing is in progress from the time when it starts until the bill of costs has been assessed or agreed; (e) a case is decided when all issues in the case have been determined, whether at one or more trials; (f) trial judge includes the judge (if any) allocated in advance to conduct a trial; and (g) the relevant period means (i) in the case of an offer made not less than 21 days before a trial, the period specified under rule 36.5(1)(c) or such longer period as the parties agree; (ii) otherwise, the period up to the end of such trial. 3.5 CPR 36.4 confirms that Part 36 offers can be made on appeals. 3.6 It should be noted that a Part 36 offer only has the costs consequences in the initial proceedings and not in the appeal proceedings (CPR 36.4(1)). Therefore if the detailed assessment proceedings are to be appealed a new Part 36 offer should be made as an existing one will not carry with it the Part 36 costs consequences. 3.7 Whilst CPR 36.5 which deals with the form and contents of the Part 36 offer makes no substantive changes it is important to be reminded of the requirements of a Part 36 offer. It must: (a) be in writing; (b) make clear that it is made pursuant to Part 36; (c) specify a period of not less than 21 days within which the defendant will be liable for the claimant s costs in accordance with rule or if the offer is accepted; 1 (note there is an error in the commentary in the White Book (including the new 2015 edition) at which refers to a Part 36 offer not being accepted after the commencement of the detailed assessment proceedings it should read hearing )

5 (d) state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue; and (e) state whether it takes into account any counterclaim. 3.8 In detailed assessment proceedings PD47 paragraph 19 provides: Where an offer to settle is made, whether under Part 36 or otherwise, it should specify whether or not it is intended to be inclusive of the cost of preparation of the bill, interest and VAT. Unless the offer states otherwise it will be treated as being inclusive of these. 3.9 So far as detailed assessment proceedings are concerned a Part 36 offer could be made in relation to an issue or presumably part of the bill. Whilst there will not be a counterclaim as such in detailed assessment proceedings the costs judge could be dealing with an order for costs in favour of the claimant on the claim and in favour of the defendant on the counterclaim It is sufficient to make clear that [the offer] is made pursuant to Part 36 (CPR 36.5(1)(b)) rather than having to state within the offer that it is intended to have the consequences of Section I of Part 36 (old 36.2(2)(b)) It will be noted that the Part 36 offer must set out the costs consequences of accepting the offer whether pursuant to CPR or CPR Those costs consequences will depend on when the offer is made and whether it is in respect of all or only part of the claim CPR 36.7 makes clear that a Part 36 offer can be made at any time so that would include before any detailed assessment proceedings are commenced If a party makes a second improved Part 36 offer that will not be treated as withdrawing the original offer which may therefore still be relied on subsequently when it comes to dealing with costs (CPR 36.9(5)). A Part 36 offer can be withdrawn by giving written notice of the same as previously. However one can now have an offer which is automatically withdrawn in accordance with its own terms so it could lapse after a certain period of time or in the event of particular circumstances or events, provided that was not before 21 days (CPR 36.9(4)(b)). As Part 36 offers remain open for acceptance until withdrawn there could now arise disputes as to whether the terms of the offer itself provided for its automatic withdrawal and whether the same had therefore been withdrawn in accordance with the terms of the offer CPR 36.11(3)(d) makes clear that a Part 36 offer can only be accepted once the trial is in progress with the permission of the Court. The Court s permission will therefore be required to accept a Part 36 Offer if the detailed assessment hearing is in progress. It is not unusual to have a detailed assessment hearing divided into points of principle and thereafter the remainder of the issues. Often there will be a time gap between those 2 stages yet the detailed assessment

6 will be in progress throughout the period and therefore the court s permission to accept will be required. 4. Acceptance of a Part 36 Offer 4.1 One change is that there is now express reference to the receiving party (the claimant) being entitled to the costs of the proceedings including their recoverable pre-action costs. (CPR 36.13(1)). Another is that where the claimant or in a detailed assessment the receiving party accepts a Part 36 offer out of time it is now expressly stated that the court must order the offeree to pay the offeror s costs for the period from the date of the expiry of the relevant period to the date of acceptance (CPR 36.13(5). 4.2 If a Part 36 offer is accepted but the sum is not paid within 14 days then the receiving party can enter judgment for the unpaid sum (CPR 36.14(7)). There is no suggestion that the receiving party can return to the original position. It would not appear that the making of a Part 36 offer would in the normal course of events involve making an implied undertaking that the offeror is in a position to pay the sum offered. If it is not paid then the offeree can enter judgment and enforce in the normal way. 5. Beating a Part 36 Offer 5.1 It is the consequences of beating a Part 36 offer and in particular the receiving party beating its own Part 36 offer that can provide substantial additional benefits to the receiving party. Costs consequences following judgment are set out in CPR Costs consequences following judgment (1) Subject to rule 36.21, this rule applies where upon judgment being entered (a) a claimant fails to obtain a judgment more advantageous than a defendant s Part 36 offer; or (b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant s Part 36 offer. (2) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, more advantageous means better in money terms by any amount, however small, and at least as advantageous shall be construed accordingly.

7 (3) Subject to paragraphs (7) and (8), where paragraph (1)(a) applies, the court must, unless it considers it unjust to do so, order that the defendant is entitled to (a) costs (including any recoverable pre-action costs) from the date on which the relevant period expired; and (b) interest on those costs. (4) Subject to paragraph (7), where paragraph (1)(b) applies, the court must, unless it considers it unjust to do so, order that the claimant is entitled to (a)interest on the whole or part of any sum of money (excluding interest) 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)provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed 75,000, calculated by applying the prescribed percentage set out below to an amount which is (i)the sum awarded to the claimant by the court; or Amount awarded by the court Prescribed percentage Up to 500,000 10% of the amount awarded Above 500,000 10% of the first 500,000 and (subject to the limit of 75,000) 5% of any amount above that figure. (5) In considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4), the court must take into account all the circumstances of the case including (a) the terms of any Part 36 offer;

8 (b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made; (c) the information available to the parties at the time when the Part 36 offer was made; (d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and (e) whether the offer was a genuine attempt to settle the proceedings. (6) Where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest must not exceed 10% above base rate. (7) Paragraphs (3) and (4) do not apply to a Part 36 offer (a) which has been withdrawn; (b) which has been changed so that its terms are less advantageous to the offeree where the offeree has beaten the less advantageous offer; (c) made less than 21 days before trial, unless the court has abridged the relevant period. (Rule 44.2 requires the court to consider an offer to settle that does not have the costs consequences set out in this Section in deciding what order to make about costs.) 5.2 For the receiving party on a detailed assessment there is therefore the opportunity to recover indemnity costs, enhanced interest and a bonus payment up to 75,000! As the additional amount is calculated by reference to the amount awarded that will be 10% of the first 500,000 including disbursements and VAT (but probably not interest see Watchorn v Jupiter Industries Ltd [2014] EWHC 3003 (Ch) HHJ Purle QC). 5.3 As the costs are likely to be subject already to interest at the judgment rate of 8% the enhanced rate has to take that into account so as base rate is.5% the receiving party may only receive an additional 2.5%. 5.4 The advantages of a Part 36 offer to a paying party are simply an entitlement to costs from the expiry of the relevant period and interest on those costs. The costs will only be on a standard basis. 5.5 An important change to Part 36 in the context of costs budgeting is CPR36.23 which applies where the offeror is treated as having filed a costs budget limited to applicable court fees. If the offeror then does better than the offer that he made then notwithstanding that pursuant to

9 CPR3.14 his costs budget is limited to applicable court fees he will be able to recover 50% of his assessed costs. This raises the possibility of having to consider the budget of a party who is restricted to court fees in case in due course they do better than any Part 36 offer they have made. The thinking was presumably to counter the fact that not accepting the Part 36 offer did not have such adverse consequences if the offeror s recoverable costs were never going to be more than court fees. However it does raise the question whether there is a need to costs budget the costs of a party who failed to file a budget! 5.6 For the litigators the importance of a claimant beating its own Part 36 offer is very significant when it comes to costs because the award of indemnity costs may (there is a debate and it is being dealt with in one of the other sessions) mean that the costs are not then assessed with reference to the approved budget. For the two judicial views on the point see Coulson J in Elvanite Full Circle Ltd v AMEC Earth & Environment (UK) Ltd and HHJ Keyser obiter in Kellie v Wheatley & Lloyd Architects Ltd. 6. What is a Genuine Attempt? 6.1 A new factor that a court must take in to account in considering whether it would be unjust for the usual Part 36 consequences to apply is whether the offer was a genuine attempt to settle the proceedings. 6.2 In detailed assessment proceedings it is difficult to envisage a Part 36 offer that would otherwise have the normal Part 36 consequences being found not to have been a genuine attempt to settle the matter. The suggestion from some members of the judiciary is that a very high offer is not really a serious offer what has been referred to as a cynical Claimant s offer. However if a receiving party made a Part 36 offer that was only 10 less than the total of its bill and bettered that offer on detailed assessment why shouldn t the normal Part 36 consequences follow? Why should the receiving party have offered to settle for less when in fact it was entitled to more? If the receiving party fails to beat the paying party s Part 36 offer how could it ever possibly be said that the paying party s offer was not a genuine one? 7. Part 36 offers and provisional assessments 7.1 As PD (d) requires Part 36 offers to be filed at the same time as the request for the detailed assessment hearing in a matter subject to provisional assessment there appears to be little doubt that Part 36 applies to provisional assessments (although this has come as a surprise to the occasional District Judge!).

10 7.2 What then are the consequences if the costs awarded on the provisional assessment are greater than the receiving party s Part 36 offer? CPR 47.15(6) provides that on a provisional assessment the most that the court will award as costs of the assessment (other than the costs of drafting the bill of costs) is 1,500 together with any VAT thereon and any court fees paid by that party. Whilst that may be the maximum that can be awarded by way of costs the receiving party should still be entitled to enhanced interest and the additional amount being 10% of the sum provisionally assessed. Indemnity costs can still be awarded but subject to the maximum of 1,500 plus VAT. 7.3 It will be noted that the 10% sum is referred to in CPR36.14(3)(d) is referred to as an additional amount to which the receiving party is entitled. It does not refer to this additional amount as costs. It does not therefore appear to be caught by the 1,500 limit on costs. 7.4 CPR 47.15(6) refers to the costs of the assessment. If one has to issue a Part 8 costs only claim which is then subject to a provisional assessment are the costs of the Part 8 proceedings included within the costs of the assessment or are they in addition to the costs of the assessment and therefore recoverable in addition to the sum of 1,500 recoverable as the costs of the assessment? It would appear that there are a number of inconsistent decisions on the point but some support for allowing the Part 8 costs in addition that can be found in Tasleem v Beverley [2013] EWCA Civ 1805 where the issue before the Court of Appeal was: whether the court can award a claimant its costs of what are known as costs-only proceedings brought under CPR Part 8 in accordance with the procedure set out in CPR rule 44.12A where a default costs certificate has been obtained, as the claimants contend; or is a claimant in those circumstances limited to the amount of the costs specified in the default costs certificate, as the respondents contend? Is the default costs certificate the end of the matter, in other words. The Court of Appeal concluded that the fixed costs for obtaining a default costs certificate did not include the costs of issuing Part 8 proceedings and such costs were in the discretion of the court 2. Sharp LJ giving the judgment of the court said: The bringing of Part 8 costs-only proceedings is not the commencement of, or part of, the detailed assessment proceedings, albeit it is a necessary preliminary to that process if there are no underlying proceedings in existence. This is because detailed assessment proceedings are distinct from the proceedings whether under Part 7 or Part 8 which have given rise to the costs order: see CPR r 47.6(1). 2 As Roger Mallalieu was the successful counsel in Tasleem you can ask him about it later or you can read Simon Gibbs criticisms of the decisions and consequences of the same on the GWS blog!

11 8. Disadvantages of Part 36 offers 8.1 A paying party who makes a Part 36 Offer will be liable to pay the receiving party s costs. The new CPR 36.13(1) makes clear that this includes recoverable pre-action costs so a Part 36 offer made by a paying party before the commencement of the detailed assessment proceedings will not mean that there are no further costs payable if steps have been taken in relation to the proposed detailed assessment although the Part 36 offer will, unless otherwise stated, be presumed to include the cost of preparing the bill. That change may make predetailed assessment proceedings part 36 offers more attractive to paying parties than previously where there was the risk of being liable for the costs of the preparation of the formal bill, which might not yet have been served, in addition to the sum offered. 8.2 As the receiving party has 21 days in which to accept the Part 36 offer and is entitled to its costs up to that time it is quite possible that significant costs could be incurred by the receiving party in that 21 days period. For example the receiving party may be preparing its replies to the points of dispute indeed a Part 36 offer made at the same time as the Points of Dispute will always run that risk as the replies have to be served within 21 days of the points of dispute. 8.3 The problem therefore for a paying party in making a Part 36 offer is that there remains uncertainty as to how much the client is going to have to pay because it is not known what pre or post action costs the receiving party may be entitled to. 8.4 A paying party may therefore prefer to make a Calderbank or without prejudice save as to costs offer in relation to pre-commencement in order to save their clients the additional unknown costs that flow automatically from the acceptance of a Part 36 offer. Indeed Calderbank offers inclusive of costs have the advantage throughout the proceedings of providing the paying party client with certainty but the offer will obviously have to be accepted. The Calderbank offer will not carry with it the automatic consequences that a Part 36 offer carries in the event that it is not beaten by the receiving party but it will still be taken into account by the court in the exercise of the discretion as to the costs of the detailed assessment proceedings (see the important recent decision of the Court of Appeal in relation to Part 36 offers and Calderbank offers in the substantive proceedings in Coward v Phaestos [2014] EWCA Civ 125 where the combined costs were in the order of 19m!). 8.5 Tactically Part 36 offers should be the preferred route for receiving parties but for paying parties a Calderbank all inclusive offer is normally preferable. It is essential that the offer makes clear that it is without prejudice save as to the costs of the detailed assessment. It should also make clear what is included in the offer - it should normally include interest, the costs of the preparation of the bill and the costs of the detailed assessment proceedings (assuming they

12 have commenced) and in the event that there were also Part 8 costs only proceedings, the Part 8 proceedings. 8.6 If the parties proceed to the provisional assessment then although a dissatisfied party can subsequently request an oral hearing it is likely that the requesting party improves its position by 20% or more that it will have to pay the costs of the oral hearing (CPR 47.15(10)). 9. Open offers 9.1 PD 47 paragraph 8.3 provides: The paying party must state in an open letter accompanying the points of dispute what sum, if any, that party offers to pay in settlement of the total costs claimed. The paying party may also make an offer under Part A paying party can simply calculate the effect of it succeeding on all of its Points of Dispute and make an open offer in that sum. There is no express sanction for failing to make an open offer and there will be cases where the open offer might be nothing. 9.3 Open offers in litigation generally can on rare occasions put pressure on the other side to consider the same carefully as the judge will know what is being rejected but in the context of detailed assessment proceedings the receiving party s Part 36 offer and the paying party s Calderbank offer are far more likely to lead to a settlement. PJ Kirby QC Hardwicke 15 April 2015 Contact us PJ Kirby QC (0) pj.kirby@hardwicke.co.uk Practice Management Team Paul Adams (Senior Practice Manager) paul.adams@hardwicke.co.uk Richard Sumarno (Practice Manager) richard.sumarno@hardwicke.co.uk Rhian Hiscocks (Assistant Practice Manager) rhian.hiscocks@hardwicke.co.uk