English Court Litigation: Can You Still Benefit From Costs Protection If You Withdraw Your Part 36 Offer To Settle?

• Published date: 02 October 2020
• Subject Matter: Litigation, Mediation & Arbitration, Court Procedure, Trials & Appeals & Compensation
• Law Firm: Mayer Brown
• Author: Ms Susan Rosser and Craig Holburd

One of the tools used by the English court to encourage parties to settle a dispute without going to trial is to impose costs consequences on a party who rejects an offer to settle which they later fail to beat at trial.

Part 36 of the English Civil Procedure Rules contains strict rules on how such offers must be made in order to obtain the benefit of costs consequences against the other party. These include that the offer must be left open for acceptance; once withdrawn, Part 36 makes it clear that its automatic cost consequences no longer apply.

But to what extent can the Court use its discretion to apply costs consequences in respect of a withdrawn Part 36 offer which the offeree fails to beat at trial or which the Court considers it should have accepted? A recent case contains important guidance on how this question will be approached by the courts.

In Blackpool Borough Council v Volkerfitzpatrick Limited [2020] EWHC 2128 (TCC), the High Court considered the costs consequences of an 'extremely well judged' Part 36 offer once it had been withdrawn by the defendant (who later went on to be unsuccessful at trial). Although Part 36 makes it clear that its automatic cost consequences do not apply where an offer is withdrawn by the offeror, the court still has discretion to consider that offer when making its final assessment on costs.

In this case, the High Court exercised its discretion to make a costs order favourable to the defendant, similar to that which it would have been bound to make if the Part 36 offer had not been withdrawn. However, as the judgment acknowledges, each case will turn on its own facts, including on the 'crucial question' of whether 'the offeree acted reasonably or unreasonably in failing to accept the offer while it was on the table'. The case contains important guidance on how this question will be approached by the courts.

The Facts

The claimant contracted with the defendant for the construction of a new tram depot. The claimant subsequently brought proceedings on grounds that, as designed and constructed, parts of the tram depot did not meet their intended design life and nor were they suitable for the exposed coastal environment where the tram depot was located. The claimant claimed '6,698,736.45 in damages accounting for the cost of the required remedial works.

In August 2019 the defendant made a Part 36 offer of '750,000 in respect of certain items referenced in the claimant's claim. This offer was not accepted by the...