Court of Appeal clarifies the position on costs consequences arising from the acceptance of pre-action Part 36 offers
3 Jan 2012
As part of the regime for encouraging settlement of disputes by compromise and without incurring large legal costs, Part 36 of the Civil Procedure Rules (CPR) provides a mechanism for parties to a dispute to make an offer to settle in a stylised form.
In broad terms, a Part 36 offer provides protection for the maker of it in respect of future legal costs in the event that the terms of the Part 36 offer are not equalled or bettered from the opponent’s perspective by the result at trial.
CPR 36 provides that offers can be made at any time, including before the commencement of proceedings;
CPR 36.10 provides that when an offer is accepted the claimant will be entitled to “the costs of the proceedings” up to the date on which notice of acceptance was served on the offeror.
The question arose “What happens if a party makes a Part 36 offer which is accepted in circumstances where proceedings have not been and will not be issued?”
Until recently there was uncertainty as to whether action taken before the issue of any proceedings could amount to taking steps in such proceedings and therefore be items of recoverable costs in such circumstances.
In a Court of Appeal decision in the case of Solomon v Cromwell Group plc and Oliver v Doughty [2011] EWCA Civ 1584, reported on 19th December 2011, the Court has clarified that the reference in CPR 36.10 to “costs of the proceedings” includes costs incurred in contemplation of the proceedings up to the date of acceptance of the Part 36 offer insofar as they would have formed part of the recoverable costs if proceedings had already been issued.
Please view the full transcript here.
In the absence of agreement as to the amount of costs payable, such costs will now generally fall to be assessed in costs only proceedings on the standard basis under CPR Part 44.12.
The Court of Appeal also recognised that parties are generally free to agree such terms as to costs they may wish in a settlement agreement.
The decision serves to reinforce the view that the wording of Part 36 offers and acceptances should be carefully considered if unwanted consequences are to be avoided. Lord Justice Moore Bick in his judgment himself remarked “All this only goes to show, however, that parties should do their best to avoid any ambiguity about costs when making offers to settle ”.
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