In a multi million pound breach of contract case, where there was no substantive defence to the claim and the Defendant accepted summary judgment and liability for the Claimant’s costs, the High Court held that a Claimant’s Part 36 offer to accept only 0.3% less than the full sum being claimed was a “genuine offer to settle” under CPR 36.17(5)(e).
Bank’s £48 million claim for breach of contract and misrepresentation
The underlying claim was for breach of contract and misrepresentation brought by a bank in the Democratic Republic of Congo, Rawbank S.A against Travelex Banknotes Ltd for their failure to supply the bank with an order of $60million (approximately £48 million) of banknotes.
The Defendant allegedly said they would not refund the bank because they were facing financial difficulties following the global pandemic and could not deliver the banknotes because of travel restrictions brought in as a result of COVID-19.
What is a Part 36 offer?
Where a Claimant obtains a judgment that is at least as advantageous as the Part 36 offer, the court must award it the costs consequences set out in CPR 36.17(4). If a party fails to accept a realistic offer made from the other side there is a risk of penalised costs and interest at the end of the case, therefore a legitimate offer is advised which puts the other side under pressure to settle.
Claimant’s part 36 offer to settle proceedings
On 4 May 2020, Rawbank issued their claim for the sum of $60,072,000 equivalent to £48,311,860 sterling plus interest and on the same day, it made a part 36 offer for the sum of £48,290,000.
On 18 May 2020, the Claimant applied for summary judgment against the Defendant. The Defendant indicated it would be defending the claim when filing an Acknowledgment of Service however failed to serve a Defence.
As at 25 May 2020 (the end of the ‘relevant period’ of 21 days after the Part 36 offer was made), the amount of the claim including interest was £48,448,059 therefore the discount offered under the part 36 offer was approximately £158,059 which represented 0.3% of the claim.
On 15 June 2020, the Defendant agreed to summary judgment and accepted liability for the Claimant’s costs of the claim and the summary judgment application, however argued against the application of the costs consequences in CPR 36.17(4) because the offer was not a ‘genuine offer to settle’.
What happens if the Defendant accepts the Claimant’s Part 36 offer ?
When a Claimant makes a Part 36 offer and the Defendant accepts the offer within the ‘relevant period’ (21 days), the Defendant will then have to pay the settlement sum (usually within 14 days of acceptance) and the Claimant’s legal costs to be agreed or assessed on a standard basis up to the date of acceptance. This means that the court will resolve any doubt which it may have as to the costs whether or not they are reasonable or proportionate.
If the Defendant accepts the offer after the expiry of the relevant period and if the parties cannot agree on liability for costs, then the court will make an order for costs. A usual costs order will be for the Defendant to pay the Claimant’s legal costs up to the date of the acceptance.
What happens if the Defendant rejects the Claimant’s Part 36 offer?
If the Defendant rejects the Claimant’s offer and the claim proceeds to trial, the offer will not be disclosed to the Judge until the case has been decided. If the Claimant obtains a judgment that is not as advantageous than the Part 36 offer, then the Court will make a costs order.
If the Claimant obtains a judgment that is equal to or better than the Part 36 offer unless it is unjust to do so, the court may order the Defendant to pay the following:
- interest of up to 10% above base rate on the whole or a part of any reward from the date on which the relevant period expired.
- the Claimant’s legal costs on a “indemnity basis” which is the assessment of the costs incurred after the expiry of the relevant period.
- An additional amount of 10% of the damages awarded for awards up to £500,000. but for awards above £500,000 then the additional amount would be 10% of the first £500,000 and then a 5% of any damages awarded above the figure up to an overall limit of £75,000.
The additional amount payable by the Defendant serves as a penalty for the Defendant not accepting a Part 36 offer which would have settled the claim earlier and on more generous terms.
Costs consequences of acceptance of Bank’s “genuine” part 36
It has been a longstanding principle that in considering any costs order, the Court will take into account whether the offer was a “genuine attempt to settle the proceedings” (CPR 36.17(5)(e)) i.e. there should be a genuine element of concession.
In this case, the Defendant submitted that the part 36 offer was not a genuine offer to settle but a “tactical move designed solely to engage the part 36 enhanced payments”.
The Judge held that:
- There was no issue as to the quantum of the claim, so that there were only two possible outcomes: success (in which case the sum of $60,072,000 would be payable) or failure (in which case nothing would be payable).
- Based on the witness evidence filed by the Defendant (as no Defence was filed), there was clearly no defence to the claim. From Rawbank’s perspective, therefore, there was no realistic possibility of failure.
Where a claimant has near-certain chances of success, “an offer to settle on the basis that the claimant foregoes an amount equal to interest or costs is still capable of being characterised as a genuine offer of settlement”.
Following this conclusion, the Judge however did not apply all of the usual consequences that follow from beating an offer, set out in CPR 36.17(4), due to the financial difficulties faced by the Defendant and its inability to pay therefore it would be unjust to do so.
The Judge determined it was not unreasonable to order indemnity costs from the expiry of the relevant period of the part 36 offer and interest on the principal sum (and not on costs).
Read the full judgment for Rawbank S.A. v Travelex Banknotes Ltd  EWHC 1619 (Ch).
When can a Part 36 offer be made?
Part 36 offers can be made before court proceedings are issued. However Part 36 do not apply to claims that are small claims track (claims that are less than £10,000).
The aforementioned costs consequences to not apply to offers made less than 21 days before trial unless the Court permits for the relevant period to be shortened.
If you are commencing or engaged in current litigation and require advice on settlement or making a part 36 offer, our specialist litigation and costs lawyers can assist.
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We ensure that we provide the best possible outcome for our clients by conducting in depth investigation and research into the realistic prospects of a case before selecting the appropriate course of action in order to reduce time and expense. Liability for costs is always an issue in litigation and based on our extensive litigation experience we provide our clients with as much strategic, practical as well as carefully considered legal advice in order to ensure minimum risk in respect of costs. Where appropriate we encourage the use of alternative dispute resolution (such as mediation and without prejudice negotiation) and our lawyers’ negotiation skills are first class. If early settlement at advantageous terms is not possible, we are extremely experienced and capable at navigating our clients through the litigation process.
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