Part 36 offers – negotiations and the importance of an open mind to settlement discussions

The recent case of Shah & Anor v Shah & Anor concerns a dispute which demonstrates the dangers of parties failing to pay significant regard to settlement offers or pursuing a 'day in Court' at, in this case, significant expense.

A Part 36 offer is a powerful negotiation tool often used by parties that can have significant costs implications on a party if that party rejects an offer to settle but fails to beat the offer at trial. Part 36 offers are only open for a limited period of time and a party risks having further costs sanctions imposed on them as well as paying interest if they fail to beat the Part 36 offer at trial.

In brief, the facts of Shah & Anor v Shah & Anor are as follows:

1. The Claimant sought damages from the Defendants in the region of £30,000.00.
2. Before trial a Part 36 offer was made by the Claimants in the sum of £1.00 in full and final settlement of the claim which, if accepted by the Defendants, would also result in the Defendants paying the Claimants' costs.
3. At trial, the Judge found in favour of the Claimants and awarded them £10.00 damages meaning the Claimants had beaten their offer put to the Defendants of £1.00. As such the Defendants were ordered by the trial Judge to pay the costs of the Claimants in the region of £200,000 along with the other usual costs penalties against the Defendants for their failure to accept such an offer.
4. The Defendants sought to claim that they should not be subject to the costs consequences of a Part 36 offer on the basis they believed that the offer of £1.00 was not a genuine attempt to settle this matter.
5. The appeal Judge however did not overturn the decision of the trial Judge on the basis that whilst it was acknowledged that the rules governing Part 36 offers can be 'sometimes harsh, even brutal' they should still be applied.

The above decision demonstrates the importance of considering all offers of settlement advanced or received by a party to litigation, and the consequences that can be faced by parties in not accepting a reasonable Part 36 offer.

Had the Defendants accepted the Part 36 offer made by the Claimants, the proceedings would have concluded earlier, avoiding such an escalation of costs and they would have also avoided paying the penalties imposed for failing to accept what the Court deemed a reasonable opportunity to settle.

This decision shows how a party's desire to proceed with a matter to trial, when an offer to settle is made, can have dramatic consequences for either party, later, at trial. It also demonstrates how important it is that pragmatic, commercially and tactically aware advice is received by parties to litigation in order to bring focus back to the unemotive analysis of the procedure.

If you would like additional information on the content of this article, please do not hesitate to contact the Litigation Department, by telephone on 01922 720333 or via email sjn@enoch-evans.co.uk.