Part 36 offers in costs proceedings

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Now that we are some 9 months into the new costs regime, we are seeing a number of issues arising from the implementation of the rules.

The introduction of Part 36 offers into detailed assessment has raised an issue in relation to offers made in cases that settled pre issue.

We have received a number of Part 36 offers from paying party's that have been accepted and where they have then refused to pay costs of the assessment on the basis that detailed assessment had not been commenced.

In our view, the position is no different than that of a settlement in a pre issue case in the main action. The Claimant is entitled to their costs of dealing with that issue up to the date of acceptance of the Part 36 offer(as long as the acceptance is in time).

In the case of Solomon v Cromwell Group[2011] EWCA Civ 1584, the Court of Appeal confirmed that:

"It is quite true that the word "proceedings" normally refers to proceedings already pending and Part 36 as a whole is primarily directed to that situation. In that context the extension of the Rules to enable Part 36 offers to be made before proceedings have been started might be considered to be somewhat anomalous, but the terms of Part 36 as a whole make it quite clear, in my view, that steps taken in contemplation of proceedings are to be regarded as "proceedings" for the purpose of rule 36.10(1). That is the natural meaning of the language used and if it were not so the rules would be silent on the consequences of accepting a Part 36 offer made before proceedings had been issued. I think it unlikely that the Rule Committee simply overlooked that. It is far more likely that it intended the word "proceedings" in rule 36.10(1) to be construed in the way I have indicated. I am fortified in that conclusion by the fact that a similarly broad approach to the construction of the word "proceedings" was taken, albeit in another context, in Crosbie v Munro [2003] EWCA Civ 350, [2003] 2 All E.R. 856, paragraphs 26-33, citing Callery v Gray (No.1) [2001] EWCA 1117, [2001] 1 W.L.R. 2112. The effect of accepting a Part 36 offer made before a claim has been issued, therefore, is that the claimant is entitled to recover costs he has incurred in contemplation of the proceedings up to the date of acceptance insofar as they would have formed part of his recoverable costs if proceedings had already been issued".

Whilst this judgment related the effect of acceptance of a Part 36 offer in the main action, there is nothing within the new rules that suggests that Part 36 offers in detailed assessment proceedings should be treated any differently.

Therefore, if a Part 36 offer is accepted in time, the effect is that the Claimant is entitled to their costs of assessment even before a formal bill of costs has been served.

If a party makes an offer of settlement by way of Part 36 in an attempt to protect their client's position then they have to be prepared for the consequences of that offer being accepted.

It is telling that many of the more established and knowledgeable Defendant firms are making their pre-issue offers on a Calderbank or without prejudice save as to costs of assessment basis. Doing so means that they can make their offers on a fully inclusive basis, avoiding the liability for payment of assessment costs in addition.

If you are acting for the Defendant and you are considering making a Part 36 offer in settlement of costs where proceedings have not been issued, you should bear this in mind and make your offer on a Calderback or without prejudice save as to costs of assessment basis if you wish to avoid liability for costs of assessment.

If you are acting for the Claimant, make sure you claim your assessment costs when settling on a Part 36 basis.