The High Court has held that a Part 36 offer to accept a discount of 0.3% constituted a "genuine offer to settle", where there was no viable defence.
In proceedings brought by the Claimant (C) against the Defendant (D) for fraud and misrepresentation regarding banknotes paid for but not delivered, C (on the same date as the claim was issued) made a Part 36 offer of £48,290,000 (a discount of 0.3% of the total claim). D rejected C's Part 36 offer because of its inability to pay as a result of circumstances beyond its control leading to its insolvency.
D, whilst initially seeking a stay of proceedings, later consented to judgment being entered against it and accepted that it should pay C's costs of the action. One question for the High Court was whether C's Part 36 offer constituted a "genuine attempt to settle" and whether the consequences set out in CPR 36.17(4) should apply in respect of interest and costs.
The High Court held that the offer of 0.3% less than the total claim was C's genuine attempt to settle and that it would not be unjust to require D to pay C's costs on an indemnity basis and interest on the principal sum owed at the Judgments Act rate (8%).
KEY LEGAL POINTS
Where a claimant obtains a judgment that is at least as advantageous as its Part 36 offer, the court will generally award it the costs consequences set out in CPR 36.17(4) unless it is unjust to do so. These are:
- an order for indemnity costs;
- enhanced interest on the judgment and costs; and
- an additional amount of up to £75,000 calculated as a percentage of the judgment sum.
CPR 36.17(5) also sets out factors that the court must consider when deciding if it would be “unjust” to require payment, including whether an offer was a “genuine attempt to settle the proceedings”.
In making his decision, Zacaroli J said that in determining this question, the critical question was not "mathematical", but whether it could be inferred that there was no genuine attempt to settle. Here, the discount involved C giving up what it had a "near-certainty of obtaining". D's inability to pay was taken into account, but it was held that this on its own did not mean there was no genuine attempt to settle, especially if C believed that D could pay.
D's inability to pay was taken into account in deciding whether it would be unjust to require payment of the amounts in CPR 36.17(4). The High Court held that it would be unjust to order "at least some" of the CPR 36.17(4) amounts, but not to require D to pay C's costs on an indemnity basis and interest on the principal sum owed at the Judgments Act rate (8%). This is because D could have agreed to judgment being entered against it earlier rather than seeking a stay.
This is a claim arising out of the Covid-19 pandemic. Although this is an extreme example, with the court holding that a Part 36 offer of 99.7% was valid, it is important to note that the court has a discretion under the Rules: each case will be determined on its facts. A high percentage offer by C, therefore, may not always be effective under Part 36. But the decision does suggest that where there is no viable defence, an offer may be valid if D is only looking to delay judgment against it.