Part 36 is a provision in the Civil Procedure Rules that allows a party in litigation to make a settlement offer before trial on terms that if the offer is not accepted and the opposing party fails to beat that offer at trial then the Court is likely to impose severe costs and/or interest penalties. Part 36 Offers are made on a “without prejudice” basis and the Court is not made aware of that offer until after it has given judgement but before it has made an Order in relation to who should pay for the cost of the proceedings.
Part 36 Offers are designed to encourage parties to settle without going to trial and if used wisely, they can be a potent negotiating tool. Making a Part 36 Offer should not be seen as a sign of weakness but instead as an appropriate means of putting pressure on an opponent to settle the dispute.
The article headed “Marathon Receives Buttons” published in this publication recently referred to the case of Marathon Asset Management LLP v Seddon & Bridgeman. In that case, Marathon pursued a claim against Mr Seddon and Mr Bridgeman, two former employees, for taking confidential information belonging to Marathon before they left the company. Marathon sought damages of £15m against their former employees. However, the Court only awarded Marathon nominal damages of £1 against each Defendant as they had not used the information that they had taken and, in any event, Marathon had suffered no financial loss as a result of that.
The matter subsequently went back to Court for the Judge to deal with the issue of costs. Usually, the successful party in the litigation is awarded his costs of that litigation. However, even though Marathon had technically “won” (as it was awarded damages against the Defendants), the Judge ordered Marathon to pay the majority of the Defendants’ costs following the revelation that Marathon had failed to accept a Part 36 Offer made by the Defendants during the proceedings. After the trial, it was revealed that the Defendants had made a £1.5m Part 36 Offer to Marathon but that offer had been rejected.
As Marathon had failed to beat that offer (as it was only awarded damages of £2) the Judge considered the Part 36 Offer to be a “game changer” in terms of deciding whether Marathon should be entitled to its costs. Instead he ruled that Marathon should pay the Defendants’ costs from the date when the Part 36 Offer was rejected by Marathon. In the words of the Judge: “the offer made by the Defendants should have rendered that dispute entirely academic… the costs consequences should be visited on parties in Marathon’s position who, instead of taking a realistic attitude, open their mouths too wide”.
This case should act as a stark warning to litigants to consider Part 36 Offers carefully and to accept any which are sensible instead of continuing to litigate.