Consequences of Rejecting a Part 36 Offer and Withdrawal of an Offer
Blackpool Borough Council v VolkerFitzpatrick Limited & Ors
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There are a number of consequences that may arise on rejecting a Part 36 Offer. However, if choosing to conclude a matter, accepting a Part 36 Offer can have significant benefits.
If accepted within the relevant time period, costs will be awarded to be assessed on the standard basis, up to the date of acceptance of the Part 36 Offer. Part 36 Offers need to be given by way of written notice and allow atleast 21 days for acceptance. When the offer is accepted, payments as per the terms of the offer need to be made within 14 days.
Should a Part 36 Offer be accepted at any time after the relevant period, there is likely to be additional costs consequences. Similarly, the costs consequences of rejecting the Part 36 Offer overall, can vary based on the outcome of the trial:
- If the party rejecting the offer obtains a judgment in its favour, above the amount in the Part 36 Offer, costs will be awarded on the indemnity basis, and interest on those costs will also be awarded at 10% above base rate by way of a costs order (this applies to Claimants only, a Defendant will be awarded their costs on a standard basis if they beat their own offer, and from the date of expiry of the same).
- If the party rejecting the offer, obtains a judgment for less than that of the Part 36 offer, they will be required to pay the other parties costs.
Blackpool Borough Council v Volker Fitzpatrick Limited & Ors  EWHC 1523 (TCC)
The issue of Part 36 costs was raised in the case of Blackpool Borough Council v Volker Fitzpatrick. In this case, Blackpool Borough Council instructed VFL to build a tram depot under a building contract. The project was complete in 2011, but in 2015, a section of the roof became detached due to high wind.
The Council issued a claim against VFL for not meeting design requirements. At Trial, the Court ruled in favour of Blackpool Council, but only awarded 16% of the £6.7 million they sought (circa. £1 million). A hearing was then heard in July 2020 to deal with a number of matters, including costs.
When assessing the issue of costs liabilities, a Part 36 Offer made by VFL, over six months before Trial played a role in the assessment. The offer was for £750,000. The offer included a number of items of work in which Blackpool Council sought a remedy. For the same items covered in the offer, a sum of £631,000 was awarded at Trial to Blackpool Council.
The Judge held the following to trial:
“I do not think it unfair to conclude, given the many decisions I had to make along the way to reach my individual awards for these items, that the defendant’s solicitors could not possibly have anticipated my decision on each of those issues so as to reach their offer figure by the same or even a similar approach. Instead, the offer must have been made on the basis of a broad-brush gut instinct which proved to be an extremely impressive prediction of the eventual outcome.“
However, the Part 36 Offer had been withdrawn by VFL shortly before the Trial took place. This meant that the automatic costs consequences of failing to beat an offer at Trial could not apply. The Judge needed to therefore consider all of the circumstances of the case before exercising his discretion on costs as per the Civil Procedure Rules Part 44.2.
Withdrawn Part 36 Offer and Costs Liability
The usual rule of thumb in costs is that the successful party to litigation is awarded their costs. The exception to this is, if that party has acted unreasonably or if the unsuccessful party had previously made a Part 36 Offer or a without prejudice save as to costs offer which was not beaten at Trial.
In the case of Blackpool Borough Council v Volker Fitzpatrick Limited & Ors, the Judge held that Blackpool Borough Council were deemed to be the successful party in litigation despite their failure to achieve an amount close to that being pleaded.
Blackpool Council succeeded in most of the claims made and recovered a substantial sum of money, even if it was less than the sum claimed. This is a clear demonstration that the threshold is low for the Claimant to determine that they were the successful party.
The Judge did however, state that Blackpool Council had acted unreasonably in failing to accept the Part 36 Offer whilst it was still capable of acceptance. The Judge held that the following approach should be taken:
- The Court must consider the Claimant’s decision at the time of the offer, putting themselves in the Claimant’s position and not simply judging in hindsight;
- But the focus should remain on the reasonableness of the refusal by considering the facts and matters which are relevant to the merits of the claim, as they were available to the Claimant at the time of the offer.
The Judge held that at the time of the offer, Blackpool Council was in a position of knowing the merits of its case due to the number of investigations carried out during the litigation. Even after collating so much expert evidence, Blackpool Council took a risk by not accepting the offer and proceeding to Trial. For this reason, Blackpool Borough Council were ordered to pay 80% of VFL’s costs incurred from 21 days after service of the Part 36 Offer up until the date of the Court Judgment. In addition, the Claimant was limited in recovering 80% of their own costs up to the date of expiry of the withdrawn Part 36 Offer.
How Can ARC Costs Assist?
ARC Costs can provide specialist legal advice on all matters relating to all costs matters, including those arising as the result of a Part 36 Offer. As specialist Costs Lawyers and Costs Draftsman, we are independent experts in preparing Bills of Costs, conducting detailed assessment proceedings and acting as Legal Costs Negotiators.
We act for both receiving and paying parties, and provide an objective service on either securing you the best costs recovery, or preparing Points of Dispute and achieving you the best costs savings possible.
For more information on legal costs, please find out more about our speciality areas of expertise and our services on our legal costs page. To get in touch, contact us either via live chat, below, via email at firstname.lastname@example.org, or get in touch with one of our costs experts directly by phone on 01204 397302.
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