The In-House Lawyer

Lessons on Part 36 offers following recent case law

E-mail Print PDF

James Robins (left) and Justin Tivey (right) discuss recent decisions in the Court of Appeal that have highlighted the need to keep Part 36 offers under review and clarified how courts will assess the impact of settlement offers post-judgment

In April we reported on how Francis Whistance v Valgrove Ltd [2009] and Gibbon v Manchester City Council [2010] had seen courts of first instance (CFI) steer away from standard contractual principles when assessing the status of Part 36 offers under the Civil Procedure Rules (CPR) (see p59, IHL179). In both Whistance and Gibbon, offers that had previously been rejected or superseded by later offers were held to still be valid and acceptable by the other party, with unforeseen and unwanted results for the offering party.

The Court of Appeal has now considered these findings in the jointly heard appeals of Gibbon and L G Blower Ltd v Reeves [2009]. Careful management of offers is required to prevent potentially unwanted results as negotiations proceed, especially where negotiations involve offers made under both CPR and common law regimes. In Blower the Court of Appeal also sought to re-examine the much-criticised approach to the assessment of costs taken in Carver v BAA plc [2008].

The decision in Blower, and other recent decisions in Midland Packaging Ltd & ors v HW Chartered Accountants (a firm) [2010] and Kunaka v Barclays Bank plc [2010], have also considered how courts will look at the parties’ Part 36 offers and conduct during negotiations when making orders as to costs.

Relevant CPR provisions

The relevant parts of the CPR are as follows:

‘36.3(5): Before the expiry of the relevant period, a Part 36 offer may be withdrawn or its terms changed to be less advantageous to the offeree, only if the court gives permission.
36.3(6): After the expiry of the relevant period and provided the offeree has not previously served notice of acceptance, the offeror may withdraw the offer or change its terms to be less advantageous to the offeree, without the permission of the court.
36.3(7): The offeror does so by serving written notice of the withdrawal or change of terms on the offeree.
36.9(1): A Part 36 offer is accepted by serving written notice of acceptance on the offeror.
36.9(2): Subject to rule 36.9(3), a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer), unless the offeror serves notice of withdrawal on the offeree.
36.10(4): Where:
  1. a Part 36 offer is accepted after expiry of the relevant period, but if the parties do not agree the liability for costs, the court will make an order as to costs.
36.10(5): Where paragraph (4)(b) applies, unless the court orders otherwise:
  1. the claimant will be entitled to the costs of the proceedings up to the date on which the relevant period expired; and
  2. the offeree will be liable for the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.
36.14(1) This rule applies where upon judgment being entered:
  1. a claimant fails to obtain a judgment more advantagous than a defendant’s Part 36 offer; or
  2. judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer.
44.3(2) If the court decides to make an order about costs:
  1. the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; or
  2. the court may make a different order.’


Susan Gibbon brought a personal injury claim against Manchester City Council when she tripped and fell in a playground. The council admitted liability and several Part 36 offers and counter-offers between the parties then followed:

  • on 10 November 2008 the council made a Part 36 offer of £1,150, which Gibbon rejected;
  • on 18 November 2008 Gibbon made a Part 36 offer to accept £2,500;
  • on 24 November 2008 the council increased their Part 36 offer to £1,500, which Gibbon rejected; and
  • on 7 January 2009 the council increased their Part 36 offer to £2,500, which Gibbon rejected.

The council then formally accepted Gibbon’s offer made on 18 November 2008, claiming that it was still open for acceptance. Gibbon claimed that the council had impliedly rejected her offer of 18 November by making its offer of 24 November or, alternatively, that in rejecting the council’s offer of 7 January 2009, she had made it clear that a settlement figure of £2,500 was unacceptable and this had impliedly withdrawn her offer.

The CFI held that because Gibbon’s Part 36 offer had not been formally withdrawn as there had been no written notice of withdrawal under CPR 36.3(7), the offer had still been open for acceptance when the council had formally accepted it.

The Court of Appeal have now upheld this decision and clarified that Part 36 of the CPR leaves no room for implied withdrawal or rejection of offers. This contrasts with the approach taken by the CFI in Whistance. The court also set out guidelines as to what a notice of withdrawal should contain. The notice should clearly identify the offer to be withdrawn (by including the date of the offer and a reference to its terms), together with wording making it clear that the offer is withdrawn. The Court of Appeal was keen to highlight the difference in operation between offers made on a Part 36 basis (which are statutory in nature) and those made on a ‘without prejudice’ or ‘without prejudice save as to costs’ basis, which are governed by standard contractual principles and may be impliedly withdrawn or amended.

Gibbon highlights the potential hazards of neglecting to manage the offers that have already been tabled as a matter develops. We shall now consider some practical steps to ensure that Part 36 offers do not cause any nasty surprises further down the line.

Management of Part 36 offers: Best practice

When deciding which offer regime to select, offerors will have already given careful thought to the potential costs consequences of those offers to bring pressure to bear on the offeree to accept. However, it will now also be vital for offerors to give consideration to management of the offers already made as negotiations develop. Should a Part 36 offer become unpalatable to the offeror or be superseded by further offers, offerors must be careful to ensure that any unwanted offer is promptly and properly removed from the table.

Examples of where this may be necessary are in circumstances where new evidence comes to light or where one of the parties makes alterations to their case, rendering previous offers either too high or too low for the offeror’s liking.

A withdrawn Part 36 offer will not necessarily have the same costs consequences when the subject of costs comes to the judge’s attention, although it is still possible for the judge to consider withdrawn offers in relation to costs generally under CPR 44.3 when assessing a party’s approach to a settlement. Therefore offerors must balance the intended costs consequences of an open Part 36 offer with their changing assessment of the claim’s settlement value as the case develops.

Offerors should consider the following guidelines to prevent Part 36 offers from causing any unforeseen shocks:

  1. Review Part 36 offers that have not been formally withdrawn in accordance with Part 36 at each stage of a matter and at the time of any developments that may alter the settlement value of a case. This includes where further negotiations have taken place or other offers have been made in the meantime.
  2. Ensure that any Part 36 offers that are now unacceptable and where the potential costs protection is no longer a factor, are withdrawn formally by written notice to all other parties in the case. This notice should include the date of the offer, a brief summary of its terms and state in unequivocal terms that the offer is no longer open for acceptance pursuant to CPR 36.3(7). It would also be preferable to obtain acknowledgement of withdrawal from the opposing party.
  3. Offerees should also consider issuing formal withdrawal of Part 36 offers when they are replaced by later offers where the potential costs protection of leaving the earlier offer open is no longer relevant.

Offerees may also wish to bear the above rules in mind should the circumstances of a case change so a previously unpalatable offer becomes acceptable. In such circumstances an open offer should be accepted promptly in writing before it can be withdrawn.

The key lessons to be learnt from recent case law are that parties should re-assess all of their open Part 36 offers at each stage of a matter to ensure that they would still be happy for them to be accepted and that anything done in relation to a Part 36 offer, be it withdrawal, alteration or acceptance, must be done in writing. It is also worth noting that Part 36 is silent on the rejection of Part 36 offers. Therefore, even where a Part 36 offer has been rejected but not withdrawn, it will still be open for acceptance later.

What constitutes success:

Carver on the block

In Blower, which was considered alongside Gibbon, the Court of Appeal revisited its decision in Carver, where it decided that success should not only be measured in financial terms when assessing the matter of costs under CPR 36.14.

In Carver the Court of Appeal was asked to consider whether the wording of Part 36 permitted the court to look beyond the purely financial value of a case when assessing whether a party had beaten its opponent’s Part 36 Offer at trial.

The claimant, Lisa Carver, obtained judgment for £4,686.26, which exceeded the defendant’s Part 36 offer, made several years earlier, by some £51. The CFI took a broad view when deciding whether the claimant had beaten the defendant’s Part 36 offer and held that, although the Part 36 offer had been beaten in purely monetary terms, this was not more advantageous to the claimant than the defendant’s offer, given the time that had elapsed since, and the stress and irrecoverable costs to her involved in litigation. The CFI held that the claimant had failed to beat the defendant’s Part 36 offer and ordered that the claimant pay the defendant’s costs from the date of expiry of the offer, making no order as to costs for the prior period. This heavy costs punishment was subsequently affirmed by the Court of Appeal, who approved of the wide approach taken by the judge at the CFI when assessing whether the claimant had beaten the defendant’s Part 36 offer.

This development caused much unease among litigators, who were unsure as to the weight their carefully judged Part 36 offers would now be given when the question of costs arose at trial, especially where the litigation had been particularly long or difficult. This raised prospects of a further ‘trial after the trial’ over costs, where the definition of ‘success’ would become a point as hotly contested as the main points of the case.


Mr and Mrs Reeves (Reeves) engaged L G Blower Specialist Bricklayer Ltd (Blower), a building contractor, to carry out building works to their home. Disputes arose as to the quality of the work and payment of the building contractor. Blower subsequently brought proceedings for unpaid sums in respect of the building works, in which Reeves counterclaimed for breach of contract. A series of offers and counter-offers followed:

  • on 2 February 2007 Blower claimed £15,003.41;
  • on 9 February 2007 Reeves offered to pay £8,023.14, but Blower rejected the offer;
  • on 6 April 2007 Blower served a claim form that was stated to be £15,793.06;
  • on 15 May 2007 Reeves made a Part 36 offer of £8,023.14;
  • on 6 August 2007 Reeves paid the undisputed part of Blower’s bill (£649.36);
  • on 28 August 2007 Reeves made a Part 36 offer of £8,188.38;
  • on 9 November 2007 Reeves made a Part 36 offer of £9,000;
  • on 9 January 2008 Reeves withdrew all offers except 15 May Part 36 offer; and
  • on 28 February 2008 Reeves made an offer of £8,188.38, including costs and interest, not Part 36.

In the CFI Brown DJ found for Blower in the sum of £8,375.94 and ordered Reeves to pay half of Blower’s costs from 9 January 2008, the date of withdrawal of the Part 36 offers (except for the May offer).

On appeal Reeves argued that Blower’s judgment sum was not materially better than their offer of 15 May 2007, in-line with the decision in Carver. HHJ Rubery held that the Part 36 offers of 15 May and August 2007 had been superseded by the non-Part 36 offer of 28 February 2008. As the judgment sum was significantly higher than the 28 February offer when costs and interest were taken into account, the judgment sum had comfortably beaten the 28 February offer and therefore the costs approach of Brown DJ at the CFI had been correct. Reeves appealed to the Court of Appeal.

The Court of Appeal has now examined the matter and found that the 15 May offer was still open, as no written notice of its withdrawal had been given by Reeves. Further the court held that implied withdrawal could not apply to Part 36 offers under the wording of the CPR. This meant that the claimant had beaten the defendant’s Part 36 offer by a relatively modest sum, circa £350, and brought the principles set out in Carver to the fore.

However, the Court of Appeal, despite stressing that it was still bound by Carver, said that, in the majority of cases, obtaining judgment for an amount greater than the other party’s highest offer is likely to outweigh all other factors when assessing costs. It would be undesirable for parties to have to make significant allowances for factors that are hard to value (such as stress and irrecoverable costs) when making decisions regarding settlement offers.

Impact of conduct

Despite obtaining judgment on the success point, Blower were still penalised on their costs incurred prior to 9 January 2008, due to their refusal to enter into negotiations or make counter-offers earlier in the proceedings. The recent cases of Midland and Kunaka have also seen courts penalise successful parties on costs where their conduct had not been in the spirit of the CPR.


In Midlandthe Mercantile Court was asked to consider the position on costs where both parties had made Part 36 offers and both had been successful on certain issues.

The defendant had made two Part 36 offers prior to trial that had been followed by a significantly higher (and somewhat overstated) counter-offer from the claimant, which had led to a breakdown in negotiations. The parties had also agreed prior to trial that the matter to be tried comprised eight discrete and separate points.

Overall, the judge found for the claimant, who had been successful on two points. The judge then utilised a three-stage test to determine how the question of costs should be resolved to account for the partial success of the defendant and the parties’ conduct in their attempts to settle the matter prior to trial:

Step 1

Identify the successful party, bearing in mind the general principle that the unsuccessful party pays the successful party’s costs under CPR 44.3(2).

Step 2

Analyse the parties’ Part 36 offers and compare these with the judgment awards.

Step 3

Analyse the parties’ attempts to settle the matter, their conduct as to settlement and take account where a party has been partially successful in the matter.

Using this approach the judge found the claimant satisfied step 1 and noted that the claimant had quite comfortably bettered both of the defendant’s Part 36 offers under step 2. When it came to step 3, however, the judge noted that the defendant had been successful on six of the eight agreed issues at trial and felt that the costs order should take account of this. The judge also found that the claimant had significantly exaggerated his claim and made a Part 36 counter-offer well in excess of the true value of the claim (ie the judgment sum), which resulted in the breakdown of negotiations.

The judge therefore ordered that the defendant should pay the claimant’s costs up to the date of the Part 36 counter-offer and that the claimant should pay 75% of the defendant’s costs thereafter, when step 3 became a factor, due to the claimant’s conduct and to reflect the defendant’s partial success on some issues.


Kunaka is another recent decision that highlights the extent to which the court will have regard to the conduct of the parties when making orders as to costs. In Kunaka the claimant was a litigant in person and the defendant had made a Part 36 offer of £35,000. The claimant rejected this and made several counter-offers, all of which were rejected. The defendant then wrote to the claimant, informing him that the rejected offer of £35,000 was still open for acceptance. The claimant subsequently accepted the Part 36 offer, which came after the standard 21-day acceptance period had passed.

Under CPR 36.10(5)(b) the default position is that the offeree bears the costs of the offeror for the period between the expiry of a Part 36 offer and acceptance where a Part 36 offer is accepted out of time. In Kunaka the defendant had not made this clear to the claimant, who subsequently refused to pay the defendant’s costs for this period.

The court was asked to consider the position regarding costs. It found in favour of the claimant, holding that, as the defendant had not made the cost consequences clear when they invited the claimant to accept their Part 36 offer out of time, the claimant should not be obliged to pay any of the defendant’s costs in the matter. Although the circumstances in Kunaka were unusual, it does highlight how flexible the courts’ powers are when making orders as to costs and that they are increasingly willing to assess whether parties have taken an approach within the spirit of the CPR. Here, the court felt that it would be unfair to penalise a litigant in person with limited legal knowledge where the defendant’s invitation to accept their Part 36 offer did not set out the adverse consequences of doing so.

Comment: How Courts will look to Part 36 offers when making orders as to costs

In our view, the decisions of the Court of Appeal in Gibbon and Blower are to be welcomed.

Carver brought a good deal of uncertainty to the question of how courts would approach the assessment of costs in any given case. Although the Court of Appeal was at pains to point out that it was still bound by Carver, it did go on to clarify that financial success will be the overriding factor when assessing whether a party has bettered the other side’s offers at judgment. It may seem harsh to apply the rules strictly if a party betters an offer but only by a few tens or hundreds of pounds. In our submission it is equally, if not more, harsh if a party has carefully judged making an offer or the rejection of another party’s offer, and has been proved right, to lose the benefit of this by falling foul of an unspecified and unknowable margin of success figure later imposed by a court.

However, the judgments in Midlandand Kunaka make it clear that courts will still use their discretion under CPR 36.10(5) and CPR 44.3(2), and look to the conduct of the parties during negotiations. In these cases the cost benefits of beating an opponent’s Part 36 offer or having one’s own offer accepted out of time were reduced to reflect the court’s view of conduct and what was fair between the parties. The message, therefore, is to always bear in mind how a judge might view an approach when considering the next move in the litigation process.

Finally, the court took an issue-by-issue approach to assessing costs in Midland, rather than the usual approach of looking at the overall figures involved. This appeared to hark back to the previously fashionable approach of issue-based costs assessment, where success for the overall loser on some issues could lead to a substantial costs reduction for the successful party. However, in Midland, the discrete issues to be tried had been agreed by the parties beforehand, and each was examined individually and ‘surgically’ by the judge. It is therefore unlikely that widespread issue-based costs assessment is making a mainstream comeback.

By James Robins, partner, and Justin Tivey, senior associate, Bond Pearce LLP.


Carver v BAA plc [2008] EWCA Civ 412

Francis Whistance v Valgrove Ltd [2009] unreported

Gibbon v Manchester City Council [2010] EWCA Civ 726

Kunaka v Barclays Bank plc [2010] unreported

L G Blower Ltd v Reeves [2009] unreported

Midland Packaging Ltd & ors v HW Chartered Accountants (a firm) [2010] EWHC B16 (Mercantile)


Follow The In-House Lawyer...