Part 36 Offers and the 'Near Miss' Rule

A part 36 offer is, in summary, a tactical step that a party can take in litigation to put pressure on their opponent to settle. If a party makes a part 36 offer and settlement is not achieved, the offeror's position as to costs is protected, and the declining party faces the risk of a costs penalty if they do not better the offer at Court. Part 36 offers can be revised, accepted or withdrawn.

There are detailed rules surrounding the way in which Part 36 offers are made, compliance (or a failure to comply) with which can have considerable costs implications. Clarification of the rules surrounding Part 36 offers was provided in April 2015 in the form of the Civil Procedure (Amendment No 8) Rules 2014 (SI 2014/3299).

General Principle

The general principle is that if a party declines a Part 36 offer and ends up less well-off after a trial than it would have been had it accepted the offer, the party will be penalised on costs. A Part 36 offer is made without prejudice save as to costs, which means it is not disclosed to the Court in normal proceedings – it is only disclosed when it comes to an assessment of liability for costs.

'Near Miss' Rule

In the past, Courts had penalised parties in costs even if they had bettered a Part 36 offer they had declined, where they had only beaten it by a marginal amount. However, this approach was widely criticised (in particular the decision in Carver v BAA plc [2008] EWCA Civ 412), and the new rules expressly state that an offer will be beaten (and therefore there will be no costs consequences) if a court's aware is better monetarily by any amount, however small.

Present Case

In a recent case, Sugar Hut Group Limited and others v A J Insurance Service (a partnership), the judge at first instance adopted the approach of treating a part 36 offer as containing separate offers relating to different parts of the claim. On this basis, the judge found that the claimant's had acted unreasonably in pursuing one of the parts of the offer – a part in respect of which they ultimately achieved less than the defendant's offer.

However, the Court of Appeal subsequently overturned this decision at first instance, finding that the part 36 offer was a single, indivisible, offer and therefore the claimant had not acted unreasonably in the context of the offer.

Impact of the Decision

The decision suggests that a party will not be penalised in costs for failing to better a single part of an indivisible Part 36 offer unless there are further contributory factors to unreasonable conduct.