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The High Court clarifies a genuine attempt to settle for Part 36 purposes

The High Court has recently provided welcome guidance on construing and evaluating Part 36 offers, in Colicci & Ors v Grinberg (as executrix of the estate of Ernesto Colicci, deceased) & Anor [2023] EWHC 2075 (Ch).  It was held that the courts must interpret Part 36 offers according to ordinary objective principles and that where a party’s prospects are strong, a small compromise from that party can still be considered genuine.

Background

The claimants in the underlying dispute were successful in claiming an interest in shares to an ice-cream van business which had been held by their deceased father.  The deceased’s second wife, the defendant, resisted this claim by the claimants, who were the deceased’s adult children.

This judgment was a decision on costs where the Court was required to consider whether the claimants’ previous offer to pay the defendant £150,000 in full and final settlement was an offer consistent with Part 36 of the Civil Procedure Rules. 

Part 36 aims to encourage parties to settle disputes and provides for certain costs consequences in various situations, for example, if the offer is not accepted and the rejecting party does not go on to do as well at trial.  In these circumstances there will be costs consequences for an unsuccessful party which has not accepted the Part 36 offer.

In this case, as the defendant had no claim to a money payment from the claimant, unless awarded costs, she contended that the claimants’ offer was one to pay costs and that such an offer was inconsistent with the scheme of Part 36 and so ineffective. 

Decision

The Court held that a Part 36 offer must be interpreted according to ordinary objective principles.  It would accordingly be interpreted by a reasonable person in the position of the party receiving the offer with knowledge of the relevant background.

The relevant background in this case was that the claimants claimed to be the beneficial owners of the shares and sought an order for their transfer.  While this claim was resisted by the defendant, the parties were agreed that if the defendant succeeded, the claimants nevertheless had a right to acquire the shares for full value.  This litigation was to decide whether the claimants were required to pay for the shares or not.

The Court held that the offer to pay £150,000 was a compromise on that issue and that no reasonable person would have seen it as an offer to contribute to the defendant’s costs.  The offer was clear that the usual Part 36 consequences as to costs would apply: the defendant would pay the claimant’s costs in addition to the £150,000.  The Court noted that the offer in this case stated that it was a Part 36 offer, which would have offset any ambiguity, but that there was none in any event.

Additionally, the offer was clearly related to, and sought to compromise, the claim.  The fact that the claimants could not have been ordered to make a monetary payment to the defendant except by way of costs did not alter that reasoning.  An offer can take effect under Part 36 even if it proposes an outcome which the court could not order after a trial.

The defendant had also contended that the claimants’ offer was not a genuine attempt to settle for CPR 36.17 purposes.  In this regard the Court highlighted:

  • The stronger a claimant’s case, the less likely it is that an offer to settle at a small discount will be considered as non-genuine. The discount that was offered, even though only 9.4% of the full value of the claim, was not markedly disconnected from the claimants’ prospects.

  • It is unrealistic for the court to embark on an assessment of how a party should have regarded its prospects when pitching the level of an offer to settle, as offers usually reflect a range of considerations.

  • The landscape had shifted since the claim was first asserted. The claimants had now incurred £125,000 of costs as a result of the defendant’s decision to resist the claim.  Accordingly, although it was not a generous offer, it did not equate to there not being a genuine attempt at settlement. 

In light of this, the defendant was unsuccessful in her attempt to characterise the offer as falling outside the Part 36 regime. 

Comment

Part 36 offers remain a key tactical step in litigation and it is important to keep in mind what the court will consider to be a genuine attempt to settle.  If a party’s claim has good prospects, the court is much less likely to consider that a small compromise is non-genuine.  The failure to take such an offer seriously could have significant cost implications should the defendant decide to reject it and continue to trial.  In this context, the English courts recognise that claimants should not be forced to significantly compromise their case in the pursuit of settlement where the merits of their claim are strong.