Costs in construction litigation are always a big issue, especially when you are faced with an opponent who seems determined to reject any reasonable settlement offers.
What can you do to encourage a reasonable settlement before trial and protect your position on costs recovery?
The "normal" rule in civil litigation is that the loser is ordered to pay the winner's assessed costs. This can be overridden by a well-chosen formal offer to settle under Part 36 of the Civil Procedure rules. Part 36 also allows claimants and defendants to make formal offers that have beneficial costs consequences. Reasonable Part 36 offers put the recipient (the offeree) under considerable pressure to settle.
If a claimant wins at trial,
but fails to do better than a defendant's Part 36 offer, the claimant will usually only recover his costs up to shortly after the date of the offer. From then on the defendant can expect to recover his costs from the claimant.
If a claimant obtains judgment better than his Part 36 offer to a defendant, the claimant should recover his costs of the action, on an indemnity basis (meaning he should receive more than "standard" costs). He may also get interest on both the damages awarded and on his costs at a rate of up to 10% over base.
The PHI Group Limited caseIn PHI Group Limited v Robert West Consulting Limited [2012] EWCA Civ 588, (a recent appeal from the Technology and Construction Court), PHI made an offer, described as a Part 36 offer, which was better than the result RWC achieved at trial. However, the offer did not specify a period of not less than 21 days, within which RWC would be liable for PHI's costs if the offer was accepted, in compliance with the mandatory requirements of Part 36. The Court of Appeal held that this meant it was not a Part 36 offer, and did not have the consequences laid down by Part 36. PHI was therefore not entitled to the indemnity costs and interest benefits that would have been available had it made a valid Part 36 offer.
Because the offer was not a valid Part 36 offer, PHI had to rely on the more uncertain route of the Court of Appeal exercising its discretion in deciding, in all the circumstances, what costs order to make. In essence, although it was not a valid part 36 offer, PHI had made an offer to RWC which was more favourable than the result achieved by RWC at trial. If RWC had accepted the offer at the time it was made, or later, it would have been considerably better off than it was after judgment. Taking this into account, the Court of Appeal ordered RWC to bear all of its costs, and to pay all of PHI's costs of the proceedings.
This case is one of many that have identified technical faults with offers that were intended to be Part 36 offers. To maximise the costs implications, it is important to follow the terms of Part 36 in detail.
Other practical tipsApart from following the formal provisions of Part 36, there are other practical points you should keep in mind.
You should investigate and evaluate your case as soon as possible to enable you to make an early Part 36 offer.
A well-judged Part 36 offer should be given serious consideration by the recipient who will be put under real pressure to accept it, saving both parties the future costs of litigation, or risk doing worse at trial. If you receive a Part 36 offer there is nothing to stop you making your own offer.
If you are making an offer, be clear as to what your offer is. Are you offering to settle all or part of the claim? Is the offer conditional on some future event, such as a settlement with another party?
If you have doubt as to the meaning of an offer made, or if you genuinely need further details to be able to assess the offer, ask the other side for information as soon as possible. This should help identify what is on the table and reduce the scope for expensive disputes about costs arising after acceptance. Also, a refusal to provide information to enable the offer to be evaluated may result in the court deciding it would be unjust to award the successful offeror the favourable consequential orders that would normally be made.
You can also make more than one Part 36 offer. A Part 36 offer is not implicitly withdrawn by the making of other later offers. However, withdrawal of a Part 36 offer must be expressly in writing, even if the other side have rejected the offer. All offers should be kept under review and accepted, or withdrawn and revised, if the circumstances of the case change.
