The 95% rule

One of the mysteries of legal practice is the absence of effective part 36 offers on trials which take place on liability issues, particularly in the context of low value personal injury claims. Ever since the decision in Huck v Robson[2002] EWCA Civ 398 an offer by a claimant to accept 95% of their claim has been an effective offer, which puts a defendant at risk of adverse part 36 consequences, including indemnity costs on the issue of liability, penalty interest and the 10% additional amount prescribed by the rules. Per Huck: 

62. True it is that once a claimant has bettered his own offer, even though he may have done so by the narrowest of margins, then rule 36.21 will apply. But, as Mr Braithwaite rightly accepts, it does not follow that indemnity costs will necessarily be ordered. In every case where the rule applies, the question for the court is whether it would be unjust to make such an order. In this sense, a claimant who has bettered his Part 36 offer has a prima facie entitlement to indemnity costs.

63. At the same time, it is in my judgment implicit in rule 36.21 that, consistently with the philosophy underlying Part 36 (to which I have already referred), in order to qualify for the incentives provided by paragraphs (2) and (3) of the rule a claimant’s Part 36 offer must represent at the very least a genuine and realistic attempt by the claimant to resolve the dispute by agreement. Such an offer is to be contrasted with one which creates no real opportunity for settlement but is merely a tactical step designed to secure the benefit of the incentives. That is not to say that the offer must be one which it would be unreasonable for the defendant to refuse; that would be too strict a test, and would introduce considerations of punishment and moral condemnation which (on the authority of Petrotrade and McPhilemy ) are irrelevant in the context of paragraph (3) of rule 36.21. Indeed, the terms of the offer may reflect a degree of optimism and confidence on the part of the claimant/offeror. Provided only that the offer represents a genuine and realistic offer to resolve the dispute by agreement, it is for the claimant to decide at what level to pitch his offer. In some cases, an offer which allows only a small discount from 100 per cent success on the claim may be a genuine and realistic offer; in other cases, it may not. It is for the judge in every case to consider whether, in the circumstances of that particular case, and taking into account the factors listed in paragraph (5) of rule 36.21, it would be unjust to make the order sought.

Despite part 36 CPR having been through substantial reforms and redrafting in the last 17 years, this approach has remained good in law. See for example the decision in Jockey Club Racecourse Limited v Willmott Dixon Construction Limited [2016] EWHC 167 (TCC) where the High Court judge commenting on Huck said:

34. Although that was not a case in which the offer reflected an outcome which was not available – in theory it was – it is a case where the offer did not reflect an outcome that was likely to result in practice. I consider that the approach taken by both Tuckey and Schiemann LJJ is one that can be applied to the present type of case. This conclusion is reinforced by a decision on costs made by Norris J in Wharton v Bancroft [2012] EWHC 91 (Ch). He said, at paragraph 22:

“All Part 36 offers are tactical in the sense that they are designed to take advantage of the incentives provided by Part 36. A low offer in a case where the offeror considers that the offeree’s positioned has no merit cannot be written off as self-evidently “merely a tactical step”. But the principal has no application here. The sum to be received by each of the Daughters was small. But the offer was not derisory. On the available figures (and having regard to the fact that the Daughters were conducting the litigation on a CFA with a 100% uplift and with the benefit of ATE Insurance, the premium on which was an undisclosed percentage of their costs) the real effect of the offer (although calculated as a nuisance value offer) was of the order of £200,000 (ignoring the fact that Maureen would be bearing her own costs and those of the executors). I see no reason on that ground (or taking into account the matters to which my attention is directed in CPR 36.14(4)) why it would be unjust to order costs on the indemnity basis.”

35. Since the daughters were contesting the will on the grounds of undue influence by their father’s long-term partner, Maureen, the offer did not reflect an available outcome of the litigation but was, as explained by Norris J, by no means derisory.

36. Miss Laney submitted that Huck v Robson can be distinguished because it was decided under the previous version of Part 36.17 which did not include the present sub-paragraph (e), which requires the court to consider whether the offer was a genuine attempt to settle the proceedings. In this, Miss Laney is correct, but I have no doubt whatever that Tuckey LJ’s observations would have been to no different effect if that provision had been included in the rule at the time because that is the very point that he addresses at paragraph 71. Jonathan Parker LJ made the point even more clearly at paragraph 63.

37. For these reasons I am persuaded by the authorities that the offer in this case was a valid offer within the meaning of Part 36 and that it was a genuine attempt to settle the claim. Whilst the discount was very modest, even in the context of a claim of some £400,000 it amounted to £20,000, which in my view cannot be described as derisory.

I return to the theme of this post, which is the absence of part 36 offers on liability in claims which go to trial. Why is this so? It may be that there is a reluctance on the part of lawyers to advise their clients that in a case where liability may conceivably be admitted a little further down the line, that they should give up 5% of the value of their claim.

It may be that a further factor causing reluctance in high value cases, is that 5%, although a modest increment of the claim in percentage terms may be worth tens or hundreds of thousands of pounds, in absolute terms.

Or it may be a more prosaic answer: that one of the key uses of part 36 is being neglected, in favour of quantum offers, which might bring a case to a conclusion. 

Finally this may  be, because relatively few cases, as part of a Fast Track caseload go to trial. It may not be possible to predict with precision which will attract admissions of liability. 

A real fear may be that making part 36 offers too early, will mean giving up 5% of damages across a caseload, which will dwarf the prospect of recovering counterbalancing sums by way of indemnity costs and part 36 penalties.

However, anecdotal comments from those who undertake a Fast Track trial load would seem to indicate that the absence of effective liability offers at trial, is simply one aspect of a benign neglect on the part of those representing claimants on the use of part 36.

This would be a startling conclusion, because a key utility of part 36 is undoubtedly in respect of modestly valued personal injury claims, which would otherwise attract awards of fixed costs. It is clear law now that a claimant who beats their own part 36 offer at trial, will escape the strait jacket of fixed costs.

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