Does Part 36 allow a party to wait until the end of the 21-day period before accepting an offer? That was the question which came before Mr Justice Mann in Pallett v MGN Ltd  EWHC 76 (Ch).
The relevant Part 36 rules
Where a Part 36 offer is accepted after the relevant period has expired, the court will determine costs unless the parties have reached an agreement (rule
36.13(4)(b)). When C’s offer is accepted late, the presumption is that C will be awarded their costs up to the date on which the offer was accepted (rule 36.13(5)). The court is required to apply the presumption in rule 36.13(5) ‘unless it considers it unjust to do so’, in which case it can make a different costs order. The defendant in Pallett attempted to limit their costs liability by accepting the claimant’s offer after the relevant period.
Pallett v MGN
The claimant made a Part 36 offer of £99,500 which was open for acceptance for a period of 21 days. If the defendant had accepted the offer within the 21-day period, then it would have been liable for the claimant’s costs up to the date of acceptance (rule 36.13). In fact, the defendant decided to accept the offer on the 22nd day and subsequently argued that the claimant’s costs should be limited by the court because it had failed to engage with the settlement process.
Mann J held that, by accepting the claimant’s offer after the expiry of the relevant period, the defendant could invoke the relevant rules because the rules allowed it. However, he went on to explain that the application of the rules in this way was ‘odd’ because ‘the claimant has made an offer which she has pitched as being acceptable provided that her costs are paid. In making an offer an offeror is likely to make it on the basis that the monetary offer proposed is acceptable provided that the costs are also paid. That is what the offer says, and that is the effect of an offer accepted within the 21 days. The offeror (if a claimant) might well expect that if the offer is not accepted it is open to the offeror to continue with the action and see if he/she can better the offer and still get costs. The one thing that an offeror would not expect is that the offeree can wait until the relevant period (usually 21 days in practice) has passed, accept the offer (and thus bind the offeror) and then seek to avoid the costs by asking the court to determine them. The offeror will usually not think that that is an appealing option to have forced on him or her; otherwise it would have been offered in the first place. Yet that seems to be the effect of CPR 36.13(4).’ (Emphasis added).
Mann J also noted that there is Court of Appeal authority in which a similar approach was taken. The defendants in Dutton and Others v Minards and Others  EWCA Civ 984 also attempted to limit their costs liability by accepting the claimants’ Part 36 offer after the expiry of the relevant period. Lewison LJ observed that: ‘The defendants did not accept… the offer within the 21-day period. Quite deliberately, they sent a fax accepting the offer one minute after the period of 21 days had expired.’ (Emphasis added).
Mann J eventually rejected the defendant’s arguments that the claimant had failed to engage with the settlement process and, consequently, the claimant’s recoverable costs were not limited.
Although the rules clearly allow for Part 36 offers to be accepted after the expiry of the relevant period, they can, as illustrated by Pallett and Dutton, be used by litigating parties to deliberately and unfairly limit the cost consequences which would otherwise apply. This has the potential to severely undermine the policy rationale of promoting settlement which underpins the Part 36 regime. It also has the potential danger of increasing costs and complexity through the proliferation of satellite litigation. Given the important issues raised by Pallett and Dutton, the matter is being considered by the costs subcommittee of the Civil Procedure Rule Committee.
Masood Ahmed is an associate professor at the University of Leicester and a member of the Civil Procedure Rule Committee