Counterclaims and Part 36 offers

Picture the situation, your client is the Defendant in proceedings where it has asserted a large Counterclaim.

Your client requires the costs protection of a Part 36 offer, but if it makes a Defendant's Part 36 offer then, under CPR36.10 it will (if the offer is accepted) be liable for the Claimant's costs up to the date of acceptance.  Your client is unwilling to pay those costs as it believes the Claimant is the party in the wrong.  What do you do?

One option for your client is for it to make a Claimant's Part 36 Offer in respect of the Defendant's Counterclaim.  The Court of Appeal confirmed in AF v BG¹ that an offer made by the Defendant in respect of its Counterclaim was capable of constituting a "Claimant's Part 36 offer". The practical effect of such an offer is that (provided it is accepted within the relevant period) your client will be entitled to its costs of the proceedings (relating to the Counterclaim) up to the date on which the offer is accepted. 

So are there any other alternatives for a Counterclaimant?  In the recent case of F&C Alternative Investments (Holdings) Ltd and others v Bathelemy and another² the Defendant (D) had made a substantial counterclaim.  Rather than making a Claimant's Part 36 offer (as Counterclaimant), D made a written offer which expressly stated that it was made outside the terms of Part 36 because CPR 36.10 "would render [the Defendant] liable for the costs of the…proceedings in the event that the offer was accepted by [the Claimant]" but which also stated that if it was not accepted, D would invite the court to apply the same costs consequences as under Part 36.

The Court of Appeal did not agree that this offer could not have the costs consequences of a Part 36 offer as it was neither in substance nor in form compliant with Part 36 (indeed it was expressly designed not to be a Part 36 offer).   This decision suggests that parties cannot seek to apply Part 36 costs consequence through the back-door.

For a Counterclaimant requiring the protection of a Part 36 offer, the most obvious solution is still to make a Claimant's Part 36 offer in respect of its Counterclaim.  It is not clear why the Defendant in this case did not take this option.

For further discussion of the F&C case see: http://www.internationallawoffice.com/newsletters/Detail.aspx?g=dd0613f6-f0f0-4d5e-b236-e05d989e794f

1. [2009] EWCA Civ 757.

2. [2012] EWCA Civ 843.