Part 36 offers in staged construction litigation: the TCC clarifies what the judge may be told

Why this matters in construction litigation

For parties to large construction disputes, particularly cases involving preliminary issues, split trials or separate liability and quantum stages, the decision is a useful reminder that the timing of settlement offers can have significant costs consequences before the whole case is finished.

What was the issue?

The parties had already been through a trial of preliminary issues. Essendi had been substantially successful at that stage and wanted the court to consider making an order for costs incurred up to 21 days after the defendant's earliest Part 36 offer.

That created a procedural problem. Part 36 contains strict rules controlling what a trial judge may be told about a Part 36 offer before all substantive issues have been determined.

The question for HHJ Stephen Davies was therefore narrow but important: is the date of a Part 36 offer part of its protected “terms”, or may the judge be told the date without being told what the offer actually said?

What did the TCC decide?

The court held that the date of the offer is not one of its substantive terms.

The Civil Procedure Rules themselves distinguish between the terms of an offer and the time at which it is made. The judge concluded that, in the staged-litigation circumstances before the court, the date could be communicated without disclosing the protected substantive terms.

The decision does not mean that a judge deciding outstanding substantive issues can simply be told the amount offered or the other protected terms of the settlement proposal. Those terms remain protected by Part 36.

Why staged construction cases create this problem

Large construction disputes are particularly likely to be dealt with in stages. A court may determine:

• responsibility for design before assessing the cost of remedial works;
• liability before quantum;
• contractual interpretation as a preliminary issue;
• limitation before considering the substantive defects; or
• entitlement before valuation.

Those stages can themselves generate substantial legal and expert costs. Part 36 strategy therefore cannot always be treated simply as something that matters at the final trial.

An offer made early in the proceedings may become relevant to the costs arguments surrounding an earlier stage of the litigation.

The date of an offer can be commercially important

Part 36 is designed to encourage settlement. The potential costs consequences of an offer depend heavily on matters including when it was made, when the relevant period expired and how the eventual outcome compares with the offer.

A construction business involved in significant proceedings should therefore be able to identify immediately:

• every Part 36 offer made;
• who made it;
• the date it was served;
• the relevant period for acceptance;
• whether it was withdrawn or varied;
• whether there are separate offers relating to different issues; and
• the stage reached in the proceedings when each offer was made.

This information should not be left buried among general correspondence.

Think about Part 36 before the costs have been incurred

One of the useful commercial lessons from Essendi is that an offer can influence costs strategy even when significant issues remain unresolved.

Consider a construction dispute where liability is tried first and quantum will follow many months later. By the end of the liability trial, both parties may already have incurred substantial solicitor, counsel and expert costs. An early offer can therefore become important before the quantum stage begins.

Businesses should consider settlement strategy alongside litigation strategy rather than waiting until immediately before a final hearing.

What issue are we trying to settle?

A global offer may have different consequences from an offer directed at a discrete issue.

When should the offer be made?

An offer made after most of the costs have already been incurred may provide materially less costs protection.

Does the offer still reflect the case?

Expert evidence, disclosure or an interim judgment may materially change the risk. Existing offers should be reviewed as the litigation develops.

What Essendi does not decide

The judgment dealt with a specific preliminary question. It did not determine the substantive costs application itself.

Nor should the decision be read as permission to reveal the contents of Part 36 offers prematurely. The court's conclusion was about disclosure of the date in the context of the staged proceedings before it. The protected terms of the offer remained protected under the Part 36 regime.

That distinction should be respected carefully in correspondence and submissions to the court.

Practical steps for businesses involved in litigation

1. Keep a Part 36 register. Record each offer, its service date, relevant period, status and the issue or claim to which it relates.
2. Review offers after important developments. Reconsider settlement strategy after disclosure, expert meetings, adjudication decisions, preliminary judgments or other material changes.
3. Consider costs by stage. In split proceedings, understand the costs exposure of each stage rather than looking only at the eventual final trial.
4. Do not reveal protected terms inadvertently. Part 36 has specific rules governing when offers may be disclosed to the judge.
5. Make offers early enough to matter. If an offer is intended to provide costs protection, timing can be as important as the amount.
6. Model the costs consequences. Before making, accepting or rejecting a significant offer, consider both the substantive settlement figure and the potential costs position.

Why the decision matters

Construction disputes can generate substantial costs because technical evidence, expert witnesses and disclosure are often required before the court can resolve even one part of the dispute.

Essendi shows why settlement strategy needs to develop alongside that process. A properly timed Part 36 offer may have consequences at an intermediate stage of the litigation, and the court may be given enough information about the timing of the offer to consider those consequences without being told its protected substantive terms.