Amount of a Part 36 offer can be reduced by a subsequent payment on account

The case of Gamal v Synergy Lifestyle Ltd [2018] EWCA Civ 210 relates to a claim against an invoice for unpaid building work. It turned out the invoice was in fact fraudulent, and resulted in the judge having to assess the value of the works actually carried out. The balance due (accounting for payments already made, and a later adjustment to deal with some erroneously added VAT) was ultimately calculated to be £14,275.59.

In August 2015 the Defendant had made a Part 36 offer to pay the Claimant £15,000 in full and final settlement of the claim.

Before the trial took place, in February 2016, the Defendant made a further payment of £10,000 to the Claimant.

The issue for the Court of Appeal was whether the later payment had any effect on the Part 36. If it did not, the offer was still £15,000 and the Claimant had failed to beat it. If it reduced it by the amount paid, the offer was effectively only £5,000 and the Claimant had beaten it.

The conclusion by the court was that a payment on account of liability would reduce a corresponding Part 36 offer. That would be the presumption unless the paying party expressly stated otherwise:

“…an unconditional payment on account of the sums claimed in the proceedings, made after the date of a Part 36 offer, results in the amount of the Part 36 offer being correspondingly reduced unless the payer makes it clear to the other party, at any time prior to judgment or acceptance of the Part 36 offer, that it is not to be so treated.” (Flaux LJ at para 30)

As such, it was held that the Claimant had obtained a judgment more advantageous than the Defendant’s Part 36 offer and had beaten it.

The lesson? Make sure you are clear about the basis on which payments have been made to you or by you; it could have a major impact on offers and subsequent costs orders.