PART 36 – IMPORTANT RECENT CASES
There have been a number of important recent cases in relation to Part 36, all of them in favour of claimants and this is a welcome corrective to what many perceived as an anti-claimant bias in relation to Part 36.
In particular the courts appeared to be slow to realise that a defendant’s failure to accept a claimant’s Part 36 offer when the claimant went on to match or beat that offer was meant to be met with a severe penalty in costs just as a claimant’s failure to beat a defendant’s Part 36 offer is severely penalised in costs.
95% liability offer
the Technology and Construction Court of the High Court held that where a claimant had made an offer to settle the matter on the basis of 95% liability and then succeeded on a full liability basis by settlement the claimant was entitled to indemnity costs in the usual way.
It was irrelevant that a court was unlikely to make a 95%/5% liability split.
Here the claim arose out of alleged defects in the design and construction of a new grandstand at Epsom Racecourse.
In addition to the 95% liability offer the claimant had amended its Particulars of Claim after making that offer by making some amendments to its case on liability and by claiming the full costs of replacing the roof rather than the cost of repairs.
The judge held that it did not make any material difference that the Particulars of Claim had been amended after the Part 36 offer was made as the offer related solely to liability and not quantum and liability issues had been resolved in the claimant’s favour, ultimately here by consent.
It was not necessary for a Part 36 offer to reflect an outcome that would be possible at trial.
There was no reason why the claimant should not be entitled to indemnity costs from the earliest date by which the defendant could reasonably have put itself in a position to make an informed assessment of the case on liability.
Here the court found that that was four months after the date of the offer and thus ordered that the claimant should receive standard costs up to that date and indemnity costs thereafter.
A sensible and correct decision. Parliament has said that a claimant is required to match or beat its own offer in order to get indemnity costs and other benefits, such as a 10% uplift on damages. There is no reason at all for the courts to put a gloss on the clear words and intention of Parliament, but unfortunately many have been doing so and this is a welcome decision.
No “Near Miss” Rule
the Court of Appeal overturned a costs order obtained by a defendant after a quantum trial, holding that when exercising his discretion under CPR 44.2, the trial judge had erred in taking account of the defendant’s Part 36 offer, which the claimant had beaten at trial.
The judge had ordered the claimant to pay the defendant’s costs from 21 days after the date of the offer as he considered it unreasonable conduct on the claimant’s behalf to pursue a claim for business interruption losses for a higher amount than that which was in the defendant’s offer.
However the Court of Appeal noted that the defendant had not made a freestanding offer in relation to the business interruption losses.
The Court of Appeal also said that it could not be misconduct or unreasonable conduct, simply to pursue a claim in an amount greater than that at which it is valued by the other side. Something more was required. Here, while certain parts of the business interruption claim failed at trial, there was no finding at trial that the claim had been exaggerated in any way so as to engage CPR 44.2(5)(d).
Furthermore the Court of Appeal held that in depriving the claimant of some of its costs up to the expiry of the Part 36 offer – the court had only awarded the claimant 70% of its costs for that period – and requiring the claimant to pay the defendant’s costs after the expiry of the Part 36 offer, the judge had penalised the claimant twice for the same shortcoming.
The Court of Appeal held that the Part 36 offer was irrelevant as it had been beaten. In fact it had been beaten by a comfortable margin but that was not relevant either as there was no “near miss” rule regarding Part 36 offers. They were either beaten or they were not.
The claimant’s failure to succeed in all of its claim was adequately reflected in the order that the claimant be deprived of 30% of those costs of the claim for the entire period of the claim.
Indemnity costs in fixed costs cases
the Court of Appeal held that a claimant who matches or beats its own Part 36 offer in a fixed costs case gets indemnity costs, as well as the other enhancements such as a 10% increase in damages etc. and in addition to fixed costs.
This resolves the issue between the two different lines of authority, both entirely justifiable on the wording of the different rules, one saying that fixed costs were just that and an indemnity costs order made no difference, and one holding that Part 36 and its provision for indemnity costs trumped CPR 45.29B, which deals with fixed costs.
Indemnity costs on claimant’s late acceptance
the claimant accepted the defendant’s offer eight months late and 14 days before trial.
The Queen’s Bench Division of the High Court ordered the defendant to pay the claimant’s costs up to the date of expiry of the Part 36 offer in the usual way and it also ordered the claimant to pay the defendant’s costs from the date of expiry to acceptance.
However it ordered those costs payable by the claimant to be paid on the indemnity, rather than the standard, basis.
I have no problem with this decision on the facts of the case but it brings into sharp focus the issue of whether a claimant should get indemnity costs on a defendant’s late acceptance of a claimant’s Part 36 offer.