Kerry Underwood

PART 36: DOES A CLAIMANT GET INDEMNITY COSTS ON LATE ACCEPTANCE?

with 46 comments


This blog is updated to 8 November 2016.

 

This subject is dealt with in my new book on Fixed Costs etc. To order one click here .

 

In Sutherland v Khan, Kingston-Upon-Hull County Court, Case number A81YM424

 

District Judge Besford, Regional Costs Judge, held that a late accepting defendant of a claimant’s Part 36 offer was liable to pay indemnity costs from the date of expiry of the time for accepting the offer.

 I deal with Sutherland v Khan in detail below, but it is clear from reports from lawyers contacting me that first instance courts are divided in their attitude to this subject.

In Hart v Pizza Hut, 1 November, Chester County Court the court adopted the reasoning of DJ Besford in the Sutherland case and distinguished the case of Fitzpatrick Contractors Ltd v Tyco Fire and Integrated Solutions (UK) Ltd, which I deal with below.

In Hart v Pizza Hut the judge considered it relevant that the claimant had been put to work in the 49 days between expiry of the time for accepting the Part 36 offer and ultimate acceptance by the defendant.

The District Judge considered that the overriding objective was in play and that it was obviously inequitable for a late accepting claimant to have to pay Part 36 consequences but a late accepting defendant to not have to pay them.

That would mean that the parties were not on an equal footing as required by the overriding objective when it interprets any rule – see CPR 1.2(b). Consequently indemnity costs for the relevant period were awarded.

Permission for leave to appeal has been granted. 

However the defendant has chosen not to appeal, in spite of permission having been given.

I am grateful to David Pilling of counsel for bringing this case to my attention.

However in, for example, Whiting v Carillionamey (Housing Prime) Ltd – claim number B80YM364, Winchester County Court, the judge overturned the decision of a Deputy District Judge who had awarded indemnity costs following late acceptance of claimant’s Part 36 offer.

Guidance from the Court of Appeal would be welcome.

This was a fixed costs case. Broadhurst v Tan and Taylor v Smith [2016] EWCA Civ 94 (23 February 2016) establishes that a successful Part 36 claimant, that is one who matches or beats her or his own offer, is entitled to indemnity costs on an open basis, that is that those indemnity costs are not limited to a sum equal to fixed costs.

 

I deal with the Broadhurst case in my blog post – Claimant’s Part 36 Offer Overrides Fixed Costs.

 

The issue remained, and as this is a first instance decision, albeit by a highly respected Regional Costs Judge, remains, whether in the absence of judgment being entered a late accepting defendant is liable to pay indemnity costs in the way that a late accepting claimant has to pay costs from the date of expiry of time for acceptance.

 

Here the judge said, correctly:-

 

“Unfortunately, part 36, whilst dealing with situations where the claimant accepts out of time a defendant’s offer, would appear to be silent as to a defendant accepting a claimant’s offers out of time or prior to trial. The nearest analogy is part 36.17, but it is accepted that part 36.17 can only apply where a judgment has been entered. That situation is not applicable here.”

 

The judge declined to follow the High Court decision in Fitzpatrick Contractors Ltd v Tyco Fire v Integrated Solutions (UK) Ltd [2010] 2 Costs LR 115 on the ground that it is “perhaps a statement of the law as it was in 2009, but not necessarily the way the law in respect of Part 36 is being interpreted in 2016.”

 

In Fitzpatrick the court was referred to Petrotrade Inc v Texaco Ltd [2000] All ER (D) 724.

 

In the key section of the judgment DJ Besford said:-

 

“18. In addition, in the course of submissions I was referred to Petrotrade Inc v Texaco Ltd [2000] All ER (D) 724, which is mentioned by Coulson J in Fitzpatrick. Coulson J dealt with these cases at paragraph 22: “I accept Mr Thomas’s submissions that the other cases relied upon by Fitzpatrick, namely Petrotrade, Hook and Read, do not offer very much assistance to the central question here, which is whether a rebuttable presumption in favour of the indemnity costs, taken from a rule dealing with a situation following a trial, where the offer has not been accepted, should be inferred into a rule dealing with the position prior to trial, where the offer has been accepted. I do not accept that the present situation is analogous to those cases. In all three of them, the courts were endeavouring to apply the words of the old CPR 36.21, in a commonsense way, to achieve a just and sensible result and to prevent injustice; they all arose after a trial on the merits, (either on a summary or a full basis). In contrast, I conclude that the replacement of old CPR 36.21 – the new CPR 36.14 – does not apply to the present case, because there has been a settlement, and it has occurred before the trial. The claimant has therefore been spared the cost, disruption and stress of the trial.”

 

“19. The interpretation of these cases put forward by Coulson J is not, with respect how I read the more recent cases coming forth from higher courts. My understanding is, as I have alluded to, that there has been a tightening up as to the ‘carrot and stick effect’ of part 36 offers. To my mind, notwithstanding the comments of Coulson J, if there was no incentive or penalty there would be little point in a defendant accepting offers early doors, as opposed to waiting immediately prior to trial. It also seems to me unsatisfactory that there should be penalties flowing if you do not beat an offer at trial, whereas if you settle before trial there are none. This position does not sit comfortably with the overriding objective of saving expense. In my view, I think that Fitzpatrick is perhaps a statement of the law as it was in 2009, but not necessarily the way the law in respect of part 36 is being interpreted in 2016.”

 

“20. In conclusion, I do not find that the court has to find that the defendant has, in some way been guilty of inappropriate behaviour or conduct capable of censor before I can consider making an order for costs on an indemnity basis.”

 

The judge then set out the relevant provisions of Part 36 and said:-

 

“27. It follows that for the court to deny the consequences that flow from accepting a part 36 out of time the court has to make pretty exceptional findings and there has to be some very good reason as to why it is unjust not to make the usual order. The very fact that the claimant obtains a ‘windfall’, most certainly does not constitute unjustness, under part 36.17.”

 

Comment

 

Unsurprisingly I always agree with decisions that follow my blog posts. Having said that this is a sensible, pragmatic and bold decision giving effect to the will of Parliament.

 

It is a shame that the Rules Committee cannot rise above nursery class English.

 

I am very grateful to John McQuater for his help in relation to this piece and for bringing it to my attention and, most of all, for being the solicitor who pushed this issue and won. 

 

I am satisfied beyond doubt that a claimant who makes a Part 36 offer which is then accepted by the defendant after the expiry of 21 days is able to get indemnity costs from the defendant for the time after the date when the offer should have been accepted. It is not automatic, but of course will become so if a superior court gives appropriate guidance.

 

CPR 36.13(4) appears to put the matter beyond doubt:-

“(4) Where—

(a) a Part 36 offer which was made less than 21 days before the start of a trial is accepted; or

(b) a Part 36 offer which relates to the whole of the claim is accepted after expiry of the relevant period; or

(c) subject to paragraph (2), a Part 36 offer which does not relate to the whole of the claim is accepted at any time,

the liability for costs must be determined by the court unless the parties have agreed the costs.”

 

This is crystal clear. Unless the parties have agreed the costs where there has been late acceptance then the court must determine those costs. Thus in the three circumstances set out in (a) (b) and (c) the automatic Part 36 consequences do not follow.

 

36.13(4)(a) is self-explanatory, as is (b). The scenario in (c) would cover, for example, an acceptance of an offer of liability, but which does not deal with quantum.

 

It will be noted that CPR 36.13(4)(c) is subject to paragraph (2) but (2) relates exclusively to defendant’s Part 36 offers and thus has no application in relation to a claimant’s Part 36 offer.

 

CPR 36.13(5) then goes on to consider what the court should do when paragraph (4) (b) applies, that is the situation that we are talking about where a Part 36 offer relating to the whole of the claim is accepted late.

 

CPR 36.13(5) reads:-

“(5) Where paragraph (4)(b) applies but the parties cannot agree the liability for costs, the court must, unless it considers it unjust to do so, order that—

(a) the claimant be awarded costs up to the date on which the relevant period expired; and

(b) the offeree do pay the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.”

 

The wording is significant. It would have been very easy for (b) to read:-

 

“the claimant do pay the defendant’s costs for the period from date of expiry of the relevant period to the date of acceptance.”

 

It very deliberately does not so say. Clearly whether it is a claimant’s offer that is accepted or a defendant’s offer that is accepted the claimant gets costs up to the date on which the relevant period expired and CPR 36.13(5)(a) deals with that.

 

The wording in (b) very clearly and obviously leaves it open to cover either a situation in which the defendant has made the offer or the claimant has made the offer, hence the use of “offeree” and “offeror” rather than claimant and defendant. In a given case either, or indeed both, the claimant and defendant may be the offeror or the offeree.

 

Thus with a claimant’s Part 36 offer the offeree – that is the defendant – pays the offeror – that is the claimant – costs for the period from the date of expiry of the relevant period to the date of acceptance.

 

True it is that it does not there say that those costs should be on the indemnity basis, but neither does it say that they shall be on the standard basis.

 

CPR 36.13(6) states:-

 

“(6) In considering whether it would be unjust to make the orders specified in paragraph (5), the court must take into account all the circumstances of the case including the matters listed in rule 36.17(5).”

 

CPR 36.17(5) reads:-

 

“(5) In considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4), the court must take into account all the circumstances of the case including—

(a) the terms of any Part 36 offer;

(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

(c) the information available to the parties at the time when the Part 36 offer was made;

(d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and

(e) whether the offer was a genuine attempt to settle the proceedings.”

 

The reference back there to paragraph (3) and (4) is to those paragraphs within CPR 36.17 and not CPR 36.13.

 

Paragraph (3) relates only to a defendant’s Part 36 offer.

 

Paragraph (4) relates only to a claimant’s offer and reads:-

 

“(4) Subject to paragraph (7), where paragraph (1)(b) applies, the court must, unless it considers it unjust to do so, order that the claimant is entitled to—

(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;

(c) interest on those costs at a rate not exceeding 10% above base rate; and

(d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is—

(i) the sum awarded to the claimant by the court; or

(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs…”

 

There is then the table setting out additional damages which I will not go into here.

 

Thus the structure of what is admittedly a very complicated rule is that CPR 36.13(5)(b) states that the court must award the claimant costs from expiry to acceptance unless it will be unjust to do so and the factors that the court must take into account are all the circumstances of the case including, but not limited, to the matters listed in CPR 36.17(5) and as we have seen that rule gives an example of the circumstances that must be taken into account, but by specific reference, in the context of a claimant, to the claimant matching or beating its own offer and getting, amongst other things, indemnity costs from the period of expiry of the Part 36 offer.

 

It is true that the opening words of CPR 36.17 are:-

 

“(1) Subject to rule 36.21, this rule applies where upon judgment being entered…”

 

And yet we know the rule has a wider application because reference is made to its provisions applying to CPR 36.13. Furthermore 36.17(3) deals with the defendant’s entitlement to costs on late acceptance.

 

It will be noted that CPR 36.17 is subject to CPR 36.21 but in fact what CPR 36.21 says is that CPR 36.17 applies with certain modifications which are set out in that rule. Essentially they relate to claims that no longer continue under the Road Traffic Accident Portal or Employer’s Liability/Public Liability Portal. It deals only with the circumstances of a defendant’s Part 36 offer not a claimant’s Part 36 offer.

 

I accept that the drafting of CPR Part 36 would test Einstein, but it is clear that unless it is unjust to do so a defendant, on late acceptance of a claimant’s Part 36 offer, must pay the claimant’s costs to the date of acceptance. Nowhere are those costs restricted to standard costs and we now know, following Broadhurst v Tan and Taylor v Smith [2016] EWCA Civ 94 (23 February 2016) that the post-expiry costs even in a fixed costs case, are on the indemnity basis.

 

Thus there is no doubt at all that on judgment being entered the claimant gets indemnity costs from the date of expiry of the Part 36 offer until the judgment is entered, whether or not the matter is a fixed costs case or an open costs case. The Broadhurst ruling is a particular importance given the proposal to increase fixed costs to all claims of all kinds whether damages are £250,000.00 or less.

 

I refer there to judgment being entered. That is the standard defence line, that a claimant can only get the bonus if judgment is entered.

 

I disagree. The somewhat tortuous wording that I have set out above shows that it is mandatory for a court to consider and determine costs on late acceptance of a claimant’s Part 36 offer unless the parties have agreed costs.

 

Thus the scenario is that there is late acceptance and the claimant seeks indemnity costs for the period from the expiry to acceptance and the defendant refuses. Very clearly the claimant has the right to go to court and have those costs determined. It is a somewhat circular argument but of course the very fact that the claimant goes to court will mean that judgment will be entered and therefore, even on the standard defence line, that triggers the condition that means that indemnity costs should be ordered!

 

In my blog Claimant’s Part 36 Offer Overrides Fixed Costs – dealing with the Broadhurst case I made the following statement:-

 

“Firstly it is a recognition that a claimant gets indemnity costs even if the matter does not go to trial. Otherwise there would be no need to refer to “the last staging point” as it would only apply if the matter had gone to trial and no consideration of the different stages within the preparation for trial matrix would be necessary.”

 

I appreciate that that is also a somewhat circular argument in that it was predicated on the basis that the court was allowing both fixed costs and indemnity costs. That remains my view. However if I am wrong on that then there could be another explanation for the “last staging point” which is that even if the matter has gone to trial one needs to look at the last point before the expiry of the relevant period so as to determine the level of fixed costs and then run indemnity costs on.

 

In Jockey Club Racecourse Ltd v Willmott Dixon Construction Ltd [2016] EWHC 167 (TCC)

 

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 way of settlement the claimant was entitled to indemnity costs in the usual way.

 

This is on all-fours with a defendant’s late acceptance of a claimant’s quantum offer. The fact that it was on liability is irrelevant – the issue here was whether a 95%/5% offer in cases where the court would have made an all or nothing order on trial was a genuine offer to settle and was genuinely offering some concession.

 

I deal with this case in my blog Part 36 – Important Recent Cases. This point was actually decided by the court at a Case Management Conference as the quantum hearing still had to proceed. Now it may be that judgment may have been entered at that hearing on the liability point but the decision on liability was not made at that hearing – it had been conceded and therefore this was a late acceptance case, albeit that there then was a completely separate hearing – the CMC. Two points arise. Firstly it would be absurd that the mere chance of there being another type of hearing – here a CMC – would give a claimant entitlement to indemnity costs but in the absence of that hearing there will be no such entitlement. It would also mean that defendants would be better off, where quantum remains in dispute, to never to submit to judgment when the claimant has made a Part 36 offer as submitting to judgment would trigger indemnity costs but doing a deal outside court would not.

 

In any event as I have pointed out above by the claimant refusing to agree costs unless paid on the indemnity basis the matter must go to court whereupon judgment can be entered. Once such a matter is at court the Jockey Club rule must apply and that is a binding decision of the High Court.

 

In the Jockey Club case the matter appears to have been dealt with by a consent order:

 

“A pre-trial review was fixed for 17 December 2015, by which the Defendant had conceded liability and the preliminary issues were resolved by consent in the Claimant’s favour.” (Paragraph 11).

 

“Accordingly the only issue that is left is the question of the basis on which the Claimant should be awarded its costs of the litigation in relation to liability. Miss Laney [counsel for the paying party] has, quite rightly in the circumstances, not taken a point as to whether or not the order by which the preliminary issues were resolved is a judgment for the purposes of Part 36. I therefore proceed on the basis that it is.” (Paragraph 22).

 

The decision in Jolly v Harsco Infrastructure Services Ltd [2012] EWHC 3086 (QB)

 

has been misunderstood and misrepresented by those arguing that a claimant cannot get indemnity costs in such circumstances.

 

What happened in that case was that the claimant made a 99% liability offer which the defendant accepted late. The claimant prepared a draft order which stated:-

 

“Judgment on the issue of liability be entered 99 percent in favour of the claimant.”

 

The defendant refused to sign it and said:-

 

“CPR 36.14 doesn’t bite – your client has not received judgment so the provisions you have put in do not apply.”

 

It is true that the judge refused to enter judgment, saying that he had no power so to do but the judge stayed the issue of liability and ordered that the question of the costs relating to that issue, including the basis of the assessment of those costs, should be postponed to be dealt with under CPR 36.10(4) and (5) or under the general discretion under CPR 44.3.

 

CPR 36.10(5) has now been renumbered CPR 36.13(5) and CPR 36.10(4) has been reworded and has become CPR 36.13(4) and I deal with these provisions above.

 

The High Court most certainly did not state that a claimant in such circumstances could not get indemnity costs and the final paragraph is worth setting out in full:-

 

“14. In principle CPR Part 36.10(5) would appear to apply in this case but the claimant is entitled to argue for a different order and the court may agree. CPR 36.11 provides that a stay operates. As we have seen under CPR 36.11(5) (b) the stay does not affect the power of the court to order costs. Nothing in the self-contained code which is Part 36 provides for judgment to be entered in this situation. Mr Steinberg could point to no specific power in the CPR. To my mind the change in terminology from the 1998 version of Part 36 does not fill the gap. What has happened in this case is that the issue of liability has been compromised by the late acceptance of a Part 36 offer. The defendant has not consented to judgment being entered. There is no power for me to enter judgment under Part 36. In my judgment the appropriate order should follow CPR 36.10 and 36.11, and CPR 36.14 is not applicable. The issue of liability should be stayed upon the terms of the claimant’s offer and the question of the costs relating to that issue (including the basis of the assessment of those costs) should be postponed to be dealt with under CPR 36.10(4) and (5) or under the general discretion under CPR 44.3.”

 

A Different View

 

It is true that in Fitzpatrick Contractors Ltd v Tyco Fire and Integrated Solutions (UK) Ltd [2009] EWHC 274 (TCC)

 

the High Court took a very different view and rejected the notion that a late accepting defendant would ever have to pay indemnity costs.

 

I accept that this is a decision of the High Court but it is a very poorly reasoned decision and has been disagreed with by many other High Court judges since, as is obvious from the above cases. The public policy statements by the judge have effectively been overturned by Parliament. In my view it cannot any longer be regarded as good law.

 

In particular the judge proceeded on the basis that if a defendant was liable for indemnity costs on late acceptance then that would deter them from accepting and they would go to trial instead:-

 

“It would not be appropriate to construe the CPR in such a way, because that would, in my view, actively discourage late settlements and instead give rise to another reason for the offeree to push on to a trial.” (Paragraph 25).

 

However the judge completely fails to explain how exactly the same consideration does not apply in relation to the rule that a late accepting claimant, who of course has won the case, has to pay the defendant’s costs from the date of expiry to acceptance. Exactly the same logic applies – if the judge is right then claimants would be deterred from accepting late and will “push on to a trial”.

 

It is settled law that a matter that does go to trial and where a claimant matches or beats its offer does result in indemnity costs and so in that sense a defendant does have an incentive to settle to avoid those indemnity costs, but as stated above why does that logic not apply to late acceptance by a claimant?

 

The judge also proceeded on the basis that indemnity costs implied misconduct – see for example paragraph 28:

 

“Furthermore, it is not as if the claimant is deprived of the remedy of indemnity costs altogether. The parties have rightly agreed that, in this case, the claimant is entitled to seek indemnity costs in the conventional way, by reference to conduct, and matters of that sort, pursuant to CPR 44.3. That is a further reason of policy why I would conclude that an indemnity costs presumption should not be imported into CPR 36.10: there is already a right to claim recovery of indemnity costs; what there is not, in my view, is a rebuttable presumption that such costs will be recovered.”

 

Again the judge fails to deal with the fact that if a claimant matches or beats its own offer at trial, and in the absence of any misconduct whatsoever by the defendant, the claimant nevertheless gets indemnity costs.

 

Furthermore in the Legal Aid, Sentencing and Punishment of Offenders Act 2012, Parliament has given a claimant who matches or beats its own Part 36 very substantial other advantages, including a 10% windfall uplift on damages.

 

Fitzpatrick v Tyco is, in my view, wrongly decided and does not have to be followed.

 

In any event the supposed public policy considerations set out in the judgment have clearly been swept away by Parliament in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and in the United Kingdom, Parliament, and not the courts, is the arbiter of public policy.

 

Costs Orders

 

A silent order means no costs and therefore it is vital in any case to obtain a costs order.

 

“Costs” in an order means standard basis only and if you want indemnity costs then it is necessary to ensure that the order describes them as being such.

 

The word “costs” on its own in the Civil Procedure Rules gives the court discretion to order either ordinary standard costs or indemnity costs and indemnity costs will most usually be in relation to a claimant’s successful Part 36 offer and also to disapprove of the behaviour of either party – see for example Gulati v MGN, upheld on appeal.

 

 

In ABC v Barts Health NHS Trust [2016] EWHC 500 (QB) (11 March 2016)

 

the Queen’s Bench Division of the High Court ordered a late accepting claimant to pay the trust’s costs from the date of the offers expiry until the date of its acceptance on the indemnity basis. Here the trust successfully argued that it would be unjust, given the particular circumstances of the case which I will deal with in a separate blog, simply to order the costs to be paid on the standard basis.

 

This is a most important case and a most important point. The general rule on late acceptance by a claimant, or indeed failure to beat a defendant’s offer at trial, is that costs are switched from the date of expiry of the relevant periods. Thus although the claimant has won he or she has to pay the defendant’s costs from that point on and that is the penalty, that is that a winning claimant nevertheless pays costs for that period. Here the court ordered them on the indemnity basis.

 

It cannot possibly be the case that a court has the power to impose that further penalty, that is not only costs switching but those costs to be on the indemnity basis in relation to late acceptance of a defendant’s Part 36 offer but not a claimant’s Part 36 offer.

 

If all that a claimant got was costs on the ordinary basis then there is no penalty whatsoever on a late accepting defendant; they would have to pay the costs anyway on the standard basis whether or not any offer had been made.

 

Public policy considerations only go one way here – a court giving purposive construction to the will of Parliament and applying public policy considerations is bound to award a claimant costs on the indemnity basis for the period from expiry of the relevant period to late acceptance by a defendant, unless it is unjust to do so.


It seems to me now to be beyond doubt and claimants should never now agree to accept costs on the standard basis where a defendant accepts late.

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Written by kerryunderwood

March 14, 2016 at 2:26 pm

Posted in Uncategorized

46 Responses

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  1. I follow you train of thought but don’t reach the same conclusions.

    Your conclusion, if I have understood it correctly, is that where a claimant’s Part 36 offer is accepted late the claimant ought to usually (unless it is unjust to do so) recover indemnity costs for the period from expiry of the relevant period to acceptance.

    As you say, under CPR 36.13(5)(b) the court will, unless it is unjust to do so, order that the offeree pays the offeror’s costs from the expiry of the relevant period to acceptance. You correctly note that the rule does not specify indemnity costs or standard costs. I do not consider this particularly important, but given that indemnity costs must be expressly ordered (CPR 44.3(4)) I would expect alternative provisions for C & D if indemnity costs were intended as a default option akin to CPR 36.17(1)(b) & (4).

    Under CPR 36.13(6) the ‘unjust factors’ are those set out in CPR 36.17(5) and ‘all the circumstances’.

    Application of these factors will determine who pays costs to who; for what period; and on what basis.

    There is no presumption in CPR 36 that the late acceptance of a Part 36 offer warrants an indemnity cost order (Fitzpatrick v Tyco Fired [2009]).

    I am therefore of the view that circumstances can warrant indemnity costs but that this is far from the default position for a claimant where their offer is accepted late.

    If the drafters wanted a claimant to get indemnity costs (unless unjust) the rules could have been drafted at CPR 36.13 to activate the equivalent of CPR 36.17(1)(b) when judgment is entered for an equal or more advantageous outcome (i.e. a presumption of indemnity costs).

    You refer to the Jockey Club cases and refer to the absurdity of a hearing granting an indemnity order and a lack of a hearing resulting in a standard basis order. I agree to the extent that this is what happened. However, as far as I can see, the defendant’s representative missed a trick in that they failed to argue that CPR 36.17(1)(b) had not actually activated and there the starting position is merely that the claimant was entitled to his costs of the issue.

    You suggest that there is no penalty for a defendant accepting an offer late, but the order for costs is a penalty – just not a brilliantly potent one.

    I’m also not convinced that having a hearing over the right costs order results in judgment that then gives you the right to indemnity costs (the ‘circular argument’) as the judgment granted at that hearing is specifically and solely to do with the entitlement to costs rather than the substantive action.

    In my view the policy decision behind normally ordering indemnity costs where judgment is entered (as opposed to normally ordering standard costs where an offer is accepted late) is amongst other things punitive and is not dissimilar to the pre-LASPO situation where there was a massive gap in success fee recovery in, for example, RTA matters where settlement 12 hours earlier could result in a massive difference in uplift.

    robertpettitt

    March 14, 2016 at 8:31 pm

    • Not saying it is automatic, but public policy very clearly dictates that it should be, so expect superior court decision or change in the law.

      Kerry

      kerryunderwood

      March 14, 2016 at 8:41 pm

      • Ah ok, in that case, i’m on board!

        I think the problem with getting a superior court decision is that it’s got to be a sufficient sum or period at stake for either party to really want to fight it up. It’s then quite hard (impossible) to get a court decision that deals with the issue in a pure way (i.e. without the facts getting in the way of a reliable decision).

        As I said on Twitter a few days ago, I do wonder whether C is more likely to get indemnity costs in a low value/fixed costs claim on the basis that fixed costs would be unjust or the standard basis assessment (with the new test of proportionality) might create a grossly unjust outcome.

        robertpettitt

        March 14, 2016 at 8:56 pm

      • Very controversial. Kerry, no doubt – the court in certain circumstances has the power to award indemnity costs where a Part 36 offer is accepted out of time. The starting point however, is that the costs from the date of expiry to the date of acceptance are paid on the standard basis. This is how it has always been. Where the rules are silent to what basis the costs are paid (e.g. 36 (5) (b)), then the costs are awarded on the standard basis.

        To suggest that, where a Part 36 offer is accepted out of time, that the costs should be automatically paid on the indemnity basis is incorrect. To further what Robert has said above, this would ultimately discourage settlement and it is not (in my view) what the writers of the rules intended.

        For example:

        A Claimant makes a Part 36 offer to settle for £10,000. The 21 days expires and proceedings continue. 6 months later, the Defendant considers accepting the Claimant’s offer of £10,000 knowing that they also have to pay the Claimant’s costs from the date of expiry to the date of settlement on the indemnity basis. If the Claimant was automatically entitled to costs on the indemnity basis where a Part 36 offer was accepted out of time, then the Defendant in this scenario would never accept the Claimant’s offer. Instead, they could tactically make their own Part 36 offer for £9,999.99 and if not accepted, take their chances and proceed to Trial – knowing that they would only pay costs on the indemnity basis if the Claimant obtained Judgement more advantageous than their (the Claimant’s) Part 36 offer.

        This surely cannot be correct.

        “If all that a claimant got was costs on the ordinary basis then there is no penalty whatsoever on a late accepting defendant”.

        I think you’re missing a key point here Kerry. When a Claimant makes a Part 36 offer, it is always lingering in the back of the Defendant’s mind that if the Claimant obtains Judgement more advantageous than their Part 36 offer, then the Defendant is liable to pay the benefits listed under Part 36.17(4). This is the penalty for failing to accept the Claimant’s offer. Also, the Claimant has the right to withdraw their Part 36 offer after the 21 days have expired. The Claimant cannot have it’s cake and eat it – that is, having the benefit of costs protection from an effective Part 36 offer, and also the benefit of indemnity costs if that offer is accepted out of time.

        To say that indemnity costs should be awarded as a starting point where a Part 36 offer is accepted out of time ultimately discourages settlement and is therefore completely contrary to the overriding objective.

        Josh Coleman

        March 14, 2016 at 9:01 pm

      • So one law for rich insurance companies and one for ordinary people. I don’t think so. Tide has turned- see for example Gentry v Miller and UK Insurance Limited [2016] EWCA Civ 141.

        Kerry

        kerryunderwood

        March 14, 2016 at 9:51 pm

  2. There are cases going through which I may or may not be involved in, but one claimant win in a superior court changes everything on around 900,000 cases a year whereas a defeat just maintains the status quo- that is why insurance companies and their lawyers are so worried. This issue will go to court.

    Kerry

    kerryunderwood

    March 14, 2016 at 9:46 pm

    • I’m sure it will go to Court. But for the reasons stated above, I find it very unlikely that a precedent would be set where a Claimant is awarded indemnity costs as a starting point, as this would discourage settlement.

      I’ll give Gentry a read today.

      Josh

      Josh Coleman

      March 15, 2016 at 8:37 am

  3. Hi Kerry

    I agree totally. It makes a mockery of the courts. I often find insurance ignore realistic part 36 offers once its issued (particularly if it listed for disposal) as they are ‘free-rolling’ as they say in poker. The Claimant has to jump through the hoops of witness statements, filing of docs, bundles etc.. only for D to accept the offer late on with no additional liability. C may lose interest, may miss a deadline etc… so D can wait for all of those opportunities and see how it pans out, then accept at the last minute. This takes up valuable court time as a case can be settled well in advance and the hearing vacated for other matters. It also drains firms time and resources. if its listed for disposal and they accept your P36 at the 11th hour you’re also guaranteed to get the Bird & Acorn argument just to rub salt in the wound!

    Assuming we can get standard/indemnity costs, would you have to give credit to D for the costs matrix? Eg you make a Part 36 pre Allocation, D accepts once its listed. Your Indemnity costs are say 3000 but you are entitled to the extra circa 1500 under Table 6B. Are you entitled to 3000 + 1500 or would D get credit for the 1500 recoverable under the matrix?

    thanks

    sam

    sam

    March 15, 2016 at 11:15 am

    • Lord Woolf in Excelsior Commercial and Industrial Holdings Limited v Salisbury Hammer Aspden and Johnson clearly states:

      “The clear inference from the absence of any reference to an indemnity basis in 36.20 is that, in normal circumstances, an order for costs which the court is required to make under that Part to make, unless it considers it unjust to do so, is an order for costs on the standard basis. That means that if the court is going to make an order for indemnity costs, as it can in the case where Part 36.20 applies, it should do so on the assumption that there must be some circumstances which justifies such an order being made”.

      Kerry, I encourage you to read the Judgement of Fitzpatrick v Tyco Fired [2009] as it quite clearly explains why an automatic entitled to indemnity costs would be ridiculous. In Fitzpatrick, Mr Justice Coulson stated:

      “There is a risk that, if a defendant belatedly changed its mind as to the acceptability of a claimant’s Part 36 offer, the defendant would be discouraged from formally accepting that offer if it thought that it would have to pay indemnity costs in consequence. It would not be appropriate to construe the CPR in such a way, because that would, in my view, actively discourage late settlements and instead give rise to another reason for the offeree to push on to a trial”.

      “Accordingly, for policy reasons, it seems to me that it would be wrong to presume an entitlement on the part of a claimant to indemnity costs in these circumstances. Such a presumption would, I think, hinder rather than promote early settlements, for the reasons that I have sketched out above. “

      Josh Coleman

      March 15, 2016 at 12:03 pm

      • I suggest you read it. It very clearly supports my view: no automatic entitlement but judicial discretion.

        kerryunderwood

        March 16, 2016 at 7:50 am

    • Please read my post: Claimant’s Part 36 offer overrides fixed costs. Other courts are already agreeing with the interpretation placed on it by Professor Dominic Regan and me.

      Kerry

      kerryunderwood

      March 16, 2016 at 7:53 am

  4. In absolute fairness Josh, he made it clear that indemnity costs would not (at present) be automatic in a situation where a defendant accepts a Part 36 Offer after the expiry of the relevant period. Instead, the Court will assess costs if agreement cannot be reached. If a defendant as accepted an offer grossly out of time for self-serving reasons, a respectable argument for indemnity costs exists.

    Further, this article is in the context of the fixed recoverable costs regime – not traditional assessed costs. In the context of fixed costs, the costs risk to defendants is extremely manageable and, in my experience, defendants are prepared to allow cases to drift until the eve of the trial in the hope of obtaining a procedural advantage (e.g. a strike out opportunity or debarring sanction). This is disgraceful conduct.

    In the last several months, the higher courts have ruled against insurance companies in at least 4 widely reported cases. It seems clear to me that the senior judiciary are aware of the anti-claimant bias that has festered in county courts for the last 5 or 6 years and wish to address the problem. I wouldn’t rule out a presumption in favour of indemnity costs where a defendant accepts a Part 36 Offer out of time in fixed costs litigation.

    Jonathan Massey

    March 15, 2016 at 9:32 pm

    • I could not have put it better myself

      Kerry

      kerryunderwood

      March 16, 2016 at 7:43 am

      • I disagree that this article is only in the context of the fixed costs regime. None of the cases cited are fixed costs cases. Whilst I agree that the sanction is not at present automatic, Kerry is suggesting that is should be in future, purely because the Defendant has accepted a Part 36 offer out of time. e.g.:

        “It seems to me now to be beyond doubt and claimants should never now agree to accept costs on the standard basis where a defendant accepts late”.

        I agree that something needs to be done to deter Defendants from ‘allowing cases to drift’. However, surely there must be a more practical way of doing so? Perhaps something that makes it worth while for the Defendant to accept, but doesn’t put them off to the extent where they’d rather proceed to Trial.

        On another note, if the Claimant could obtain indemnity costs where a Defendant accepts their offer out of time, then you would undoubtedly see the exact same poor conduct from the Claimant. I.e. late disclosure/withholding medical evidence etc for the sole purpose of increasing costs.

        I agree with Jonathan that the issue is more prominent in fixed cost cases.

        Josh Coleman

        March 16, 2016 at 9:34 am

  5. ‘… surely there must be a more practical way of doing so? Perhaps something that makes it worth while for the Defendant to accept, but doesn’t put them off to the extent where they’d rather proceed to Trial.’

    The prospect of indemnity costs would achieve this goal.

    If the defendant is inclined to settle a claim, it (assuming the paying party is an insurance company) should do so without delay. If it fails to do so, indemnity costs are an appropriate penalty. If the defendant has a good case, it should have the courage to see it through to trial. I accept this creates a ‘damned if you do, damned if you don’t’ situation but I’m afraid civil litigation in England and Wales is adversarial in both the legal and ordinary meaning of the word largely thanks to the unrelenting greed of the insurance industry.

    Jonathan Massey

    March 17, 2016 at 9:30 pm

    • Jonathan
      Agree entirely. Could be simplified by a 10% uplift on fixed costs for each stage passed after Part 36. So D accepts one stage late= 10% uplift, three stages late: 30% etc.
      Kerry

      kerryunderwood

      March 18, 2016 at 6:39 am

      • As if getting your costs up to the date of acceptance wasn’t enough?

        Perhaps the CPR should recommend a ‘gesture of goodwill’ for all offers that are accepted out of time? Anything less than 30 days should warrant a free mug/ pencil sharpener. Any longer, and I would suggest something like a £10 John Lewis voucher – but to stop things getting too out of hand, the maximum gesture of goodwill available should be limited to a weekend break for two at Butlins.

        Josh Coleman

        March 23, 2016 at 10:31 am

  6. A few comments. (1) It isn’t ‘ridiculous’ (Josh Coleman) to contend for a presumption of indemnity basis costs where a claimant’s Part 36 is accepted late. In Fitzpatrick itself, Coulson J said that the claimant had an attractive case to which there was considerable force. (2) A penalty is imposed on claimants who accept defendants’ offers late. No one suggests that this is an unacceptable stifling of settlements, or that it leads to lots of unnecessary trials. (3) Even it did, there is an obvious countervailing argument, which is that imposing a sanction for late acceptance of a claimant’s offer promotes a policy of such offers being given careful consideration. (4) The Fitzpatrick case doesn’t deal very satisfactorily with the Court of Appeal’s earlier decision in Petrotrade v Texaco, where, significantly, the leading judgments were given by Lord Woolf himself, and by Clarke LJ a future Master of the Rolls. Both judges held that enhanced costs and interest were available as a matter of discretion where a claimant made a successful Part 36 offer, even though they were not automatically applicable under Part 36 as it then stood. In particular Clarke LJ said: ‘In a case to which CPR r 36.21 does not apply because the defendant is not held liable “at trial” within the meaning of rule 36.21(1)(a) , I do not think it is appropriate to apply the subsequent paragraphs of that rule as if the rule did apply. However, the court has a wide discretion as to both interest and costs. I entirely agree that the making and refusal of a Part 36 offer is a highly material factor in deciding how those discretions should be exercised. Although, as so often, everything will depend on the circumstances of the case, justice will ordinarily require that factor to be reflected in both the order for costs and in the award of interest.’ Coulson J fails to cite this passage in Fitzpatrick. (5) I think, if the point were reconsidered outside the county court (which is bound by Fitzpatrick) a court is likely to say an award of indemnity costs is readily available as a matter of discretion where a claimant’s offer is accepted late. (6) The lead case on indemnity costs outside Part 36 remains Excelsior v Salisbury which states they become available when a case falls ‘outside the norm’. Where a claimant’s Pt 36 offer is accepted late, with no intervening change in circumstances, the court could easily say that this takes the case outside the norm and, also applying the approach in Petrotade, justifies indemnity basis costs. To that extent, I agree with Kerry’s blog. (7) But the jury is out on whether this helps claimants in fixed costs cases under section IIIA of Part 45, because there you have the additional problem that you need to establish an exception from the rule in 45.29C that you only get fixed costs in such cases. We know from Broadhurst that CPR 36.21 (old 36.14A) creates such an exception where a Part 36 offer succeeds at trial. But there is no equivalent exception where the offer is accepted late. In my view, this needs the attention of the Rule Committee.

    Ben Williams

    March 24, 2016 at 11:27 am

    • Ben

      I am very grateful indeed for this comment, which I am sure will be of great interest to those reading it.

      Kerry

      kerryunderwood

      March 24, 2016 at 11:35 am

  7. This blog has caused a degree of excitement amongst those seeking more than fixed costs (especailyl after Broadhurst), but Mr WIlliams makes an excellent point (amongst all his other excellent points) at point (7) of the applicability in those cases.

    For what it is worth, I think the court probably has the discretion to order indemnity costs if the circumstances require. Although Fitzpatrick Contractors would mean most District Judges will feel bound to allow costs on the standard basis in almost all instances.

    However, I think there is also an argument that the issue will require the intervention of the Rule Committee or the Court of Appeal even on non-fixed costs cases, and not merely the High Court, given the dicta of Brown LJ in Kiam II v MGN Ltd.(2) [2002] EWCA Civ 66:

    “…conduct, albeit falling short of misconduct deserving of moral condemnation, can be so unreasonable as to justify an order for indemnity costs. With that I respectfully agree. To my mind, however, such conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight. An indemnity costs order made under Rule 44 (unlike one made under Rule 36) does, I think, carry at least some stigma. It is of its nature penal rather than exhortatory. The indemnity costs order made on the principal appeal in McPhilemy was certainly of that character…
    It follows from all this that in my judgment it will be a rare case indeed where the refusal of a settlement offer will attract under Rule 44 not merely an adverse order for costs, but an order on an indemnity rather than standard basis”

    domthedrafty

    March 24, 2016 at 3:36 pm

    • But we are talking Part 36, not Part 44.

      kerryunderwood

      March 24, 2016 at 3:43 pm

      • I appreciate we are talking about P36 but when asking the court to exercise discretion under 36.14 (4)/(5), it would surely involve a reference to 44.2 (4) or the seven/eight pillars to determine whether standard or indemnity basis is the appropriate order?

        I do not think that a court, when exercising that discretion, could consider 36 in isolation and ignore the 44.2 (4) general rule in deciding what order to make, especially as P36 cases are not excluded by 44.2 (3) when they could be.

        If it does use 44 then arguably Kiam is in play, albeit it does seem readily distinguishable.

        domthedrafty

        March 29, 2016 at 4:13 pm

  8. Part 36 is a self-contained code.

    kerryunderwood

    March 29, 2016 at 5:01 pm

    • It is indeed, but the court still has to use the general rule in 44 to determine the order to make per Gibbon v Manchester City Council [2010] EWCA Civ 726

      domthedrafty

      April 5, 2016 at 1:03 pm

  9. Can a defendant seek indemnity costs when a claimant accepts a part 36 offer out of time?

    James Hough

    March 31, 2016 at 11:37 pm

    • Please read this post- it deals with that very point- ABC v Barts Health NHS Trust

      kerryunderwood

      April 1, 2016 at 8:27 am

  10. I find the regime pretty depressing. If it is the case that Claimants are entitled to indemnity costs against Defendants who accept offers out of time then it will be a short period of sunshine. Defendants will surely tend to change their behaviour and make settlement conditional on Claimants agreeing not to exercise that entitlement. Claimants are generally keen to settle so will tend to do so on these terms.

    The Claimants that might not accept such terms are those who have made genuinely low offers that they expect to beat at a Trial they are willing to wait for, and whose approach to risk is sufficiently bullish. Making Part 36 offers that you are utterly confident of beating is a different approach to claims than negotiation strategy that surely most of us adopt.

    Defendants on the other hand can plainly behave more boldly taking advantage of a Claimant’s different attitude to risk not to mention the Claimant’s inability to pay adverse costs orders.

    When are you applying to head the Rules Committee, Kerry?

    Richard

    April 22, 2016 at 8:44 am

    • Richard

      Defendants’ remedy is to make decent Part 36 offers early and to accept sensible claimants’ offers on time. Why should a late-accepting claimant be punished, but not a late-accepting defendant? Should be a level playing field. Having said that Part 36 needs a total overhaul.

      As to the Rules Committee – I did apply some years ago and was rejected. Their loss methinks 🙂

      Kerry

      kerryunderwood

      May 1, 2016 at 12:51 pm

  11. Judge today dismissed claimant’s application and ordered C to pay £2,500 costs after seeking indemnity costs post D acceptance of part 36 offer a few months late. No conduct issues out of the ordinary.

    Jim

    April 25, 2016 at 11:28 pm

  12. […] I deal with all of this at great length in my blog – Part 36: Does a Claimant get Indemnity Costs on Late Acceptance? […]

  13. Kerry
    I acted for the claimant in Jolly v Harsco
    What I can say is that the issue as to the basis upon which costs of liability should be assesses remained at large until the defendants made a money offer in this substantial claim. The parties addressed not only the issue of the costs basis but also dealing with outstanding interlocutor my costs points. Our negotiating position was strengthened in that it remained open to us to apply to the trial judge for a ruling as to the basis upon which liability costs should be assessed if the matter had gone to a quantum trial as well it might have done. It increased the level of “fear uncertainty and doubt” at play as the quantum trial approached, the the claimant’s advantage. In complex claims this is a sound strategy and is to be commended. At detailed assessment it also strengthens the claimant’s position and allows inferences to be drawn regarding the defendnat’s conduct which might otherwise be permissible

    Andrew Morgan

    June 5, 2016 at 1:28 pm

    • Andrew

      That is very interesting – thank you. We still await a definitive ruling as to how a court should exercise its discretion in relation to a late-accepting defendant, but you make some excellent tactical points.
      Many thanks for sharing this with us.
      Kerry

      kerryunderwood

      June 6, 2016 at 10:53 am

  14. […] first decision confirms the law as set out in my blog – Part 36: Does a Claimant get Indemnity Costs on Late Acceptance?, that is that the claimant does indeed get indemnity costs in those circumstances. This is a very […]

  15. […] I deal with that case in my blog – Claimants’ Part 36 Offers: Five New Key Decisions and the whole issue of what happens when a defendant accepts late in my blog – Part 36: Does a Claimant get Indemnity Costs on Late Acceptance? […]

  16. […] first decision confirms the law as set out in my blog – Part 36: Does a Claimant get Indemnity Costs on Late Acceptance?, that is that the claimant does indeed get indemnity costs in those circumstances. This is a very […]

  17. Reblogged this on Kerry Underwood.

    kerryunderwood

    August 5, 2016 at 8:08 am

  18. hello
    would appreciate some advice re costs accepting offer late
    compensation was paid in july 2016 to date not been paid as waiting for other side to confirm the costs they want for claim being accepting out of tme .
    please help

    taslim mahoney

    March 3, 2017 at 9:59 am

    • The starting point is that you pay the other side’s costs from 21 days after the offer was made until the date of acceptance. Do you mean compensation was agreed in July 2016, but has not been paid?

      Kerry

      kerryunderwood

      March 3, 2017 at 7:48 pm

      • Thank you for your response much appreciated
        Offer was made in jan2016 case been on going for 6 yrs
        My solicitor advised not to accept
        Defendants then did surveillance after 6 yrs
        And my solicitor said should accept offer
        In june2016 and claim was settled in July 2016
        I was not informed till September 2016 after I had to put complaint in as I had no response since June 2016
        In complaint response I was told paid in July and their cost just been negotiated and my payment being held as defendants want to claim cost for out of time acceptance for Jan to June 2016
        And they have just put in request to court to request their costs from me
        November 2016
        No further response as yet
        Are they allowed to hold my payment for this long ?
        Why are they taking so long to advise what costs amount they are seeking and why
        Can I dispute ?
        Thank you for your time
        Very much appreciated

        Taslim mahoney

        March 4, 2017 at 1:40 am

  19. I regret that I am unable to help further as you already have solicitors instructed.
    Kind regards
    Kerry

    kerryunderwood

    March 5, 2017 at 1:25 pm

  20. Is there a Judgment for the Whiting v Carillionamey case?

    Ian D.

    March 8, 2017 at 2:26 pm

  21. Kerry,

    Thank you for your blog which has been a massive help in helping me prepare my case for indemnity costs against late accepting Defendant in fixed costs matters. I just have have a few questions and I would be most grateful for your help.

    In you blog you said the decision in Fitzpatrick has been disagreed/criticised by other High Court judges. Are you able to provide me with examples of such cases?

    You also stated that the Policy statements in Fitzpatrick have been effectively been dealt with by Parliament and the LASPO changes. Can you please shed some light on this as to which exact policy arguments and how they have been addressed.

    James D

    March 11, 2017 at 4:02 pm

    • Pleasure. Jockey Club v Willmott and Jolly v Harsco referred to in the blog, with links to the full judgments, are both High Court decisions.

      Parliament has decided that a Claimant who matches or beats its own Part 36 offer should get a range of benefits, including a 10% uplift on damages as set out in LASPO.

      Kerry

      kerryunderwood

      March 13, 2017 at 12:57 pm

  22. Hi, does anyone know whether there is a Judgment available for the Hart v Pizza Hut case? I’m struggling to find many details on this one.

    I.D

    Mr I. Davidson

    April 10, 2017 at 11:39 am


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