Kerry Underwood

PART 36: CAN A DEFENDANT BE BETTER OFF PAYING MORE THAN THE CLAIMANT WANTS?

with 3 comments


A case to do your head in

 

In Purrunsing v A’Court & Co (a firm) and another [2016] EWHC 1528 (Ch) (1 July 2016)

 

the High Court held that in considering whether a claimant had matched or beaten its own Part 36 offer the court should calculate interest to the expiry of the Relevant Period, generally 21 days after the Part 36 offer was made.

 

To do otherwise would mean that whether or not the claimant had matched or beaten its own offer would depend upon the length of time between the offer and trial.

 

Here the claimant had made a Part 36 offer to settle the claim for £516,000.00 inclusive of interest and that offer was made on 20 May 2015.

 

Following the trial the claimant recovered £470,000.00 together with interest at the rate of 2.5% above base rate, which down to the date of the order of 14 April 2016, was £48.983.01 giving a total of £518,983.01.
The claimant submitted that as he had recovered a sum in excess of his offer he was entitled to, among other things, indemnity costs for the period from the expiry of the relevant period, that is 21 days after the Part 36 offer was made on 20 May 2015, that is from 10 June 2015.

 

The paying party submitted that it was necessary to deduct the interest awarded in relation to the period after expiry of the relevant period, that is in this case after 10 June 2015.

 

If that was done then the total substantive damages and interest to 10 June 2015 resulted in a figure less than the claimant’s offer and thus he had failed to beat or match his Part 36 offer and should not get the various uplifts, including indemnity costs. The resultant figure became £507,046.30, which was clearly below the claimant’s Part 36 offer.

 

The judge, correctly in my view, relied on CPR 36.5(4) which reads:-

 

“(4)    A Part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest until—

 

  • the date on which the period specified under rule 36.5(1)(c) expires; or

 

  • if rule 36.5(2) applies, a date 21 days after the date the offer was made.”

 

Comment

 

In my view this decision is correct but the rule itself, as with much of Part 36, throws up other problems.

 

Let us suppose that the claimant has called the matter exactly right and offers to accept £500,000.00 and that is precisely the sum that will be awarded for substantive damages and interest to the end of the relevant period and thus the claimant will have matched its own offer and is entitled to the extras.

 

Six months pass.

 

The claimant can either withdraw that first offer on the basis that the additional interest accrued in those six months means that it is now too low but if the claimant does that then the penalties only run from any later, higher, offer.

 

If the claimant does nothing and does not withdraw the offer then it is capable of acceptance at any time and the claimant stands to get the additional benefits, including additional interest, indemnity costs and a 10% uplift on damages.

 

However the defendant is then off the hook for that additional interest as they are free to accept the offer made with the calculation of interest up to the expiry of the relevant period six months earlier.

 

Thus the defendant avoids six months interest. That can be a significant sum even now during a period of very low interest rates. As and when interest rates rise it can become a very significant sum indeed.
Furthermore it is not yet settled law that a late accepting defendant, as compared with a defendant who has had judgment entered against it, is liable for indemnity costs for the period after expiry of the relevant period.

 

No superior court has ruled on that point.

 

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.

 

In my view that decision is correct but it is still only a first instance decision, albeit by a highly respected Regional Costs Judge.

 

I deal with that case in my blog – Claimants’ Part 36 Offers: Six 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?

 

The decision here in the Purrunsing case should give strong support to the public policy argument that where a defendant accepts a Part 36 offer late, then the claimant should always get indemnity costs and the other uplifts.

 

The rule throws up further problems. Let us take the scenario above. Let us assume that the extra interest, that is from the end of the relevant period until today, totals £10,000.00.
Clearly a fresh offer could be made with the original offer being withdrawn which would mean that the defendant would have to pay an additional £10,000.00 in order to settle the matter by way of acceptance of that Part 36 offer. However if the defendant did that then there would be no uplift on anything as the offer would have been accepted within time, that is within the relevant period.

 

However if Sutherland v Khan is right then if the defendant accepts the original offer it will be liable for indemnity costs from expiry of the relevant period as well as a 10% uplift on damages and interest on costs and damages etc.

 

Thus that will be a mathematical calculation as to which suits the claimant best. I refer to it as a mathematical calculation but actually the amount of costs that will be allowed by the court is speculation rather than calculation.

 

In fact a claimant may be best served by leaving the original lower offer unimproved as indemnity costs and a 10% uplift on damages will normally be a much higher figure than the further interest from the date of expiry of the relevant period.

 

Of course a claimant can make a fresh, higher, Part 36 offer and leave the original one on the table.

 

Bizarre as it may seem, for the same reasons set out in the last paragraph, a defendant will normally be better accepting that higher offer in time and thus avoiding the uplifts contained in CPR 36.17(4) including indemnity costs and 10% on damages etc.

 

I must confess to not understanding whether that succeeds in avoiding those consequences or not.

 

CPR 36.17(7) states:-

 

“(7)    Paragraphs (3) and (4) do not apply to a Part 36 offer—

 

  • which has been withdrawn;

 

  • which has been changed so that its terms are less advantageous to the offeree where the offeree has beaten the less advantageous offer;”

 

Obviously the offer would not have been withdrawn and therefore CPR 36.17(7) (a) does not apply.

 

However if a claimant offers to accept £500,000.00 and then says that it will take £510,000.00 clearly that offer has been changed so that its terms are less advantageous to the offeree – that is the paying party – as the offeree will now have to pay more.

 

However the offeree, in accepting that second less advantageous offer, has not “beaten the less advantageous offer” – how can an accepting party ever “beat” anything?

 

In other words if a defendant accepts a claimant’s Part 36 offer of £510,000.00, and the first offer of £500,000.00 is on the table, then as the amount paid is greater than that first offer presumably the defendant does have to pay the uplift on damages and indemnity costs and so on.

 

However that is all predicated on the basis that a late accepting defendant has to pay anything additional; as stated earlier we await a superior court decision on that point.

 

It probably never occurred to anyone that a defendant faced with different, still extant, claimants’ Part 36 offers would chose to accept the higher one.

 

What happens in the above scenario if the defendant, unsure of whether acceptance of £510,000.00 will trigger indemnity costs etc. from the first offer of £500,000.00, makes its own Part 36 offer in the sum of £515,000.00, which is then accepted by the claimant?

 

Thus the matter is resolved by a claimant accepting within time a defendant’s Part 36 offer.

 

Presumably then no additional interest, indemnity costs or uplift are payable even though the amount changing hands is higher than both of the claimant’s Part 36 offers still on the table.

 

Again presumably those wise J people sitting on our beloved Rules Committee did not envisage a defendant making a Part 36 offer higher than a claimant’s Part 36 offer which was still available for acceptance.

 

I have said before that Part 36 would challenge Einstein. It certainly challenges me.

 

Any thoughts from you genuinely wise people out there?

 

Please see my related blogs:-

PART 36 LIABILITY OFFERS ON DAY ONE

PART 36 & ISSUE BASED ORDERS

PART 36: THE DRY SALVAGES: UNIFIED

CLAIMANT’S PART 36 OFFER OVERRIDES FIXED COSTS

10% UPLIFT IN ALL CASES EXCEPT WHERE THERE IS A RECOVERABLE SUCCESS FEE

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

CLAIMANTS’ PART 36 OFFERS: FIVE NEW KEY DECISIONS

 

 

 

 

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Written by kerryunderwood

July 7, 2016 at 2:38 pm

Posted in Uncategorized

3 Responses

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  1. HI Kerry,

    Great post. A few points:

    (1) The hypothetical scenarios at the bottom demonstrate in my view why an automatic presumption of indemnity costs + additional benefits following a late acceptance of C’s P36 will only discourage settlements.

    (2) Please correct me if I am wrong, but in my view the decision in Sutherland is wrong in law simply because Besford did not read the rules correctly.

    36.13(6) requires the court to consider whether it is unjust to make the orders specified in 36.13(5) and to take into account all the circumstances of the cases, including the matters listed under 36.17(5). However, if you read the Judgment carefully, instead of considering the matters listed under 36.17(5), Besford considered whether it would be unjust to make the orders that would flow under 36.17(4). This is how Besford ultimately reached his decision in awarding costs on the indemnity basis.

    In reading the rules correctly, Besford should have considered the matters A-E listed under 36.17(5) to decide whether it would be unjust to make the orders under 36.13(5). It does not specify what basis these costs should be paid, however, where the rules are silent on the basis costs should be paid, then costs are awarded on the standard basis, unless, in my view, conduct is an issue. Besford rightly pointed out that an award for costs on the standard basis would have circuitously made the order and order for fixed costs, but his attempt to award the Claimant a sum in excess of fixed costs was confused.

    (3) It would have been less controversial for Besford to expressly make an order under 36.13(5) for indemnity costs (despite no poor conduct), than to make the order under 36.17 as he did. It is also worth noting that Besford’s reasoning to award indemnity costs in the absence of inappropriate conduct was mostly subjective. As you say, I believe a higher court needs to rule on this point.

    (5) Taking into account what I have said above, I do not believe that the Claimant is entitled to any of the additional benefits listed under 36.17(4) (10% uplift in damages, indemnity costs and additional interest) following late acceptance of a Part 36 offer.

    I welcome any thoughts on the above.

    J

    Josh Coleman

    July 7, 2016 at 4:21 pm

    • I disagree for the reasons set out in my blog – Part 36: Does A Claimant Get Indemnity Costs On Late Acceptance? Here the Judge came to the right conclusion, possibly by the wrong route.

      I simply do not understand the discouraging settlement argument. If a defendant has the choice of accepting late and paying indemnity costs or going to trial and paying far more indemnity costs then it should be a no brainer.

      Why would this not also apply to discourage settlement by a late accepting claimant, that is why should they not risk going to trial, rather than paying post- Part 36 costs even though they have won?

      With respect it makes no sense at all.

      Kerry

      kerryunderwood

      July 16, 2016 at 5:04 pm

  2. […] Can a defendant be better off paying more than the defendant wants? […]


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