Kerry Underwood

PART 36: WITHDRAWN OFFER STILL COUNTS: AN UNFORTUNATE DECISION

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The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

These principles, and the whole issue of Qualified One-Way Costs Shifting, is dealt with in my book – Qualified One-Way Costs Shifting, Section 57 and Set-Off – Available from me here for £15.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

In

Blackpool Borough Council v Volkerfitzpatrick Ltd [2020] EWHC 2128 (TCC)

the Technology and Construction Court, part of the High Court, considered the correct approach to costs where a Part 36 offer has been withdrawn and where the claimant recovers less at trial than had been on offer.

It was common ground that the automatic consequences of Part 36 do not apply to a withdrawn offer – see CPR 36.17(7)(a).

However, the offer may still be taken into account under the general costs provisions in CPR 44, specifically CPR 44.2(4)(c), with the key issue being whether the recipient of the offer acted reasonably in rejecting it when it was available – see

Thakkar v Patel [2017] EWCA Civ 117.

Here, the court held that the claimant did indeed act unreasonably in not accepting the defendant’s Part 36 offer, which was subsequently withdrawn, and ordered the successful claimant to pay 80% of the defendant’s costs after the expiry of the 21 day period for accepting a Part 36 offer.

The judgment here also sets out how the court should consider the reasonableness of rejecting, or failing to accept, Part 36 offers which are subsequently withdrawn.

The court should put itself in the position of the claimant at the time of the offer and not judge the case with hindsight.

The court should consider the reasonableness of the non-acceptance, taking into account the facts and matters relating to the merits of the claim as they ought reasonably to have appeared to the claimant at that time, and not by reference to wider commercial factors.

Here, the claim was for £6.7 million in relation to a tram depot and the claimant won on six out of seven matters, but recovered only £1.1 million, with the awards on many of the successful elements of the claim being cut sharply, in one case by over 90%.

The court held that it was unreasonable for the claimant not to accept the Part 36 offer as it knew, or was in a position to know, that its case had been significantly weakened by test results and therefore there was a real risk that it would fail to beat the offer.

The claimant had taken a commercial risk.

The defendant was awarded 80% of its costs in relation to the subject matter of the Part 36 offer from 21 days after its service.

The case is also significant for the court choosing to make a percentage costs order rather than an issue based costs order and thus is inline with the very recent case of

Jones v Ministry of Defence [2020] EWHC 1987 (QB)

dealt with in my blog –

PROPORTIONATE COSTS ORDERS PREFERRED TO ISSUE BASED COSTS ORDERS: UPDATED:

TWO NEW CASES

Here the court said:

 

“81. Whilst it would be possible to make an issue based costs order after 6 September 2019, this is a paradigm case for the court to make a percentage order if practicable under CPR Part 44.2(7), because an order awarding the claimant the costs of the tram doors issue alone would not reflect the fact that there are two reasons why the case went to trial, the first being the claimant’s failure to accept the defendant’s Part 36 offer and the second being the defendant’s unexplained (and, frankly, rationally inexplicable) decision to exclude that claim from its Part 36 offer.”

 

Comment

With respect, the court here appears to have got confused between disallowing a successful party’s costs, and indeed ordering them to pay part of the other side’s costs, and Part 36.

Absent any Part 36 offer, it is almost inconceivable that the claimant here would have recovered all of its costs, by virtue of the facts set out above.

It is also true that the court has a very wide discretion in CPR 44 in relation to costs.

However, it cannot be right that a withdrawn Part 36 offer should ever get anywhere near having the same consequences as an offer capable of acceptance.

Here, the claimant had to plough on, as once the offer was withdrawn, there was no offer to accept, and no way that the claimant could end its claim, which did, after all, result in an award of £1.1 million.

The defendants here have been allowed to eat their cake and still have it, that is to be at no risk of any offer being accepted after it was withdrawn, but, for all intents and purposes, getting the full protection in costs of Part 36.

This is open to heavy abuse. A defendant makes a Part 36 offer very early on in the case, and almost immediately withdraws it. Thus, if the claimant accepts the offer then that is that and the defendant is liable for limited costs as the offer has been made very early on.

Why, in those circumstances, should the defendant then get protection in relation to potentially millions of pounds of costs incurred when the other party had no mechanism for ending the case, short of discontinuance, when it would also be liable for the defendant’s costs?

Part 36 is difficult enough anyway, and I understand the logic of a court having to take into account a non-Part 36 offer, such as a Calderbank offer, as such offers give more flexibility than Part 36 and may be entirely reasonable in the particular circumstances of the case.

However, I see no justification whatsoever for a withdrawn Part 36 offer ever being taken into account in relation to costs.

This decision should be overturned on appeal.

Written by kerryunderwood

August 6, 2020 at 4:49 pm

Posted in Uncategorized

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