Gavin is a specialist Costs Lawyer and member of the Association of Costs Lawyers.
Part 36 Offers - An Update
I have previously written about Part 36 offers, and the benefits of beating them here. Since then there have been a couple of recent decisions that are worth considering further.
Hochtief (UK) Construction Ltd and Anor v Atkins Ltd  EWHC 3028 (TCC) was a case where the High Court were required to determine whether the benefits of a Claimant beating their own Part 36 offer apply where that offer has been beaten by a narrow margin.
The Court handed down judgment for the Claimants on 31 July 2019 in respect of a claim relating to a bridge, but dismissed another claim relating to an underpass, confirming the Claimants were entitled to damages and interest in the sum of £802,475.35. A hearing was listed to deal with outstanding issues to include interest on damages, costs and an application issued by the Defendant for permission to appeal.
Shortly before the hearing the parties agreed interest due on the damages at a rate of 2% above the base rate, up to 9 June 2017, in the sum of £77,372.41. At the hearing of the Defendant’s Application was refused but the Court had insufficient time to deal with the other outstanding issues. The hearing was adjourned, and the parties allowed time to file further written submissions. The parties agreed that the outstanding issues could be determined on a paper basis.
The Claimants had made a Part 36 offer in the sum of £875,000 on 19 May 2017 with the last date for acceptance being 9 June 2017. They had succeeded in obtaining judgment in the sum of £879,847.76, that being the sum of £802,475.35 and £77,372.41, and had therefore beaten their Part 36 offer by £4,847.
The Claimants’ sought an order for:
- interest on the damages awarded at an enhanced rate of 6% above base rate from 10 June 2017 to 31 July 2019;
- costs on the indemnity basis from 10 June 2017;
- interest on those costs at an enhanced rate of 6% above base rate from 10 June 2017; and
- an additional sum of £65,123.77.
In light of the fact that the Claimants had only beaten their Part 36 offer by a narrow margin and were unsuccessful in respect of the underpass claim the Defendant submitted that the Court should make an issues-based, or proportional costs award.
Mrs Justice O’Farrell ruled that:
“The fact that the JV beat the Part 36 offer by a very small margin does not displace the Part 36.17 regime: CPR 36.17(1)(b).
The general provisions of CPR 44 do not apply where the costs consequences of a Part 36 offer apply: CPR 44.2(4)(c). “
O’ Farrell J considered whether to make an issues-based order and noted that it would be possible to apportion the costs between the two claims. That did not however give sufficient weight to the Claimants’ offer, made in respect of both claims, and the fact that the offer should have been accepted. She determined that a proportional costs order was the fairest way of reflecting the relative success and failure of each party and ordered the Defendant to pay 85% of the Claimants’ costs, with those costs being subject to detailed assessment on the standard basis for costs incurred up to and including 9 June 2017 and the indemnity basis on costs incurred thereafter.
O’ Farrell J. also ordered the Defendant to pay interest on damages at a rate of 6% above the Bank of England base rate for the period 10 June 2017 until Judgment on 31 July 2019 in the sum of £112,812.20, an additional amount of £65,123.77, interest on recoverable costs incurred since 10 June 2017 at a rate of 6% above the base rate, and an additional amount of £65,123.77.
This judgment again highlights the potential benefits derived from making Part 36 offers and confirms that those benefits still apply when offers are beaten by only a narrow margin.
Another case involving Part 36 offers with implications in relation to costs is Ho v Adelekun  EWCA Civ 1988. This was a claim that started under the RTA protocol but left as the Defendant did not admit liability. It was allocated to the fast track, but the Claimant sought for it to be reallocated to the multi-track as the value of the claim had increased.
Shortly before the hearing of the Claimant’s application the Defendant made a Part 36 offer of £30,000. The letter setting out the offer confirmed that if it were accepted within 21 days:
“our client will pay your client’s legal costs in accordance with Part 36 Rule 13 of the Civil Procedure Rules such costs to be subject to detailed assessment if not agreed.”
The offer was accepted within the 21-day period and the terms of a Tomlin Order agreed and approved by the Court. The Defendant then argued that the Claimant was only entitled to fixed costs in accordance with CPR 45.29 as the claim had started under the RTA protocol and had not been allocated to the Multi-Track before settlement was agreed.
The Claimant argued that she was not limited to fixed costs, relying on the terms of the Defendant’s Part 36 offer, and sought costs in the sum of £42,000.
At first instance in the Central London County Court DDJ Harvey ordered that the Claimant should be limited to fixed costs. That decision was appealed by the Claimant and overturned on appeal by HHJ Wulwik.
The Defendant appealed that decision and in the Court of Appeal both parties focussed on the terms of the Part 36 offer. The Claimant’s argument relied on the reference to CPR 36.13 in the letter making the Part 36 offer, and suggested that if the Defendant had considered that she should have been limited to fixed costs they should have referred to CPR 36.20 which applies to claims that started under the protocol. The Claimant also relied on the reference in the letter to costs being subject to detailed assessment if not agreed.
Lord Justice Newey found that:
- The letter setting out the offer did not “offer to pay conventional rather than fixed costs.”
- He did not “think the fact that the 19 April letter refers to CPR 36.13 instead of CPR 36.20 is of any great significance.”
- He did not think the offer would have been a Part 36 offer if it proposed anything other than fixed costs as “..The "self-contained procedural code" for which Part 36 provides makes it plain that the fixed costs regime found in Part 45 is to apply "where … a claim no longer continues under the RTA … Protocol pursuant to rule 45.29A(1)": see CPR 36.20 (1) and also the passages from CPR 36.13 quoted in the previous paragraph of this judgment. If, therefore, a party to a claim that no longer continues under the RTA Protocol offers to pay costs on a basis that departs from Part 45, the offer will be incompatible with Part 36 and cannot be an offer under that Part…”
- “while the 19 April letter's reference to "detailed assessment" was far from ideal if the appellant intended the fixed costs regime to apply, it was not wholly inapposite.”
- “it is inherently improbable, as a reasonable recipient of the 19 April letter should have appreciated, that the appellant intended to offer conventional rather than fixed costs. The fixed costs regime could be expected to be considerably more favourable to the appellant than conventional costs and, on the face of it, the appellant would be vulnerable to the latter as regards costs to date only if a Court were persuaded that there were "exceptional circumstances" warranting an award of extra costs under CPR 45.29J or that there should be a direction disapplying the fixed costs regime retrospectively under CPR 46.13 following re-allocation to the multi-track pursuant to CPR 26.10. None of this was obviously inevitable and it is improbable that the appellant would have been willing to concede the higher costs in her offer.”
Newey LJ did suggest that in future a Defendant making a Part 36 would be “well-advised” to refer to CPR 36.20 and not CPR 36.13, and avoid any reference to costs being assessed.
He also dismissed the Claimant’s alternative argument that the fixed costs regime should be disapplied with retrospective effect due to the belief that the claim would have been allocated to the Multi-Track.
Males LJ agreed that the appeal should be allowed and added “It is unfortunate, however, that it has taken a trip to the Court of Appeal for this to be determined. If parties wish to settle on terms that fixed costs will be payable if an offer is accepted, it is easy enough to say so and thereby to avoid any scope for argument.”
The Chancellor of the High Court also confirmed his agreement.
This ruling reinforces the widely held belief that it is very unlikely that a Claimant will be able to escape from the fixed costs regimes and that courts are very rarely, if ever, likely to find that exceptional circumstances apply.
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