NOT A RACING CERTAINTY BUT INDEMNITY COSTS FOLLOW CLAIMANT'S PART 36 OFFER
In Jockey Club Racehorse Ltd -v- Willmott Dixon Construction Limited  EWHC 167 (TCC) Mr Justice Edwards-Stuart held that a claimant’s Part 36 offer to settle for 95% was a relevant offer and had costs consequences for the defendant.
- An offer to accept 95% in a construction case where a deduction of 5% was never likely was, nevertheless, a valid Part 36 offer.
- The consequence of the offer was that the defendant was to pay the claimant’s costs on an indemnity basis from the date on which it could have reasonably made an assessment of the case it had to meet. This was not 14 days after the offer but several months later.
- This case highlights the point that Part 36 offers that do not reflect a likely outcome at trial can be made and be effective.
- The claimant’s action was in relation to a grandstand at Epsom Racecourse which the claimant asserted was badly designed. The claimant sought damages for the costs of repairs.
- No response was received to the letter of claim.
- Proceedings were issued and, on the 30th January 2015, the claimant made an offer to settle for 95%.
- An order was made for a split trial and, at a pre-trial review in December 2015, the defendant conceded liability and the preliminary issue of liability was conceded in the claimant’s favour.
- The claimant sought costs of the issue of liability on an indemnity basis.
“The issue of liability for losses arising out of the defects in the roof . . . (including losses arising out of storm damage occurring in January 2012 and December 2013)”
on the basis that the Defendant would
“accept liability to pay 95% of our client’s claim for damages to be assessed.”
There was no response to the offer. It will be apparent from what I have already said that the 21 day period for acceptance of this offer expired several weeks before service of the Amended Particulars of Claim in their final form, which included, for the first time, the sums claimed in respect of the need to carry out a complete replacement of the roof.
This is not a case where there is any possibility of a reduction for contributory negligence. Either the Defendant is liable for the full extent of the Claimant’s damages, as assessed or agreed, or it is not. Accordingly, a decision that the Defendant is to pay 95% of the Claimant’s damages, as assessed or agreed, is not one that is open to the court. The offer, therefore, does not reflect a possible outcome, but is purely commercial. It is clear that the Claimant regarded liability as open and shut and the 5% discount probably represented a reduction that it is prepared to accept in order to achieve a certain and early outcome, rather than an assessment of the risk of losing. However, it could have been a combination of both: it probably does not matter. All that is, or may be, relevant is that the offer did not reflect an available outcome of the litigation.”
WAS THIS A VALID PART 36 OFFER
The court considered whether, in the context of this action, this was a valid Part 36 offer.
(a) Was the Claimant’s “Part 36 offer” an offer within the meaning of Part 36 at all?
(b) If so, was it a genuine attempt to settle liability?
(c) If the answer to (a) and (b) is yes, whether it would be unjust to make an order reflecting some or all of the incentives in Part 36?
Issues (a) and (b) are closely connected and the answer to (a) may depend on the answer to (b).
Issue (a) arose because it was raised by the court during the course of the hearing. Since, as I have already mentioned, this is a claim where the outcome can only be success or failure for either party, there is no room for apportionment of liability: thus a conclusion that the Defendant is 95% liable for the losses sustained by the Claimant is not an available outcome. The question is whether this is fatal to the offer being considered as valid under Part 36.
A related, but different, question is whether an offer that comes close to requiring total capitulation can be an offer at all. Mr Brown accepted in argument that an offer of, say, 98% might be difficult to defend, but he submitted that a discount of 5% – although modest (but not insubstantial in the context of a claim in excess of £5 million) – was sufficient to create a real incentive for a defendant to accept it. However, Miss Laney made the point that until the offer was made the pleaded claim had been for less than £400,000.
Of all the decisions to which I was referred in those further submissions I regard the two that are most relevant to this point to be Huck v Robson 1 WLR 1340, a decision of the Court of Appeal, and AB v CD  EWHC 602 (Ch), a decision of Henderson J. I will take the latter first. I need not summarise the facts because it is sufficient to set out Henderson J’s observations of at paragraphs 21 and 22, which were as follows:
“21. The claimant’s Part 36 offer, or purported Part 36 offer, is contained in the letter of 5 July 2010. Subject to one point, I consider that it complies with the requirements of form and content in rule 36.2. However, there is an issue whether it is a genuine offer at all, or merely a lightly disguised request for total capitulation. If it is a proper Part 36 offer, the question arises whether the judgment which the claimant has now obtained against the defendants is “at least as advantageous” to the claimant as the proposals contained in the letter, within the meaning of rule 36.14(1)(b).
22. The concept of an “offer to settle” is nowhere defined in Part 36. I think it clear, however, that a request to a defendant to submit to judgment for the entirety of the relief sought by the claimant cannot be an “offer to settle” within the meaning of Part 36. If it were otherwise, any claimant could obtain the favourable consequences of a successful Part 36 offer, including an order for indemnity costs, by the simple expedient of making an “offer” which required total capitulation by the defendant. In my judgment the offer must contain some genuine element of concession on the part of the claimant, to which a significant value can be attached in the context of the litigation. The basic policy of Part 36 is to encourage the sensible settlement of claims before trial, or even before the issue of proceedings . . . The concept of a settlement must, by its very nature, involve an element of give and take. A so-called “settlement” which was all take and no give would in my view be a contradiction in terms.”
However, this does not answer the question as to whether the Part 36 offer has to reflect an available outcome of the litigation, even an outcome that would be most unlikely. There is, it seems to me, a difference in essence between an offer (“the claimant will take 15% of his claim as ultimately assessed”) which, in a personal injury case, would reflect an available outcome of the litigation, and a similar offer made in, say, a claim under a guarantee, where the quantum of the claim is fixed and the only question is whether or not the guarantee can be enforced. In a personal injury case, where there are issues of contributory negligence as well as quantum, success to the extent of only 15% may be unlikely on the facts of the particular case, but it is theoretically possible. In practice, such an offer probably reflects an assessment of the risk of failure on liability and the uncertainties as to quantum, but that is a different matter. However, in the claim under the guarantee success to the extent of 15% is not an available outcome. The offer is entirely commercial, based on an assessment of the risk of failure.
But does this matter? One knows from experience that cases, like the example that I have just given, are frequently settled on the basis of an assessment of risk which combines both the risk of failure and the uncertainty as to the true value of the claim. An offer which is made in the light of those considerations will not usually reflect a result that is a likely outcome of the litigation if fought to judgment.
The decision in Huck v Robson throws some light on this question. It was a road traffic case. Two cars collided in a narrow country lane. The claimant said that she had seen the defendant’s car coming and had pulled into the side and was stationary at the time of the collision. The defendant’s case up to the trial was that both cars skidded and lost control. The defendant offered to settle on a 50:50 basis. The claimant, by contrast, offered to settle on the basis of 95:5 in the claimant’s favour. The offer was refused. At trial, the defendant, whom the judge found to be a patently honest witness, could not say whether or not the claimant’s car was stationary at the time of collision. Accordingly, the claimant succeeded in full. The judge considered that an offer on the basis of 95:5 was derisory and so declined to award the claimant indemnity costs.
“69. I think it is clear that the judge deprived the claimant of indemnity costs simply because liability would never have been apportioned 95:5. Jonathan Parker LJ says that this was within the judge’s discretion because such an offer did not create any real opportunity for settlement in a case where there was no real possibility of any outcome other than 50:50 or an outright win for the claimant: paragraphs 63 and 65. Schiemann LJ says that the fact that no judge would apportion liability 95:5 is irrelevant. A defendant can choose not to accept such an offer but if the claimant beats it there is nothing unjust in awarding indemnity costs.
70. I think Schiemann LJ is right about this. I do not think that the court is required to measure the offer against the likely outcome in a case such as this. In this type of litigation a claimant with a strong case will often be prepared to accept a discount from the full value of the claim to reflect the uncertainties of litigation. Such offers are not usually based on the likely apportionment of liability but merely reflect the reality that most claimants prefer certainty to the ordeal of a trial and uncertainty about its outcome. If such a discount is offered and rejected there is nothing unjust in allowing the claimant to receive the incentives to which he or she is entitled under the Rules. On the contrary, I would say that this is a just result.
71. I would however add that if it was self-evident that the offer made was merely a tactical step designed to secure the benefit of the incentives provided by the rule (e g an offer to settle for 99.9% of the full value of the claim) I would agree with Jonathan Parker LJ that the judge would have a discretion to refuse indemnity costs. But that cannot be said of the offer made in this case, which I think did provide the defendant with a real opportunity for settlement even though it did not represent any possible apportionment of liability. I would therefore allow this appeal.”
“Nevertheless, I accept, like Tuckey and Jonathan Parker LJJ, that circumstances can exist where, notwithstanding that the claimant has recovered in full after making a Part 36 offer for marginally less, he will not be awarded costs on the indemnity basis. I do not consider that Part 36 was intended to produce a situation in which a claimant was automatically entitled to costs on the indemnity basis provided only that he made an offer pursuant to rule 36.10 in an amount marginally less than the claim.”
Although that was not a case in which the offer reflected an outcome which was not available – in theory it was – it is a case where the offer did not reflect an outcome that was likely to result in practice. I consider that the approach taken by both Tuckey and Schiemann LJJ is one that can be applied to the present type of case. This conclusion is reinforced by a decision on costs made by Norris J in Wharton v Bancroft  EWHC 91 (Ch). He said, at paragraph 22:
“All Part 36 offers are tactical in the sense that they are designed to take advantage of the incentives provided by Part 36. A low offer in a case where the offeror considers that the offeree’s positioned has no merit cannot be written off as self-evidently “merely a tactical step”. But the principal has no application here. The sum to be received by each of the Daughters was small. But the offer was not derisory. On the available figures (and having regard to the fact that the Daughters were conducting the litigation on a CFA with a 100% uplift and with the benefit of ATE Insurance, the premium on which was an undisclosed percentage of their costs) the real effect of the offer (although calculated as a nuisance value offer) was of the order of £200,000 (ignoring the fact that Maureen would be bearing her own costs and those of the executors). I see no reason on that ground (or taking into account the matters to which my attention is directed in CPR 36.14(4)) why it would be unjust to order costs on the indemnity basis.”
Miss Laney submitted that Huck v Robson can be distinguished because it was decided under the previous version of Part 36.17 which did not include the present sub-paragraph (e), which requires the court to consider whether the offer was a genuine attempt to settle the proceedings. In this, Miss Laney is correct, but I have no doubt whatever that Tuckey LJ’s observations would have been to no different effect if that provision had been included in the rule at the time because that is the very point that he addresses at paragraph 71. Jonathan Parker LJ made the point even more clearly at paragraph 63.
For these reasons I am persuaded by the authorities that the offer in this case was a valid offer within the meaning of Part 36 and that it was a genuine attempt to settle the claim. Whilst the discount was very modest, even in the context of a claim of some £400,000 it amounted to £20,000, which in my view cannot be described as derisory.
THE CONSEQUENCES OF NOT ACCEPTING THE OFFER
Accordingly, I consider that the consequences that follow from the offer being bettered by the Claimant must be given effect unless it would be unjust to do so. In considering this the court is required to take into account all the circumstances of the case, including the following factors specifically listed in CPR 36.17 (5) which are:
“(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 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 I 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.”
As I have already mentioned, the Part 36 offer in this case was made when the Claimant served its draft Amended Particulars of Claim. That did not deal with its entire case because the costs of the ultimate remedial works and of the consequential losses that would be incurred as a result of them still remained to be pleaded. Whilst it is correct that Schedule C gave, for the first time, details of a major part of the claim about which the Defendant had had little information up to then, it added very little to the case on liability. Of course, what it did do, and which is always important, was to tell the Defendant of the size of the claim that it was facing.
Nevertheless, once it realised that it was facing a claim in excess of £5 million one would have expected the Defendant to take prompt steps to investigate the claim and, in particular, to put itself in a position to make an informed assessment of its position on liability. At that stage only one of its experts, Mr Phillips, had inspected the roof. It had not instructed an expert in materials science. By the time of the case management conference on 24 March 2015, the Defendant knew that it was facing a split trial with the issues of liability being dealt with at a preliminary hearing and it knew the full extent of the claim. At that stage no one could suggest that this was a claim that did not require prompt and thorough investigation. So one might have expected the Defendant to take prompt steps at that point to instruct appropriate experts and obtain an opinion.
Having regard to sub-paragraph (5)(c) of CPR 36.17 in particular, I am prepared to accept the submission that it would be unjust to award indemnity costs from 21 days after the date of the offer, given that at that stage the Defendant had only just been made aware for the first time that the claim against it had been increased to about £850,000. However, I see no reason why the Claimant should not be entitled to indemnity costs from the earliest date after that by which the Defendant could reasonably have put itself in a position to make an informed assessment of the strength of the claim on liability. In my view, that date is four months from the date of the offer, in other words 29 May 2015. Accordingly, the Claimant is to have its costs in relation to liability on the standard basis up to 29 May 2015 and thereafter on an indemnity basis.
Whilst these considerations may also be relevant to the rate and period of interest, they do not reflect the full picture – much of which remains to be painted in the future – and so, as I have already mentioned, I consider that the court should not at this stage reach any decisions about interest. Those are questions, therefore, that must remain for future decision.
RELATED POSTS ON PART 36
- Part 36: when the normal costs penalties may not apply
- Is this a claimant’s or defendant’s offer? Another important decision on Part 36
- Clarification of a Part 36 offer has a major effect on costs.
- Costs where a claimant accepts a Part 36 offer late: two cases where the claimant came to grief
- Another case where there was an invalid Part 36 offer
- Is this a Part 36 offer I see before me? That’s an important question
- How relevant are Part 36 offers to issue based orders?
- Knowing the risks and advantages for the claimant in the new Part 36.
- The costs consequences of Part 36 offers: do they always apply? The cases in detail.
- Costs consequences of Part 36 offers: some interesting examples
- Costs, conduct, Part 36 and the “Winning Party”.
- Interest and costs when a claimant beats their own Part 36 offer.
- Costs of £7 million: Part 36 bites hard on claimants who cleared a first hurdle but fell at the second.
- Claimant beats own Part 36 offer and receives an additional £75,000 in damages.
- The dangers of a Part 36 offer: Claimant pays three times more in costs than he receives in damages.
- Another example of a successful defendant not recovering all of its costs (and of the advantages of a Part 36 offer).
- Percentage costs orders after a claimant beats their own Part 36 offer: a High Court decision.
- Very important decision on Part 36 offers, assessment of costs and additional amounts when offers not beaten.
- Increased interest and costs after claimant beats its own Part 36 offer.
- Part 36 offer does not override the need to serve the claim form.