PART 36: INDEMNITY COSTS WHEN A DEFENDANT ACCEPTS OUT OF TIME
I am grateful to John McQuater for sending me a copy of the judgment of District Judge Besford in the case of Sutherland -v- Khan (21st April 2016) (a copy of the transcript is attached to this blog here Sutherland Approved Judgment).
The judge was considering the question of what costs should be ordered when a defendant accepted a claimant’s Part 36 offer out of time.
“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.“
- Where a defendant accepts a claimant’s Part 36 offer out of time the normal costs consequences of failing to accept (indemnity costs after the relevant date) apply.
- It would require exceptional circumstances for a court not to make the usual order for costs against the defendant following late acceptance.
The claimant brought a road traffic claim which was subject to the Part 45.29A of the Civil Procedure Rules. The claimant made a Part 3y offer to settle. That offer was accepted by the defendant some 28 – 30 days out of time.
The parties could not agree costs thereafter and the claimant made an application to determine the matter.
The provision of 45.29J(1) allows the court: “If it considers that there are exceptional circumstances making it appropriate to do so, the court will consider a claim for an amount of costs (excluding disbursements) which is greater than the fixed recoverable costs referred to in rules 45.29B to 45.29H.”
However the judge found that the application fell to be considered under Part 36.Part 36 deals with situations where the claimant accepts out of time. however it is silent as to a defendant accepting out of time.
The judge considered the authorities in relation to late acceptance of Part 36 offers by a defendant.
“Mr Smith refers to the case of Fitzpatrick Contractors Ltd v Tyco Fire v Integrated Solutions (UK) Ltd  2 Costs LR 115, before Coulson J. Mr Smith helpfully took me to paragraph 17 onwards of that judgment. The very argument that is being put forward by the claimant for indemnity costs, namely the defendant’s failed to accept an offer, failed. Any presumption that the claimant should be awarded indemnity costs was not followed by Coulson J. 16. Coulson J gave a number of reasons at paragraph 17 onwards why he did not follow such an argument. It is put by Mr Smith that Fitzpatrick involved a very large value claim, and one would have thought with the sums involved, if there was going to be an order for indemnity costs, that Fitzpatrick was the appropriate case for such an order.
17. Mr Latham, on behalf of the claimant prays in aid firstly what perhaps can be described as a swinging of the pendulum as to the importance and effect of part 36. In general part 36 offers are meant to have teeth; it is meant to encourage both parties to make and accept offers; and it is meant to incentivise parties to do so. Perhaps as an indication of the pendulum swinging Broadhurst & Anor v Tan & Anor  EWCA Civ 94, is a recent example where the Court of Appeal refers to a “generous outcome” where a party obtains a more advantageous judgment or outcome.
18. In addition, in the course of submissions I was referred to Petrotrade Inc v Texaco Ltd  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.
21. Going back to 36.13(6): “In considering whether it would be unjust to make the orders specified in (5), the court must take into account all the circumstances of the case, including the matters listed in rule 36.17(5).”
22. If one looks at 36.17(5), that says: “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 …”
23. Paragraph (3) is the costs consequences which flow in favour of the defendant and (4) is the costs consequences which flow in favour of the claimant. As I read 36.17(5), I am required to consider whether it would be unjust to make the orders that would ordinarily flow under 36.17(4), which provides: “The court must, unless it considers it unjust to do so, order that the claimant is entitled to …”
24. There follows a list of benefits, including interest and indemnity costs.
25. So, by looking at 36.13(6), I have regard to all the circumstances of the case including the maters listed in part 36.17(5). Part 36.17(5) starts with the premise that the claimant is entitled to the benefits under sub-section (4) which should only be denied if it would be unjust. The factors that I have to have regard to under 36.17(5) are the terms of the part 36; stage of the proceedings; information; conduct; and whether the offer was a genuine to settle.
26. In this case the terms of the part 36 offer were clear and unambiguous and the parties accept it was a valid part 36 offer – nothing turns on this circumstance. The stage of the proceedings the offer was made and how long before the trial – the offer was made at an appropriate stage, presumably after the witness statements and medical evidence had been exchanged. Again, nothing turns on this circumstance. Information available to the parties – one assumes this was a very simple claim. Both parties had the material information to make and consider the offer at the time it was made. Conduct – again nothing has been brought to my attention to suggest it is relevant. Lastly, a genuine offer to settle – I do not know what the potential value of the claim was, but I have not been told that the offer made was in any way a sceptical one or anything other than a genuine attempt to settle the proceedings. I think as Mr Smith alluded to, in reality, the proof of the pudding is in the eating, in as much as the offer was made, and it was subsequently accepted.
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.
28. For all these reasons, I find that the usual consequences of part 36 should flow. I hope the advocates will correct me if I am wrong, that what the claimant is seeking is fixed costs, up to the last section and thereafter, I think you are looking for indemnity costs, is that right?”
The judge accepted that the claimant should recover indemnity costs after the end of the relevant period.
John McQuater makes the point that, logically, the additional 10% in damages and enhanced interest should have been paid (although the sums involved were relatively small).
RELATED POSTS ON PART 36
- Costs should not normally be reduced when a claimant beats their own Part 36 offer: Court of Appeal decision.
- Part 36: the costs consequences of late acceptance
- Part 36 offer did not encompass payment on account
- Fixed costs and Part 36: the judgment in the Court of Appeal.
- Lord Chancellor gets a bonus: the powerful results of a claimant’s Part 36 offer.
- Not a racing certainty: but indemnity costs follow claimant’s Part 36 offer.
- 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.