In Shalaby v London North West Healthcare NHS Trust [2018] EWCA Civ 1323 the Court of Appeal upheld the principle that a defendant is not entitled to indemnity costs simply because a claimant has not beaten a Part 36 offer.  It probably best serves as a lesson to advocates who must know the details of Part 36. In particular that a defendant is not automatically entitled to indemnity costs if a claimant fails to beat a Part 36 offer.

“The only basis on which costs were ordered to be on an indemnity basis was that this was required by CPR Part 36. That was wrong as a matter of law,” 



The claimant brought an appeal in an action where he claimed damages for breach of his contract of employment. The claimant failed at trial, consequently he failed to beat the defendant’s Part 36 offer. The trial judge awarded the defendant costs on an indemnity basis. The claimant appealed on both liability and costs. The Court of Appeal rejected the appeal on  liability. It went on to consider the award of indemnity costs.


The judge had awarded indemnity costs on an erroneous basis – that the defendant was entitled to indemnity costs  automatically under the provisions of Part 36.  The defendant, correctly, agreed that the judge had been incorrect.

    1. It was and is common ground that the Appellant failed to obtain a judgment which was more advantageous than the Respondent’s Part 36 order and therefore CPR 36.17(1)(a) applied. It followed that CPR 36.17(3) also applied: where that provision applies the court must, unless it considers it unjust to do so, order that the defendant is entitled to costs from the date on which the relevant period expired.
    2. The terms of para. (3) are different from those of para. (4). Para. (4) applies in a case falling within CPR 36.17(1)(b), that is where judgment is given against the defendant which is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer. Where that provision applies, costs are to be awarded on the indemnity basis: CPR 36.17(4)(b).
    3. Before this Court Mr Cunnington fairly and candidly accepted that the judge did not receive the assistance from him that he should have done and therefore fell into error. The judge appears to have thought that the provision relating to costs on an indemnity basis also applied to the present sort of case, when judgment is entered against a claimant. In fact it has been made clear by this Court that the significance of the absence of any reference to an indemnity basis in what is now CPR 36.17(3) is that:
“… In normal circumstances, an order for costs which the court is required under that Part to make, unless it considers it unjust to do so, is an order for costs on the standard basis. That means that if the court is going to make an order for indemnity costs, as it can …, it should do so on the assumption that there must be some circumstance which justifies such an order being made … there must be conduct or (I add) some circumstance which takes the case out of the norm.”
See Excelsior Industrial and Commercial Holdings v Salisbury Hammer Aspden and Johnson [2002] EWCA Civ 879, at para. 19 (Lord Woolf CJ).
    1. At one time there was before this Court a Respondent’s Notice, in which it was suggested that, although the basis on which the judge made the costs order on an indemnity basis was wrong, nevertheless the judge was entitled to make such an order because of the conduct of the appellant. This is something to which the judge himself alluded in giving his costs judgment, at para. 5. However, it is important to note, as the judge himself did, that the only basis on which the application for costs to be on an indemnity basis was made by Mr Cunnington was that this was the default position required by Part 36. Before this Court, having had the opportunity to reflect on his position and take instructions, Mr Cunnington informed us that he would not pursue the grounds raised in the Respondent’s Notice.
    2. In those circumstances I have come to the conclusion that the appeal against the costs order must be allowed. The only basis on which costs were ordered to be on an indemnity basis was that this was required by CPR Part 36. That was wrong as a matter of law, as is now conceded by the Respondent. Accordingly I would substitute an order that the costs had to be paid on the standard basis and not the indemnity basis.


After judgment there were submissions on how the claimant’s success on the Part 36 issue should affect the costs of the appeal.  There is also

  1. In accordance with the normal practice governed by Practice Direction 40E of the Civil Procedure Rules (“CPR”) a draft judgment was circulated to the parties on a confidential basis on 22 May 2018. It was directed that the parties should either file an agreed order or make written submissions on any outstanding consequential matters by 4 pm on 5 June 2018. The Respondent complied with that direction. The Appellant, who by then appears to have been acting in person again, did not comply. He has not given any explanation for his failure to comply. Further, this Court has been informed that he has failed to respond to attempts by the Respondent to seek agreement on consequential matters, on 29 May 2018 and again on 4 June 2018. Rather than engaging with the Court or the Respondent the Appellant has made written submissions dated 6 June 2018. I have taken those submissions into account despite the Appellant’s failures so as to avoid any risk of injustice.
  2. The Respondent applies for its costs of the appeal except that the Respondent accepts that it should bear the cost of its own Respondent’s Notice in the costs appeal. The Appellant resists that application and submits that the Respondent should pay his costs in the Court of Appeal (if any).
  3. The starting point is the general rule in CPR 44.2(2) that the unsuccessful party will be ordered to pay the costs of the successful party. In the present case, the Respondent is undoubtedly the successful party in the substantive appeal. As a matter of common sense it was the substantive appeal which concerned the real issue in dispute between the parties. It was the substantive appeal which took up the vast amount of the time needed both in preparation and at the hearing itself.
  4. The Respondent submits that the Court should not make a split order as to costs. The Appellant agrees although he disagrees as to the costs order that should be made.
  5. I accept the submissions made on behalf of the Respondent. Any percentage reduction to the costs payable would either be miniscule or would risk unfairness because it would not properly reflect the victory which the Respondent has secured. The justice of the case overall (in particular the fact that the costs appeal was allowed) can be properly reflected by not permitting the costs of the Respondent’s Notice. It is difficult to see what costs the Appellant can have incurred in relation to the costs appeal.
  6. The basis for the Appellant’s objection to the Respondent’s application for its costs is that he submits that the Respondent unreasonably refused to mediate. I do not accept that submission. This is not a case which is analogous to PGF II SA v OMFS [2013] EWCA Civ 1288. This is not a case in which the Respondent was “silent” in response to an invitation to mediate. To the contrary, from the outset it expressly stated that it wished to engage in the Court of Appeal mediation scheme. It was the Appellant who declined to participate in that scheme because he suggested an alternative approach, by way of a meeting which he would attend only on certain conditions which were not acceptable to the Respondent. In the circumstances of this case therefore I do not consider that there is any good reason to depart from the normal order as to costs.
  7. Accordingly I would order that the Appellant shall pay the Respondent’s costs of the appeal, save that the Respondent shall bear the costs of its own Respondent’s Notice. I do not accept that this is a case which is suitable for summary assessment, as the Appellant has suggested. This is a case which is eminently suited to detailed assessment by a costs judge if agreement cannot be reached.