The late acceptance by the Defendant of a Part 36 offer in Whiting v Carillionamey (Housing Prime) Limited (unreported) resulted in a decision on costs that has seen both sides debate the matter furiously. It’s an issue that won’t be going away anytime soon either, as Sean Linley, Costs Consultant, PIC, reports.
Late Acceptance of Part 36 – Indemnity Costs or not?
Those who follow some of the prominent legal blogs will no doubt already have heard of the case of Whiting v Carillionamey (Housing Prime) Limited (Claim No B80YM364) (recently reported by Andrew Hogan on his blog).
The bottom line of the case was that late acceptance of a Part 36 offer by a Defendant did not equate to indemnity costs.
This has led to some intense debate between those who act for claimants and those who represent defendants. Understandably, it was a decision largely applauded on one side and met with outcry on the other.
On 6 September 2012, the Claimant sustained personal injury. The Claimant had fallen over owing to some missing concrete slabs. It wasn’t a high value claim with the Claimant suffering soft tissue injuries. On 23 June 2015, the Claimant made a Part 36 offer to settle the claim for £3,000.00. This settlement was accepted by the Defendant on 18 May 2016 (some 10 months late and around a month before the proposed trial window).
The matter proceeded to a hearing on 7 June 2016 in order to deal with the issue of costs. The District Judge ordered that the Defendant do pay the Claimant’s costs, including the costs of the hearing, to be assessed on the standard basis up to 14 July 2015 (the date of the expiry of the relevant period) and thereafter on an indemnity basis.
The decision was appealed by the Defendant on the basis that late acceptance of a Part 36 offer alone was not the basis for making an award of indemnity costs. At Appeal the Court agreed with the Defendant with the Claimant awarded costs on the standard basis throughout.
It should also be noted at this juncture that this was not a fixed costs case.
The Defendant’s case
The Civil Procedure Rules themselves in some ways support the Defendant’s position.
CPR 36.17 deals with the cost consequences following judgment which sets out explicitly that indemnity costs must be awarded by the Court where judgment against the Defendant is at least as advantageous than a Defendant’s Part 36 offer.
This, however, only concerns cases that are won at trial. Where an offer is accepted late by a Defendant, the CPR is silent.
One of the leading authorities on the awarding of indemnity costs remains the case of Excelsior Industrial and Commercial Holdings v Salisbury Hammer Aspden and Johnson  EWCA Civ. The case itself dealt with the old Part 36 rules but its relevance is still felt.
Lord Woolf stated in the judgment that the absence of any reference to an indemnity basis in CPR 36.20 (the precursor to CPR 36.13 that details the consequences of the acceptance of a Part 36 offer), 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 in a case where Part 36.20 applies, it should do so on the assumption that there must be some circumstance which justifies such an order being made.”
If late acceptance on its own doesn’t warrant an indemnity costs order, what does? What is a ‘circumstance’ that justifies such an order being made?
Lord Woolf spoke of the circumstances of the case in general with reference to CPR 44.3(4) that today can be found at CPR 44.4. A Claimant would point to the fact that where ‘conduct’ is referred to there is no reference to ‘bad conduct’. A Defendant would argue that the award of an indemnity costs order where a Part 36 offer is accepted late is not a significant enough conduct issue in isolation and resultantly a departure from the usual costs order would be unjust.
Lord Woolf confirmed that the threshold for an indemnity award is high when he said:
“It follows from all this that in my judgment it will be a rare case indeed where the refusal of a settlement offer will attract under Pt 44 not merely an adverse order for costs, but an order on an indemnity rather than standard basis.”
The other issue that a Defendant can draw attention to is, where time based costs are awarded, they will remain liable to pay all costs up to the acceptance of the Claimant’s Part 36 offer. To this end the Claimant loses nothing whilst the Defendant has to pay costs for the entire period (and resultantly is already penalised for late acceptance). Whether that penalty goes far enough remains contested.
The Claimant’s case
The other side is that late acceptance must have consequences otherwise it disincentives the use of Part 36. The Judiciary has made it abundantly clear that failing to engage in ADR will carry consequences. It should surely follow that where a Part 36 offer is a ‘genuine attempt at settlement’ that penalties should exist where a Defendant has accepted an offer out of time. Indeed, penalties exist for Claimants whereupon the Defendant is awarded costs (on a standard basis) for time spent post expiry of the relevant period.
One of the more recent cases that dealt with this issue with a favourable outcome for the Claimant was Sutherland v Khan. District Judge Besford stated:
“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.”
“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.”
Unsurprisingly, District Judge Besford awarded costs, to be assessed on an indemnity basis from the end of the relevant period.
If common sense prevails then some form of penalty is the only way to incentivise both Claimants and Defendants to engage with Part 36 in a meaningful way. A Claimant is incentivised to put forward a genuine attempt at settlement whilst a Defendant has to consider the consequences of not giving due consideration.
Should a Claimant not be applauded for seeking to settle a matter promptly and rewarded for taking this approach? A Defendant has 21 days to consider a Part 36 offer without penalty (as does the Claimant) and if the consequences are taken away or diluted what incentive is left?
There is a clear tension between what is just and incentivising parties to seek settle claims at an early stage. In Sutherland, the stakes were raised again given that it gave Claimants the opportunity to recover monies in excess of fixed costs.
The purpose of Part 36 was to incentivise both Claimants and Defendants to seek to settle claims early in an effort to both minimise costs and save Court time. There is a real danger that if there are no consequences for late acceptance, Claimants may look to steamroll matters to trial (particularly in fixed costs cases). This is not an approach to be endorsed or recommended but removing incentives to make sensible Part 36 offers at an early stage could have an adverse effect for all.
Perhaps the simplest solution of all would be to address the rules themselves. Satellite litigation could be avoided if the consequences of late acceptance were clearly defined in Part 36 of the CPR.
Whilst it may be unjust for a Defendant to pay indemnity costs where a Part 36 offer is accepted a day late, it is equally likely in the same circumstances that the award for indemnity costs would be so negligible if would have no effect (if any at all). The certainty of the rules would arguably negate any adverse effect to a Defendant. Such a simplistic revising of the rules would incentivise Claimants and would force Defendants to carefully consider any Part 36 offers made.
However, such a punitive and Draconian approach could run the risk of dis-incentivising Defendants in accepting Part 36 offers. If the 21-day relevant period elapsed, then it could become more commercial to run the risk of taking a claim to trial (depending upon the stage of the claim and when the Part 36 offer was made). The Claimant view to this is a simple one. The Defendant should have proper regard to the Part 36 when it is made. Clearly this dilutes the issue as there are a multitude of factors to give consideration to. However, it does highlight the difficulty in solving a problem where the different parties involved want contrasting outcomes.
This is not an issue that will go away. Indeed, there are cases presently awaiting appeal that will no doubt shape this fascinating narrative further. One certain point is that Claimants and Defendants are unlikely to find common ground and with so much at stake, litigation on the issue won’t slow down any time soon. The next chapter is eagerly awaited.
For further information and to discuss the cost implications of your case under a Part 36 offer late acceptance, please contact Sean Linley or call 03458 72 76 78