UK: Part 36 Offers – Costs Penalties For Claimants: Beating The Payment In Is Not Necessarily Enough

Last Updated: 21 September 2008
Article by Rachel Moore, Partner

It has never been a level playing field for Defendants when it comes to Part 36 offers, but arguably, recent case law and changes to the Part 36 rules go some way to improving the situation for Defendants.

The Part 36 rules have been overhauled and simplified to encourage more Defendants to make offers to settle. These changes come in the wake of cases such as Crouch v Kings Healthcare NHS Trust [2004] CA and Trustees of Stokes Pension Fund v The Western Power Distribution plc [2005] CA. These decisions paved the way for the DCA consultation on reform of the Part 36 rules and subsequent redrafting of the same. In both cases, the courts allowed written without prejudice offers, made by Defendants who were "good for the money", to be treated as payments into court. With effect from 6th April 2007, Defendants are no longer able to make payments into court under new court rules.

The other notable changes, are in respect of the costs consequences.

Under the old rules a Claimant would have been entitled to costs on an indemnity basis plus interest at a rate not exceeding 10% above base rate, where they bettered a Defendant's payment into court or Part 36 offer, even if only by £1. If a Claimant failed to better a Part 36 payment or offer, or fail to obtain a judgment which was more advantageous than a Defendant's Part 36 payment or offer, they would be ordered to pay the Defendant's costs.

Now, under CPR rule 36.14, the Claimant will be entitled to indemnity costs plus interest as above if the Claimant obtains judgment against the Defendant, which is at least as advantageous as the proposals within a Claimant's Part 36 offer. If a Claimant fails to obtain a judgment more advantageous than a Defendant's Part 36 offer then the Defendant is entitled to costs and interest on those costs. In addition, when considering whether it is unjust to make these orders, the court will take into account all the circumstances of the case.

The reference to payment in has been removed and the term "more advantageous" applies to both money and non-money claims, where previously it referred only to the latter. A purely monetary comparison can be made to determine whether a party has beaten the payment in. For non-money claims all the circumstances of the case have to be taken into account to determine whether a more or less advantageous award has been made, before consideration can be given to costs consequences.

Whilst the new rules simplify Part 36 offers, different costs consequences still apply for both parties if they are not the "winners" in the case. The Claimants are entitled to indemnity costs and enhanced rates of interest, which are there to encourage them to make more offers. These enhancements are not available to Defendants.

Under the transitional provisions, where a payment in was made before 6th April 2007, it will now have the same costs consequences as set out in rule 36.14.

The recent case of Carver v BAA plc [2008] CA considers the interpretation of the new rules in respect of these costs consequences. This was a modest claim in which liability was admitted early. The parties were unable to agree settlement and the matter proceeded to trial. Prior to trial, the Claimant's costs estimate was £80,000 plus VAT.

The Claimant, who was an airhostess, injured her left ankle in a lift whilst on her way to the terminal at Gatwick airport. The lift she was in encountered a mechanical fault and stopped in between floors.

The accident occurred on 31st March 2003 and the Defendant admitted liability some four months later. Following service of a medical report from an orthopaedic consultant, confirming there had been no significant injury, they made an offer in the sum of £4006 on 17th November 2005. The Claimant issued proceedings on 21st March 2006, relying upon medical evidence from a different expert specialising in ankle injuries. This expert was of the opinion that the ankle had healed with significant instability and would require surgery. The Defendant made a payment into court in the global sum of £4520 on 6th June 2006, which was rejected on 18th September 2006 when the Claimant served an updated schedule of loss exceeding £19,000. The claim was re-allocated to the multi-track.

The Defendant subsequently obtained a report from their own medical expert who diagnosed a mild sprain, which would resolve within 2-3 years. Following a discussion between the parties' experts, the Claimant's expert conceded that the effect of the accident was limited to seven weeks off work, with only mild symptoms persisting thereafter. This prompted the Claimant to serve a revised schedule of loss in the sum of £2,700, but no offers were made. The Defendant complained that the Claimant had not made any counter offers in the four years since the claim had been intimated and invited her to value damages. This prompted some response in May 2007 but no settlement was achieved and the case proceeded to trial.

Making allowance for interest, the Claimant recovered £51 more at trial than the payment into court. Under the old rules, this would have meant that she would be able to recover costs from the Defendant. The Defendant disputed the Claimant's entitlement to costs.

As the payment in had been made on 6th June 2006, the transitional provisions applied and it was accepted that the costs consequences of CPR 36.14 applied.

The Defendant argued that they were the real "winners". They also submitted that under Part 44 the Claimant's conduct should be taken into account to determine the appropriate order for costs. The Claimant argued that in strictly financial terms, she had recovered more money than was paid in and therefore she was the more successful party.

The issue in this case was to consider whether a payment into court, which was beaten by £1, can be judged to be "more advantageous" or whether the court is entitled to look at all the circumstances of the case when deciding where the balance of advantage lies.

The trial Judge was of the opinion that the case should never have been fought. He took into consideration the way in which the matter had been conducted in the period between the payment in and trial in concluding that the Claimant had failed to secure a more advantageous judgment. He stated that on no view could it be said that the monetary judgment of an excess of a few pounds could be more advantageous than the position as it was when the payment in had been made. The small gain of £51 had been more than offset by the irrecoverable costs incurred due to the continued litigation. He ordered the Claimant to pay the Defendant's costs on a standard basis rather than on an indemnity basis, as he was not persuaded such costs would be warranted under CPR 44. The Judge was however persuaded by the Defendant's argument that there be no order for costs between November 2005 and June 2006 as the pre-issue offer of £4006 made was adjacent to the sum awarded at trial and the Claimant had failed to purse the claim in an appropriate manner.

The Court of Appeal held that the trial Judge had been entitled to find that the Claimant had failed to obtain a judgment more advantageous than the offer.

There now seems to be a more flexible approach to monetary offers, following redrafting of the rules. The "more advantageous" approach applies to monetary claims as well as non-monetary claims. Both now are treated in the same way with the same costs consequences. The Court of Appeal in Carver concluded that the change in language of the Part 36 rules results in a change of approach, and this approach will apply to payments in made under the old rules.

This is encouraging news for Defendants. The Part 36 rules are designed to encourage parties to make offers to settle claims. Anyone refusing to conduct litigation in a pro-active manner does so at their peril. Not only is there more scope for challenging the costs consequences under the new rules, Judges can and are penalising parties in costs for their conduct.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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