UK: Margin By Which Party Beat Own Part 36 Offer Not Relevant In Determining Costs Consequences

Last Updated: 30 July 2019
Article by Anna Pertoldi, Maura McIntosh and Jan O'Neill

The High Court has found that, where a claimant beat its own Part 36 offer by only a very small margin relative to the size of the claim, that was not a relevant factor in determining whether it would be unjust to award the claimant the Part 36 costs consequences in full: JLE v Warrington & Halton Hospitals NHS Trust [2019] EWHC 1582 (QB).

The judge referred to the widely criticised decision in Carver v BAA plc [2008] EWCA Civ 412, which meant that a party who beat an opponent's offer by only a small margin could be penalised in costs as if it had failed to beat the offer. That decision was effectively reversed by the Civil Procedure Rules Committee following a recommendation by Lord Justice Jackson, so that the rules now expressly provide that an offer will be beaten if the court's award is better in money terms by any amount, however small. In the present case, the court was keen not to re-introduce Carver – or in effect the flip-side of Carver – by depriving the offeror of the Part 36 costs consequences (or some of them) simply because it beat its own offer by only a small margin.

The decision re-emphasises the high hurdle required before the court will find that a party who makes a well-judged Part 36 offer will be deprived of the costs consequences that would otherwise follow: the test is whether it would be unjust to award the usual costs consequences (or any of them), and that is a stringent test.

Background

The claimant was successful in her clinical negligence action against the defendant and was awarded her costs. In the subsequent detailed assessment proceedings, she put forward a Part 36 offer of £425,000, in respect of a total claim for costs of some £615,000. She was awarded costs of almost £432,000. That meant she beat her Part 36 offer by just under £7,000.

Part 36 applies to detailed assessment proceedings, by virtue of CPR 47.20(4), with the receiving party treated as the claimant and the paying party the defendant for these purposes. Under CPR 36.17(4), where a claimant obtains a judgment that is more advantageous than its own Part 36 offer, the court must (unless it considers it unjust to do so) order that the claimant is entitled to:

  • under 36.17(4)(a)-(c), indemnity costs and enhanced interest on damages and costs (at up to 10% above base rate) from expiry of the relevant offer period;
  • under 36.17(4)(d), an additional amount of up to £75,000, calculated as 10% of the first £500,000 awarded and 5% of the next £500,000 (the "additional amount").

In the present case Master McCloud awarded the claimant indemnity costs and enhanced interest but not the additional amount. She rejected the claimant's argument that the test of whether it would be unjust to apply the Part 36 costs consequences had to be considered once and for all, as opposed to separately for each individual element. She concluded that, in this case, it would be unjust to award the additional amount, which she described as "a clearly disproportionate sum". She pointed to the following three factors as the most significant in exercising her discretion:

  1. the very small margin by which the offer was beaten relative to the much greater size of the bill;
  2. the fact that where a bill is reduced significantly, it will generally be very difficult for a paying party to know where to pitch an offer; and
  3. the large size of the 10% "bonus" award relative to the margin by which the offer was beaten.

The claimant appealed.

Decision

The High Court (Stewart J) allowed the appeal and awarded the additional amount.

The judge agreed with the Master that the test of whether it would be unjust to order the Part 36 costs consequences could be applied separately to each of the sub-paragraphs of CPR 36.17(4).

However, the judge held that the Master had erred in principle in relying on the factors referred to above in concluding that it would be unjust to award the additional amount. Those factors were irrelevant to the court's discretion.

Factor 1 – small margin

The judge noted that, in relation to any money claim, the question of whether a judgment is more advantageous than an offer is defined by CPR 36.17(2) as whether it is "better in money terms by any amount, however small". That wording was introduced by the Civil Procedure Rule Committee, on the recommendation of Lord Justice Jackson, to reverse the effect of the Court of Appeal's decision in Carver. In that case the claimant in fact beat the defendant's Part 36 offer by £51 but the court held that the outcome was not more advantageous than accepting the offer, essentially because the margin was not "worth the fight". The decision was widely criticised as introducing an unhelpful degree of uncertainty into the operation of the rule.

Against that background, the judge in the present case said it is not open to the court to take into account the amount by which a Part 36 offer has been beaten in exercising its discretion as to whether to disapply the costs consequences on grounds of injustice. That would risk re-introducing Carver and its adverse consequences.

Factor 2 – significant reduction in the bill

The judge held that the Master erred in principle in deciding that some difficulty in assessing an offer because the bill was reduced by some 30% could be a reason to find it unjust to make the additional award. If that were permitted it would cause "a real risk of burgeoning satellite litigation".

The judge accepted that there could be circumstances where the fact of a significant reduction in a bill could justify a finding that it would be unjust to award some or all of the Part 36 costs consequences, eg where the inflated level of costs claimed led a defendant to incur expense in investigating the claim before the Part 36 offer was made, but there was no such finding in the present case.

Factor 3 – size of additional award relative to margin

The judge noted that the percentage of the additional amount was decided as a matter of policy as part of the Jackson reforms, as under the previous regime it was considered that a claimant was insufficiently rewarded and a defendant insufficiently penalised when the claimant had made an adequate Part 36 offer. The additional amount was not meant to be compensatory; there is a penal element, as made clear in the Jackson Report. The size of the additional award is therefore not a permissible reason for finding that it would be unjust to award it.

Exercise of discretion

Having found that all three reasons for the Master's conclusion were inadmissible, the judge held that there was nothing unusual about the circumstances of this case so that the high threshold of proving injustice could be properly regarded as met.

The defendant sought to argue that the court could and should award a lesser percentage than the 10% prescribed percentage, ie that it was not an all or nothing award. The judge said it was too late to raise the point but considered, obiter, that in fact there is no such power. In the judge's view, if awarded at all (ie unless it is unjust to award it), the additional amount must be awarded in full.

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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