PART 36 – Can the Court award some but not all of the consequences where an offer is beaten?

In JLE v Warrington & Hamilton Hospitals NHS Foundation Trust [2018] EWHC B18 (Costs), Master McCloud was asked to determine whether the consequences set out in CPR 36.17(4), when a party beats its Part 36 offer, are “severable” and whether it would be unjust to award some of them, but not others.

Following a successful claim, the Claimant produced a bill of costs for £615,000 but made a Part 36 offer of £425,000 which expired on Friday 13^th July 2018. Detailed assessment commenced on Monday 16^th July 2018. Master McCloud assessed costs at the detailed assessment in the sum of £421,089.16 plus interest of £10,723.89 (total £431.813.05). Including interest, the Claimant beat their Part 36 offer.

The Defendant argued that the court ought to allow some, but not all, of the consequences set out in CPR 36.17(4). The Defendant disputed the additional 10% as set out in 36.17(4)(d), arguing that it was “unjust” to award this, primarily because the Claimant had only beaten the offer by a small amount (circa £7,000) whereas the additional amount allowed by this rule would amount to a huge and disproportionate windfall of £43,000.

Are the consequences in CPR 36.17(4)(a – d) severable?

CPR 36.17(4) provides that “the court must, unless it considers it unjust to do so, order that the claimant is entitled to—

a) Interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b) Costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;

(c) Interest on those costs at a rate not exceeding 10% above base rate; and

(d) Provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is—

(i) the sum awarded to the claimant by the court; or

(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs—

There was a dispute between the parties as to whether, as a matter of construction of the above rule, the consequences (a) to (d) had to be considered collectively or whether the court could award some but not others.

The Defendant relied upon authorities including Thinc Group Limited v Kingdom [2013] EWCA Civ 1306 in which the Court of Appeal determined the phrase “unless it considers it unjust to do so” in the predecessor to the above rule should be construed to mean “unless and to the extent of”. There was no authority directly determining the issue in this case, however the Defendant argued that the court had a discretion as to whether and to what extent the consequences set out in the rule so as to ensure that justice is achieved between the parties.

The Claimant argued that the parties had a choice whether or not to attempt to settle the claim by Part 36 or alternative method. The rules of Part 36 are highly prescriptive and intended to provide certainty to parties. It is important that parties have a clear understanding of the legal effects of making, accepting and rejecting offers under Part 36.

With some reluctance, Master McCloud found that the Defendant’s arguments were more consistent with judicial comity and consistency of approach generally. She determined that the consequences were severable and this had become the practical interpretation of the rule. Each limb of CPR 36.17 therefore should be judged against whether it would be unjust to impose.

When should a party be denied the “additional 10%”?

The factors to be considered are set out in CPR 36.17(5), namely:

(a) The terms of any Part 36 offer;

(b) The stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

(c) The information available to the parties at the time when the Part 36 offer was made;

(d) The conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and

(e) Whether the offer was a genuine attempt to settle the proceedings.

(f) Where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest must not exceed 10% above base rate.

Considering those, Master McCloud did not find that the extent to which an offer was beaten was a material factor, however the proportionality of the cost penalty was relevant. The offer was a genuine attempt to settle. No conduct points were relevant.

The timing of the offer was not a factor which assisted the Defendant as there was sufficient information at that stage for it to take advice as to whether or not to accept

The Judge acknowledged that the Court would be slow to deny a party the benefits of beating their own offer:

“Equally I should bear in mind that if the court does not adopt a high bar for the exercise of its discretion (and here I refer to the description of the ‘injustice’ test as being a formidable hurdle in, eg, Ayton ), the purpose of the cost penalty rules could be weakened or defeated. 

In my judgment it is only where the cost penalty created by the 10% rule would be clearly disproportionate that one would incline to exercise the discretion to waive it. But, that said, if the court was unduly unwilling to exercise its discretion on facts such as these – for example requiring something akin to ‘exceptional circumstances’ then a party in the position of the Defendant might be discouraged from taking the risk of legitimately going as far as assessment at all, despite having various meritorious objections to the Bill as drawn and which have (in this case) been shown in many instances to be correct.”

There were three significant factors which persuaded Master McCloud to exercise her discretion to not award the Claimant the additional 10%:

• The very small margin by which the offer was beaten relative to the much greater size of the bill;
• The fact that where a bill is reduced (and seems to be expected to be reduced) significantly, it will on the whole generally be very difficult for a party to know precisely or even approximately to within a few percent, where to pitch an offer such that even a competent costs lawyer would operate close to a chance level as to whether an offer is likely to be “over” or “under” at the end of the hearing;
• The large size of the 10% ‘bonus’ award relative to the margin by which the offer was beaten.

The court also looked at the overall effect in the round of what would be the cumulative penalties in the sub-rules (a) – (c) added to (d). It was clearly disproportionate, and therefore, unjust, to award the additional sum.