Late acceptance of part 36 offers and indemnity costs

Costs litigation like no other area of practice is an exercise in bare knuckle savagery. Points are fought with the utmost ferocity, fire and vigour until finally determined and then after a momentary pause a new trend in satellite litigation will arise.

One such point doing the rounds at the moment is the costs position after a defendant in a personal injury claim accepts out of time a part 36 offer made some while earlier by a claimant. There are a growing number of applications made by claimants for orders for indemnity costs against defendants grounded on the mere fact of late acceptance.

The trend is traceable to the decision of the Court of Appeal in the case of Broadhurst v Tan [2016] EWCA Civ 94 and the curious case of Sutherland v Khan (County Court at Kingston upon Hull 21st April 2016) where District Judge Besford made an indemnity costs order against a defendant, for late acceptance of a part 36 offer.

The cases are now starting to go to appeal. Yesterday, in the case of Whiting v Carillionamey (Housing Prime) Limited (Claim No B80YM364) I argued the point on appeal before His Honour Judge Hughes QC in the County Court at Winchester, where he overturned a decision of a Deputy District Judge in the County Court at Portsmouth, to award indemnity costs against a defendant.

The facts of the case may be briefly stated. This was not a fixed costs case, with costs prescribed by part 45 CPR. The issue was whether the costs payable should be standard or indemnity basis costs.

On 6th September 2012, the claimant sustained an accident, when he fell over due to missing concrete slabs. He suffered soft tissue injuries to his left knee, ankle and hand. He took 4 weeks off work. On 27th November the claimant instructed his solicitors through a Conditional Fee Agreement. He also incepted an ATE policy. On 20th February 2013 a Letter of Claim was sent. On 23rd June 2015 a Part 36 offer was sent by the claimant to the defendant. It offered to settle the claim for £3000.

On 8th September 2015 proceedings were issued. On 14th January 2016 directions were made by the court. A trial window was set for 6th June to 24th June 2016. On 18th May 2016 the defendant wrote a letter and accepted the claimant’s Part 36 offer of 23rd June 2015, some 10 months late.

The claimant intimated that he wanted an award of indemnity costs from 15th July 2015. This was refused by the defendant.

The claimant refused to accept the claim was stayed and/or that an application with evidence in support needed to be put before the court to obtain an award of indemnity costs. The case remained in the list.

The claimant served a trial bundle, but no application or witness statement seeking indemnity costs. There was accordingly, no other material before the court than these documents.

On 7th June 2016 Deputy District Judge Haig-Haddow after submissions, ordered that the defendant pay the claimant’s costs, including the costs of the hearing, assessed on a standard basis up to 14th July 2015 and thereafter on an indemnity basis, such costs to be assessed by way of detailed assessment.

The difficulty with this decision was that there is long standing authority, that mere late acceptance of a part 36 offer, is not a basis for making an award of indemnity costs.

His Honour Judge Hughes QC accepted that he was bound by authority in the Court of Appeal and High Court, as was the Deputy District Judge and allowed the appeal.

The leading case on when it is appropriate to award indemnity costs remains that of Excelsior Industrial and Commercial Holdings v Salisbury Hammer Aspden and Johnson [2002] EWCA Civ 879 where Lord Woolf made a number of observations.

First he contrasted the then rules 36.20 and 36.21, the predecessors to the current rules 36.13 and 36.17 noted above:

17. Part 36.20 deals with the situation which we have here. It provides:

“(1) This rule applies where at trial a claimant —

(a) fails to better a Part 36 payment; or (b) fails to obtain a judgment which is more advantageous than a defendant’s Part 36 offer.

(2) Unless it considers it unjust to do so, the court will order the claimant to pay any costs incurred by the defendant after the latest date on which the payment or offer could have been accepted without needing the permission of the court.”

18. The language of 36.20 has to be contrasted with the language of Part 36.21. Part 36.21 deals with the situation where a claimant has made a Part 36 offer. The significance of 36.21 is that, unlike 36.20, it refers specifically to the court being entitled to order costs on the indemnity basis from the latest date when the defendant could have accepted the offer which had been made. Equally, it refers to interest on a higher rate than normal in the case of situations where it applies. When Part 36.20 is compared with 36.21, light is thrown on the appropriate approach to the application of Part 36.20.

19. The clear inference from the absence of any reference to an indemnity basis in 36.20 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 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 I may here adopt the way it was put in argument by Waller LJ, there must be some conduct or (I add) some circumstance which takes the case out of the norm. Mr Davidson’s argument on this part of the appeal is that there was here not found by the judge any such circumstance.

(emphasis added)

Secondly Lord Woolf went on to explain why, mere non acceptance of a part 36 payment or offer, without more did not justify an award of indemnity costs:

30. In Kiam v MGN Ltd (No 2) [2002] 2 All ER 242, this court was concerned about a possible assumption that if an offer of payment into court was not accepted by a claimant, then automatically the claimant would be liable for costs on an indemnity basis as opposed to a standard basis. This court made it clear that such an approach is wrong. In the course of his judgment, with which the other members of the court agreed, Simon Brown LJ in paragraphs12 and 13 said as follows:

“12. I for my part, understand the court there to have been deciding no more than that conduct, albeit falling short of misconduct deserving of moral condemnation, can be so unreasonable as to justify an order for indemnity costs. With that I respectfully agree. To my mind, however, such conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight. An indemnity costs order made under Pt 44 (unlike one made under Pt 36) does, I think, carry at least some stigma. It is of its nature penal rather than exhortatory. The indemnity costs order made on the principal appeal in McPhilemy’s case was certainly of that character. We held ([2001] 4 All ER 361 at [29]) that the appeal involved an abuse of process on the footing that

‘to have permitted the defendants to argue their case on perversity must inevitably have brought the administration of justice into disrepute among right-thinking people’.

31. 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. Take this very case. No encouragement in the way of an expectation of indemnity costs was required for him to make his offer to accept £75,000; its object was to reduce the damages to that level. Where, as here, one member of the court considered the jury’s award ‘wholly excessive’, and thought that £60,000 would have been the highest sustainable award, it seems to me quite impossible to regard the appellant’s refusal to accept the £75,000 offer as unreasonable, let alone unreasonable to so pronounced a degree as to mention an award of indemnity costs. It is very important that the Reid Minty case should not be understood and applied for all the world as if under the CPR it is now generally appropriate to condemn in indemnity costs those who decline reasonable settlement offers.”

32. In the context of that case I see that those paragraphs set out the need for there to be something more than merely a non-acceptance of a payment into court, or an offer of payment, by a defendant before it is appropriate to make an indemnity order for costs. Insofar as that is the intent of those paragraphs, I have no difficulty with them. However, I would point out the obvious fact that the circumstances with which the courts may be concerned where there is a payment into court may vary considerably. An indemnity order may be justified not only because of the conduct of the parties, but also because of other particular circumstances of the litigation. I give as an example a situation where a party is involved in proceedings as a test case although, so far as that party is concerned, he has no other interest than the issue that arises in that case, but is drawn into expensive litigation. If he is successful, a court may well say that an indemnity order was appropriate, although it could not be suggested that anyone’s conduct in the case had been unreasonable. Equally there may be situations where the nature of the litigation means that the parties could not be expected to conduct the litigation in a proportionate manner. Again the conduct would not be unreasonable and it seems to me that the court would be entitled to take into account that sort of situation in deciding that an indemnity order was appropriate.

Similar considerations drove the decision in the case of  Fitzpatrick Contractors Ltd v Tyco Fire and Integrated Solutions [2009] EWHC 274: there has to be something more than mere late acceptance, for an order for indemnity costs to be appropriate.

The Deputy District Judge had no material before him, to suggest there was anything other than late acceptance: no material at all to suggest any misconduct on the part of the defendant, still less misconduct which justified an award of indemnity costs. His decision was contrary to principle and flawed by a misdirection of law.

Accordingly the appeal was allowed

4 thoughts on “Late acceptance of part 36 offers and indemnity costs

    1. Not really. The importation of the 4 factors in rule 36.17 into rule 36.13 is relevant to the making of a before-and-after costs Order, but has nothing to say about the basis of the Order. Rule 36.17 is concerned with cases won at trial. The real issue in all these cases is the lazy thinking that mere late acceptance warrants indemnity costs, and failing to put forward a decent witness statement making a case for indemnity costs on the merits.

  1. No Ian. Because the appeal was won and the case did not go further, there was no need for my client to obtain the transcript.

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