Costs News

09 January 2019
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Court can award some but not all of part 36 consequences, judge rules

The court can award some but not all of the consequences of beating a part 36 offer and should assess each against an injustice test, a judge has ruled.

In a case where the 10% penalty under rule 36.17(4)(d) was far greater than the margin by which the offer was beaten, Master McCloud decided that it would be “clearly disproportionate” to award the uplift. This was especially as the bill had been significantly reduced on assessment.

In JLE v Warrington and Halton Hospitals NHS Foundation Trust [2018] EWHC B18 (Costs), the claimant sought £615,751 in costs after winning the substantive action.

She made a part 36 offer to accept costs, inclusive of interest, of £425,000. The offer expired and, at detailed assessment, Master McCloud ordered the defendant to pay £421,089 plus interest of £10,723.

In relation to the rule 36.17(4) penalties, the defendant argued that it would be unjust to award the 10% uplift given the small amount by which the claimant beat her offer – nearly £7,000 – compared to the £43,000 windfall it would provide.

The claimant contended that the court did not have the power to order some, but not all, of the penalties contained in rule 36.17(4). She also pointed out that the part 36 penalties were not meant to be compensatory but to incentivise settlement.

Master McCloud found that, while there was no ruling directly on the point, the authorities indicated that the penalties were severable and each should be judged against whether it would be unjust to impose.

In most cases, the extent to which an offer has been beaten was not “a very material factor”, she said, but given she was applying the injustice test to each element, “the proportionality of the cost penalty must be applied separately for each of the sub-rules in 3.17(4)”.

The judge said: “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.”

With the offer made late in the day, meaning the parties had sufficient information to judge it, Master McCloud highlighted the three “most significant” factors in the case:

  • 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 have been 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 chance level as to whether an offer is likely to be ‘over’ or ‘under’ at the end of the hearing”; and
  • The large size of the 10% award relative to the margin by which the offer was beaten.

She concluded that the “bonus” of 10% here “would be a clearly disproportionate sum and it would be unjust to award it. That is also the case when one looks at the overall effect in the round of what would be the cumulative penalties in sub-rules (a)-(c) added to (d)”.

Nico Myburgh (solicitor, instructed by Leigh Day) for the claimant, Kevin Latham (instructed by Hill Dickinson) for the defendant.

 

Comments

Dragon 2   10/01/2019 at 12:28

The decision is from SCCO and is not binding. Is it being appealed? P36 is a self-contained code, and upon the Claimant/receiving party achieving an outcome at least as good as the P36 (36.17 [1 & 2] they are entitled to the benefits of para 4 if "unjust" to do so, but proportionality is not mentioned which infers conduct not quantum surely.

Allsorts   10/01/2019 at 14:04

What about the overriding objective to allot an appropriate share of the courts resources? Had the offer been accepted then there would have been no need for a costly assessment hearing and the costs of assessment of both parties would surely be a relevant factor when considering proportionality if this is indeed relevant which I do not agree. It would be interesting to hear what the paying party's offer to settle was. This decision takes us back ten years to Carver v BAA PLC and the uncertainty over who was deemed the successful party which will surely cause further litigation. Appeal?

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