Fixed Costs - Accepting Part 36 Offers Out of Time

If the judgment of District Judge Besford sitting at the Kingston Upon Hull County Court in the case of Sutherland v Khan on 21 April 2016 is anything to go by, close attention should be paid to the expiry of any CPR Part 36 offer by the claimant even if the case is unlikely to reach trial. 

This was an RTA claim subject to fixed costs. After the defendant accepted the claimant’s CPR Part 36 offer some 28 to 30 days out of time (after the relevant period) the parties could not agree costs and the matter came before District Judge Besford. It was held that where a defendant accepts the claimant’s CPR Part 36 offer out of time, the normal costs consequences of failing to accept i.e. indemnity costs after the expiry of the offer will apply.

CPR Part 36.13 and the costs consequences of accepting a Part 36 offer provides under sub-section 5 that where the parties cannot agree the liability for costs, the court must ‘unless it considers it unjust to do so’, order that the claimant be awarded costs up to the date on which the relevant period expired. In considering whether it would be unjust to make an order, the court must take into account all the circumstances of the case including the matters listed in CPR 36.17(5). In turn, subsection 5 refers to certain types of orders under CPR 36.17(4) including indemnity costs.

The defendant submitted that for the court to make an order for indemnity costs required there to be some “bad faith, unreasonable conduct, or something to warrant indemnity costs”.  This was not a case where criticism could be attached to either party in terms of how they had conducted the case. However, District Judge Besford reasoned that it was not necessary for the court to find that the defendant has in some way been guilty of inappropriate behaviour or conduct before making an order for costs on an indemnity basis.

It followed that when considering CPR 36.7(5) the test was whether it would be unjust to make the orders that would ordinarily follow under 36.17(4) which included indemnity costs. For the court to deny the consequences that flow from accepting a Part 36 offer out of time, the court had to make “pretty exceptional findings” and there has to be some “very good reason” as to why it was unjust not to make the usual order. 

In keeping with rationale behind Part 36, District Judge Besford stated that Part 36 offers are meant to have teeth by encouraging both parties to make and accept offers. It follows that if accepting an offer out of time meant no more than fixed or even standard costs, there would be nothing to deter a defendant from accepting an offer close to trial. This would rub against the green of the overriding objective namely saving expense.

With the advent of ‘qualified one way costs shifting’, we expect the teeth of Part 36 will be just as sharp when it comes to a claimant accepting the defendant’s costs out of time albeit any enforcement is likely to be limited to the level of damages.