CPR 36 is the most important rule in the book.
Given that it is highly relevant to every piece of civil litigation outside the small claims track, and thus has to cover almost every eventuality, it is inevitably complicated.
However, the rule is silent on perhaps the most important costs issue of all, and that is what happens when a defendant accepts a claimant’s Part 36 offer out of time.
If a claimant accepts a defendant’s offer out of time, then the claimant, although successful in the case overall, has to pay the defendant’s costs from the date of expiry of the time for accepting the offer until acceptance. The claimant also forfeits recovery of its own costs for that period. Thus it is a double penalty: no own costs and having to pay the other side’s costs. The claimant, understandably, is treated as having lost that part of the action.
A claimant who matches or beats its own offer at trial, or where judgment is entered, gets indemnity costs from the date of expiry onwards. That is clear from the rules and is not now in dispute. If it were otherwise, then there would be no penalty on a non-accepting defendant, as they would simply pay costs on the standard basis as if they had lost and the claimant had made no Part 36 offer, or had failed to match or beat it.
Generally the above provisions must be applied unless it would be unjust to do so.
The unanswered question is whether a late accepting defendant is bound to pay indemnity costs in the absence of judgment being entered.
There is a further complication in fixed costs cases in that there are three, not two, costs options: that is fixed costs, standard costs or indemnity costs.
In Broadhurst & Taylor v Tan & Smith, the Court of Appeal held that a successful Part 36 claimant is entitled to indemnity costs, not fixed costs or standard costs; thus we know that Part 36 trumps fixed costs. However, the decision does not help as to the position where there is no judgment.
There is no binding authority on this point and decisions at district judge and circuit judge level are all over the place.
In Sutherland v Khan, District Judge Besford, regional costs judge, held that a late accepting defendant was liable to pay indemnity costs from the date of expiry of the time for accepting the offer until acceptance, even in the absence of judgment.
That decision, non-binding, has been followed in many cases, including Hart v Pizza Hut (1 November 2016, Chester County Court), where the defendant was given leave to appeal, but chose not to.
However there is another line of non-binding decisions that says that a defendant is not so liable, for example McKeown v Venton, where Graham Wood QC HHJ, Designated Civil Judge for Cheshire and Merseyside, held that unless it was unjust, a claimant was entitled to indemnity costs if it obtained a judgment better than or equal to its own Part 36 offer; but in the absence of judgment being entered, the court had no discretion to award indemnity costs, absent exceptional circumstances which were not present here.
In Richardson v Wakefield Council, Gosnell HHJ held that a claimant in such circumstances escaped fixed costs, but got standard, not indemnity, costs. This decision was described by Judge Wood in McKeown as “something of a halfway house”.
In Hislop v Perde, another fixed costs case, the district judge allowed standard, rather than fixed costs or indemnity costs, and the claimant appealed.
On appeal, the circuit judge declined to interfere with the decision, but made it clear that courts do have a discretion to award indemnity costs on late acceptance and that another judge may well have come to a different, and justified, conclusion on the same facts.
Thus there are at least four possibilities:
- On late acceptance, a claimant is entitled to indemnity costs unless unjust (Sutherland v Khan).
- There is no entitlement, but there is a discretion, for the claimant to get indemnity costs (Hislop v Perde).
- There is no entitlement and no discretion in relation to indemnity costs (McKeown v Venton).
- In a fixed costs case there is an entitlement to standard, but not indemnity, costs (Richardson v Wakefield Council).
Comment
This extremely important point needs clarification by the Court of Appeal as soon as possible.
The triple option of fixed/standard/indemnity costs will apply to vastly more cases and once the extension of the fixed costs regime comes in on 1 October 2018, pursuant to Jackson LJ’s July 2017 report.
In all other cases, the potential difference is between standard and indemnity costs. That distinction itself is of great and increasing importance, as proportionality does not come in to play if costs are awarded on an indemnity basis, and proportionality is an increasingly significant part of costs assessment and budgeting.
It is vital we have a clear decision before the huge changes coming in on 1 October 2018.
Kerry Underwood is chairing a conference on Part 36 in Central London on Tuesday 14 November 2017 and other speakers include Ben Williams QC and David Pilling.
