Practical Law

Prior to the implementation of the Civil Procedure Rules (CPR) in 1999, what is now Part 36 did not exist. A defendant could make a payment into court to put a claimant on risk as to future costs. “Reject my offer and fail to beat it at trial, and you will be ordered to pay my costs from the last date on which the offer should have been accepted” was the only sanction. There was no procedure under the Rules of the Supreme Court (then in force) for claimant’s offers, still less any risk for defendants to face penalties if they unreasonably refused to accept them.

That all changed with the Woolf Reforms which brought in Part 36, so that, with effect from the implementation of the CPR, both claimants and defendants could make offers under the rule, which contained costs sanctions for parties who pressed on and failed to do better at trial.

However, in the view of Sir Rupert Jackson in his Report into Civil Litigation Costs, published in December 2009, the rule did not go far enough. He wrote:

“As the law now stands, the claimant is insufficiently rewarded and the defendant is insufficiently penalised when the claimant has made adequate offer.”

(Chapter 41, paragraph 3.9.)

The outcome of this was the revision of CPR 36 and the introduction of CPR 36.17(4), which provides for those benefits. They are:

• Interest on any money recovered not exceeding 10% over base rate.
• Costs on the indemnity basis from the last date on which the offer could have been accepted (known as “the relevant date”).
• Interest on those costs not exceeding 10% over base rate.
• An “additional amount” of 10% of the first £500,000 awarded, and 5% on any amount above that figure capped at £75,000.

Sir Rupert explained the benefits of the rule change: that it provides “a more level playing field” between claimants and defendants, that “more cases will settle early” as defendants will be less willing to proceed to trial when claimants have made reasonable offers, and that in those cases which do go to trial, the claimant, having made an adequate offer, “will recover a significantly larger sum” (chapter 41, paragraph 3.15).

The Jackson-styled Part 36 is therefore carrot and stick. The carrot for the claimant is enhanced benefits if the defendant unreasonably refuses the claimant’s Part 36 offer, and more is awarded at trial. The stick for the defendant is that the offer will be turned down at that party’s peril. Should the claimant recover more than the offer at trial, it could cost the defendant: (i) a penalty of up to £75,000; (ii) interest on the recovery at up to 10% over base rate; and (iii) costs on the indemnity basis, meaning that the burden of establishing that those costs were reasonably and necessarily incurred, is reversed in the claimant’s favour, liberating the claimant from the last agreed or approved budget (see Denton v TH White at paragraph 43) and eliminating any proportionality worries under CPR 44.3(5), as only standard basis costs are subject to that rule.

A veritable feast of benefits indeed for the claimant.

Any lifeline for defendants?

CPR 36.17(5)(a) provides for that. The court must confer the benefits under CPR 36.17(4) “unless it considers it unjust to do so…”. In considering whether it would be unjust, the court must take into account:

• The terms of any Part 36 offer.
• The stage at which the offer was made.
• The information available to the parties when the offer was made.
• The conduct of the parties.
• Whether the offer was a genuine attempt to settle the proceedings.

Predictably, since the rule’s implementation, defendants have repeatedly attempted to drive a coach and horses through CPR 36.17(4), arguing that it is unjust for it to be deployed at all, or that some bits of it but not others should apply, or that the additional sum should be awarded only in an amount much reduced from the £75,000 potentially payable under the rule.

An earlier blog post has examined these arguments, which have met with varying degrees of success and failure. In Cashman v Mid Essex Hospital Services NHS Trust, Slade J held that the court below had erred in declining to direct payment of the additional sum not because it considered making the award was unjust, but because it believed it was unjust to make it in the required amount (10% in that case), where the bill had been substantially reduced on assessment.

In JLE (a Child by her Mother and Litigation Friend) v Warrington & Halton Hospitals NHS Foundation Trust, the claimant had beaten her own offer of £425,000 for costs only because the addition of interest of £10,723 had tipped it over the figure of £421,089 which the court had allowed. Nonetheless, Stewart J had held that it was not open to the court to take into account the amount by which the offer had been beaten, and that (obiter) the additional sum was all or nothing, there being no power to allow less than the 10% unless it was unjust to do so. Thus, it would be open to the court, in order to avoid injustice, for the judge to award some, but not other of the benefits available under the rule, while falling short of making any percentage reduction to the additional sum, which is sacrosanct at 10% or nothing at all, with no “in-between” figure being allowable.

That more nuanced approach has found further favour in a recent decision of Zacaroli J.

Rawbank SA v Travelex Banknotes Ltd

The facts of this case are interesting, to say the least, but in summary,  Rawbank (a bank based in the Democratic Republic of the Congo) purchased approximately $60 million worth of banknotes from Travelex, under a contract agreed just before the world locked down due to COVID-19. On 4 May 2020, Rawbank applied for a freezing injunction and issued proceedings for breach of contract and misrepresentation against Travelex, as the banknotes had still not arrived (flights to the relevant destinations for delivery had been cancelled due to COVID-19), and Travelex had subsequently used the US dollars it bought to fulfil the agreement with Rawbank to complete the order of another customer.

Rawbank coupled the proceedings with a Part 36 offer of £48,290,000, excluding costs, but inclusive of interest to the end of the “relevant period”. That offer was not accepted, but on 15 June 2020, Travelex agreed to submit to judgment for $60,072,000, thereby engaging CPR 36.17(4) because the outcome for Rawbank was at least advantageous as that proposed in its Part 36 offer.

The consequences? In principle, Rawbank was entitled to the additional sum of £75,000, plus enhanced interest of up to 10% over base rate on $60,072,000, and costs on the indemnity basis. Travelex disagreed, contending that it would be unjust for CPR 36.17(4) to apply because the offer was not genuine, as it had failed to contain any element of concession, and a settlement that was “all take and no give” was not a settlement at all.

That submission failed. Zacaroli J calculated that the discount offered, taking into account exchange rates and interest, was worth £158,059. While this might appear to be a small sum in the context of a claim for $60 million, it was significantly more than the interest which would have accrued over the relevant period and Rawbank’s own costs to date. It was therefore capable of being, and indeed was, a genuine offer of settlement.

Whether or not Travelex was able to pay was also relevant to the question of whether it would be unjust to award the CPR 36.17(4) benefits. The company was insolvent but was being restructured. It could not pay Rawbank as an unsecured creditor without preferring it ahead of secured creditors, so its ability to pay Rawbank was beyond its control. That factor made it unjust “to make at least some of the orders identified in rule 36.17(4)” (paragraph 37, judgment).

Adopting the cherry-picking approach discussed by Stewart J in JLE, Zacaroli J declined to award the additional sum or any lesser sum, there being no discretion to award a figure between nought and £75,000. However, he also found that there would be no injustice in ordering Travelex to pay indemnity costs from 25 May (the end of the “relevant period”) and interest at 8%, which was significantly higher than the contractual rate of 2% above the bank rate payable under the banknotes agreement, as Travelex had prolonged the action by serving an acknowledgment of service indicating an intention to defend when there was no defence to Rawbank’s claim.

Any handy hints here for practitioners?

While Rawbank does not lay down any new law, it nonetheless makes clear that the “unjust” test can be applied to the individual benefits which otherwise would be there for the taking by claimant on beating their own Part 36 offer.

Thus, as was the case here, it was possible for it to be unjust to award the extra £75,000, and yet it was just to order enhanced interest and indemnity basis costs. In another case, the reverse might be appropriate: additional sum payable in full, but no enhanced interest or indemnity basis costs. That said, whichever way the judge decides to jump on the day, CPR 36.17(4) is a valuable weapon in any claimant’s armoury, not least because there are no equivalent benefits which apply in favour of a defendant, where a claimant fails to beat a defendant’s Part 36 offer: no indemnity costs for the defendant, no percentage reduction in the damages awarded and no enhanced interest on the costs incurred from the end of the relevant period.

Is that fair play? Readers can make up their own minds, in light of my earlier blog post. What is clear from Rawbank, however, is that by successfully deploying the “unjust” rule in CPR 36.17(5), defendants also have a valuable weapon in their own armoury, so that they can at least dilute the strength of the sauce which successful claimants would otherwise be enjoying under CPR 36.17(4) when they have won their case at trial.