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CPR 36.17(4): what is sauce for the claimant goose is not sauce for the defendant gander

Paying defendants constantly carp at the cost of litigation and at how much they are expected to pay when they lose. After all, if that were not the case and they paid up without a murmur, there would be no such thing as detailed assessment. Whilst the focus of their disquiet is usually directed at hourly expense rates and at lawyers taking too long to do the work, more recently the operation of Part 36 in its latest incarnation is becoming the focus for their indignation.

Suppose a claimant makes an effective offer under CPR 36.5 and, subsequently, judgment is obtained against the defendant which is at least as advantageous as the proposals contained in the offer: unless it considers it unjust (emphasis added) to do so under CPR 36.17(3), the court must order that the claimant be entitled under CPR 36.17(4) to:

  • Interest on any money recovered not exceeding 10% over base rate.
  • Costs on the indemnity basis from the last date upon 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.

In considering whether it would be unjust so to order, CPR 36.17(5)(a) to (e) lists five factors which must be taken into account. These include the terms of the offer, the stage it was made, the information available to the parties at that time, conduct and whether the offer was a genuine attempt to settle the proceedings. Absent anything unjust, it follows that a goodly treasure trove of benefits is available to successful claimants who beat their own Part 36 offers.

Less well known, but in some circumstances even more important, are the favourable “knock on” effects of the rule. First, an award of costs on the indemnity basis means freedom from the last approved or agreed budget, so a claimant, whose budgeted costs have been restricted to applicable court fees under CPR 3.14 for late filing of their costs budget, is no longer so limited and those costs will be restored (subject to assessment). Not only that, when it comes to the assessment, the proportionality test under CPR 44.3(5) will not apply, so there is no aggregation of the incurred and budgeted costs to worry about. What you get following the line-by-line assessment is what you keep, as the proportionality rule only applies to standard basis costs.

Now suppose that the costs boot is on the other foot and that it is the defendant who makes a Part 36 offer, which this time the claimant fails to beat. Sit back and enjoy an indemnity basis costs order plus enhanced interest on your costs? Not a bit of it. CPR 36.17(4) applies only to the claimant. The defendant has no entitlement to any of the benefits conferred by the rule and must apply for an indemnity basis costs order, otherwise standard basis costs will apply.

Obtaining an indemnity basis order is easier said than done: see Shalaby v London North West Health Care NHS Trust, in which the trust failed to obtain an indemnity costs order because it could not establish that the claimant’s conduct had been “out of the norm”. There is, however, one curiosity. If it is the defendant who has failed to file a costs budget on time and the claimant subsequently does not beat the defendant’s Part 36 offer, the recoverable costs are restored as to 50% of what would have been payable but for the breach of CPR 3.14: see CPR 36.23(2)(a) and Ali v Channel 5 Broadcast Limited.

That all said and done, and in the knowledge that the CPR 36.17(4) land of milk and honey is closed to defendants, what a canny paying party should then ask where the rule applies, is whether all the benefits are payable, or just some of them. After all, the 10% additional sum can be an unexpected windfall for the claimant. Whether it is fair that a receiving party who beats their own offer by a whisker, or whose costs are assessed down heavily, should automatically be entitled to as much as an extra £75,000, is surely something that the court should consider using the “unjust” test under the rule.

That is the question which Stewart J was asked to decide in JLE (A Child by her Mother and Litigation Friend ELH) v Warrington & Halton Hospitals NHS Foundation Trust. Before looking at the case in detail, it is worth remembering why CPR 36.17(4) came into being in the first place.

A concise explanation is to be found in Slade J’s judgment in Cashman v Mid Essex Hospital Services NHS Trust, at paragraphs 23 and 25:

“… the purpose of CPR 36.14(4)(d) is penal… The making of an order of the level required by CPR 36.14(3)(d) was decided as a matter of policy as explained in the Jackson Report [see The Review of Civil Litigation Costs] under the previous regime, it was considered that a claimant was insufficiently rewarded and the defendant insufficiently penalised when the claimant has made an adequate Part 36 offer.”

It is clear, therefore, that the additional sum is to be awarded not as compensation, but as a penalty. A defendant who rejects a Part 36 offer made by a claimant who recovers more at trial, is to be penalised for their poor judgment in having brought the claimant to court and in having wasted valuable court resources.

It is against this background that JLE is to be viewed. The facts were that in proceedings for clinical negligence, the claimant recovered £2.5 million in damages and served a bill for £617,751. An offer to settle the costs was then made by the claimant under CPR 36.5 for £425,000 inclusive of interest. The costs were allowed at £421,089, but the addition of £10,723 interest brought the total payable by the defendant up to £431,813. The claimant had therefore “won”, thereby triggering CPR 36.17(4) which included the 10% additional sum of £42,108.90 under sub-rule (d).

As will have been observed, CPR 36.17(4) comes not with one, but with four separate benefits under sub-rules (a), (b), (c) and (d). Hitherto it has been something of an open question whether it is a case of “win and get all” or of “win and not necessarily get all”, in the sense that the court has discretion to disallow one or more of the benefits if it is just to do so. Put differently, is it permissible, and if so, what are the circumstances in which it might be appropriate to award, say, enhanced interest but not indemnity costs or the additional sum?

That was the situation in JLE. Crying “foul”, the paying trust’s argument went like this. The claimant had failed to recover more than the offer and had only “won” because interest had been added. To reflect that, the court should sever the additional sum from the (a), (b) and (c) benefits and allow it at nil on the grounds that it would be unjust to do otherwise.

That submission was accepted below by the master who had assessed the bill.

Done out of her £42,108.90, the claimant appealed to Stewart J. The issue was whether there was a single test of “unjustness” so that it would not be applied separately to each of (a), (b), (c) and (d): the judge’s view was that there was nothing in the rule to suggest that it should be applied either way, separately or collectively. What the court was to do was to take all circumstances into account, including the factors (a) to (e) in CPR 36.17(5) and that, as the rule on its construction did not state that the injustice exception was to be applied across the board, it was open to the court to find it unjust to award all the benefits and to disallow one or more of them.

The issue then arose, if, as the judge had found, the additional sum could be severed from the rest, should the fact that there had been a “near-miss” mean that it was unjust to award the additional sum? Putting that more colloquially, should the small margin by which the offer had been beaten relative to the size of the bill sound in the disallowance of the additional sum which otherwise would be payable?

Stewart J held that it should not. There was to be no going back to the days of Carver v BAA Plc, a case criticised in the Jackson Report and reversed by the Civil Procedure Rule Committee, when the beating of an offer by a small margin had opened the floodgates to arguments that there should be no automatic entitlement on the receiving party’s part to their costs. For that reason, it was not open to judges to take into account, in the exercise of their discretion, the amount by which a Part 36 offer had been beaten.

That left the effect of the significant reduction to the bill. Brought in at £615,000 and allowed at £420,000, thereby involving a judicial chop of almost £200,000, it was common ground that such a heavy reduction could be a valid reason for refusing to make the additional award. However, the burden of showing injustice lay upon the party who had failed to beat the offer. That was a formidable obstacle. Below, the judge had held that the sum had been a disproportionate bonus. It had not: on the contrary, the additional sum was not a bonus but a penalty, and the judge had erred to the extent that she had been influenced by the reduction in the size of the bill. The claimant was entitled to the extra £42,108.90 and the trust would have to cough up.

In reaching this conclusion, Stewart J followed Slade J’s decision in Cashman that it was not open to the court to decline to award the additional sum, not because the making of it would be unjust, but because it was unjust in the required amount, namely 10% of the assessed costs. He continued, obiter, that the court could not award a figure below 10%. It was all or nothing. Accordingly, since the master had gone wrong in principle, the trust was on the hook for the full panoply of the CPR 36.17(4) benefits.

Rough justice for defendants? Arguably yes, for two reasons. First, if a claimant rejects a Part 36 offer which should have been accepted, the defendant will be kept in the action at its own expense and valuable court resources will have been used up when they need not have been. On the “what’s sauce for the goose should be sauce for the gander” argument, there is no compelling reason why an unreasonable claimant should be in a different position to an unreasonable defendant. The indemnity basis costs order should cut both ways. Second, although it is agreed that disallowances on assessment are a factor to take into account in deciding whether to award the additional sum, just how much does a defendant have to reduce the bill by in order to win that point? In Cashman, the claimant lost 34% and still got her additional sum; in JLE, it was 31% and likewise. A formidable obstacle indeed for defendants to overcome.

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