Two recent High Court decisions have emphasised that the Part 36 costs consequences will rarely be avoided.
Nominal damages of £10 beat claimant’s offer of £1: full Part 36 consequences apply
In Shah and another v Shah and another, the High Court upheld the decision of the County Court that the defendants should bear the normal Part 36 consequences when the claimant had made a Part 36 offer of £1, which he beat as the trial judge awarded nominal damages of £10.
This was an “intense and protracted” family dispute and the claimants sought £30,000 damages in relation to breach of contract concerning an apartment in Goa.
The court awarded nominal damages of £10 and held that the normal Part 36 consequences should apply.
Each of the parties’ budgets had been set at over £100,000 and the successful claimant’s costs were over £200,000, to be assessed on the indemnity basis due to having beaten its own Part 36 offer. £75,000 was ordered to be paid on account of costs.
The paying defendant argued that the usual Part 36 consequences should not apply as the offer of £1 was not a genuine offer to settle a claim, as required by CPR 36.17(5)(e).
This decision must be right. Presumably if the claimant had offered £25,000 of the £30,000 claimed, whatever the outcome there would be no suggestion that the offer was other than a genuine offer to settle.
At £29,500, the defendant would no doubt have argued that this was so close to the sum claimed, that there was really no concession, and therefore no genuine offer to settle.
Surrendering virtually the whole value of the claim must be a genuine offer to settle, and, as the court pointed out, the claimant’s offer was close to the outcome, so it was a good call.
The paying party could have protected its position by making an early, very low, Part 36 offer as any defendant can in any case.
Here, the defendant argued that the offer was “simply an attempt to game the system in terms of obtaining a costs order…”.
Well, of course it was. All Part 36 offers are, as was the predecessor regime of defendant’s payments into court.
As the original trial judge here pointed out:
“What was really left of the action in monetary terms were the prodigious costs. Regrettably, this will not have been the first nor the last action which turns out, during the course of the litigation, to be more about costs than the substance of the case.”
The starting point for a claimant should be to make a 95% liability offer the moment lawyers are instructed. The starting point for a defendant should be to make a Part 36 offer, low or otherwise, the moment the letter of claim is received.
Nominal damages awards do throw up additional issues, as the court here recognised, and one of those issues is likely to be as to who was the real winner, and therefore, where the incidence of costs should be:
“Nominal damages may or may not be consistent with success; there is no automatic (or “axiomatic”) rule.”
(Paragraph 35, judgment.)
Near miss offer of no effect
In Mullaraj v Secretary of State for the Home Department, the Senior Courts Costs Office rejected the Home Office’s argument that, having failed to protect itself by making an effective Part 36 offer, or an effective without prejudice save as to costs offer, it should be allowed to deploy CPR 47.20(1)(b) on the ground that its offer was a near miss.
The defendant offered £40,000, but not under Part 36. It was not accepted and no counter-offer was made. The court allowed £41,436.66, plus costs of £1,500 and a court fee.
The defendant applied for some other order under CPR 47.20(1)(b), without stating what that order should be, but arguing that the claimant’s refusal to make a counter-offer was unreasonable conduct within CPR 47.20(3)(a).
The court rejected that argument but recognized that there were different views among costs judges and said (at paragraph 33) that “a definitive view at a higher level” would be welcomed:
“The conclusion I have reached is that having failed to protect itself by making an effective offer under CPR 36 or by a “without prejudice save as to costs” offer, or through its open offer, the SSHD cannot succeed on a “Let’s see by how much the bill has been reduced” argument and then deploy CPR 47.20(1)(b). To permit that would be to discourage the making of offers, and enable paying parties who advance no offers, to be in a better position to argue for a “different order”, than those who make offers in a genuine attempt to settle the costs. However, as I have said, I am aware that there is no consistency on the Costs Judges’ corridor on this point. For that reason, I consider a definitive view at a higher level would assist parties in understanding where they stand, when they make a Part 36 offer which is too low, or no offer at all, but then argue that they can rely on CPR 47.20(1)(b) to their advantage, depending upon how good a day they have had in court. If asked, I would give permission to appeal and in that eventuality, invite the parties to transfer the case to the High Court so that the appeal is dealt with by a High Court Judge whose decision will be binding.”