Winning and losing under Part 36

Although Part 36 seeks to impose some degree of certainty as to costs, costs are ultimately in the discretion of the court. It is clear from the decision in Carver v BAA Plc that the court can undertake a wide ranging review of all the facts and circumstances of the case in deciding whether the judgment was worth the fight and which party should get its costs.

In Carver (a low value personal injury claim), the defendant admitted liability and under the Part 36 regime in force before April 2007, paid £4,520 into court. This was rejected by the claimant, as were all attempts by the defendant to elicit any sort of offer of settlement from the claimant. The defendant also made a further (Calderbank) offer of £20,000 inclusive of interest, damages and costs which was not accepted. At trial the claimant was awarded £4,686.26. Taking into account the interest at the date of the payment in and at the date of trial, the claimant beat the payment in by £51. The claimant's costs, including a success fee, amounted to in excess of £80,000.

Who was the winner for costs purposes?

Under the old Part 36 rules where at a trial a claimant failed to better a Part 36 payment, unless it considered it unjust to do so, the court would order the claimant to pay any costs incurred by the defendant after the latest date on which the payment could have been accepted without needing the permission of the court. It was the generally accepted practice that beating the payment in by as little as £1 was doing better than the payment into court and the claimant would then get its costs. The claimant therefore claimed she had won.

Under the current wording, Part 36.14 provides that where a claimant fails to obtain a judgment more advantageous than a defendant's Part 36 offer, the defendant is entitled to its costs from the date the relevant period expired plus interest on those costs unless the court considers it unjust to so order. Although the payment-in in Carver was made under the old rules, the new rules applied to it. The defendant alleged that it had won and that the claimant's conduct in refusing to put forward any reasonable offer should be taken into account under Part 44 when determining costs.

Court of Appeal decision

The Court of Appeal held that the new wording had introduced a change of practice and the term "more advantageous" permitted a more wide ranging review of all the facts and circumstances of the case in deciding whether the judgment was worth the fight. The modern approach to litigation had to be taken into account. The CPR encourages both parties to make offers to settle. Compromise is better than contest for all concerned. Litigation is time consuming and there is an emotional as well as financial cost to pay. Such factors need to be taken into account. Money is not the sole governing criterion. In this case, the extra £51 gained was more than off set by the irrecoverable costs incurred in continuing to contest the case. The stress of the litigation and trial itself should be taken into account. No reasonable litigant would have embarked upon the trial for a gain of only £51. The Court upheld the first instance decision that the claimant had failed to obtain a judgment "more advantageous" than the defendant's offer and that the claimant should therefore pay the defendant's costs from the time the offer expired.

The court could take all the circumstances of the case into account when exercising its discretion on costs which included the conduct of the parties. When exercising its discretion here, the court took into account the claimant's failure to respond to the defendant's £20,000 offer and her failure to make any counter proposals.

Comment

The old principle, of the claimant beating the payment in by £1 or more and then being safe on costs, no longer applies. Although this was a low value case, larger commercial cases may also be caught. If the judgment and the offer are at all close, given this judgment, a challenge regarding the costs consequences of Part 36.14 may well follow. "Closeness" will be relative to the values in the particular case. Non-monetary considerations can, and clearly will, be taken into account.

Although it is easier to see how this judgment applies to a defendant's offer, it could equally apply to a claimant's offer that has been narrowly beaten at trial by a defendant (i.e. the claimant obtains a judgment against the defendant for less than its own offer). The enhanced costs consequences of Part 36.14(1)(b) (i.e. the claimant receives indemnity costs, interest and interest on costs) would not prima facie apply. Applying Carver, the argument is that if the defendant had accepted the claimant's offer, the claimant would have been saved the anxiety of trial and the time and costs involved. Again, those factors should be taken into account by the court in assessing the "value" of the judgment against the defendant.

Once again, the judgment also makes it clear that failure by a party to enter or consider meaningful negotiations in an attempt to settle will be taken into account on the issue of costs, and parties can expect to be penalised if they are found wanting. Both parties need to be proactive in this regard.

Wragge & Co's legal experts have written some action points on this issue that could be vital to your organisation.