Late acceptance of Part 36 offers and indemnity costs

Claimants have long been pushing for defendants to be penalised in indemnity costs for accepting genuine offers of settlement out of time. The number of applications based merely upon the fact of late acceptance is steadily growing resulting in first instance decisions for both sides.

The issue arises out of CPR 36.13, which provides that where a Part 36 offer is accepted after expiry of the relevant period, the liability for costs must be determined by the court unless the parties have agreed the costs.

But where the parties cannot agree then the court must, unless it considers it unjust to do so, order that:

1. “the claimant be awarded costs up to the date on which the relevant period expired; and
   
   
2.  the offeree do pay the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.”

In considering whether it would be unjust to make the order, the court must take into account all the circumstances of the case including the matters listed in rule 36.17(5) which include the terms of the offer, the stage at which it was made, the information available at the time, the parties conduct and whether it is a genuine attempt to settle.

On 10 October 2016, HHJ Hughes QC heard the defendant’s appeal against the decision to award indemnity costs in Whiting v CarillionAmey (Housing Prime) Limited (unreported).

The claimant made a Part 36 offer on 23 June 2015 prior to the issue of proceedings on 8 September 2015. Directions were made by the court on 14 January 2016 setting a trial window commencing on 6 June 2016. The defendant accepted the Part 36 offer, some 10 months after expiry of the relevant period for acceptance, by letter dated 18 May 2016.

The claimant sought to recover an award of indemnity costs which was refused by the defendant. The claimant refused to accept the claim was stayed and served a trial bundle, but no application or witness statement seeking indemnity costs.

Following the parties’ submissions, on 7 June 2016, the court ordered the defendant to pay the claimant’s costs, including the costs of the hearing, assessed on a standard basis up to 14 July 2015 and thereafter on an indemnity basis, such costs to be assessed by way of detailed assessment.
The difficulty with this decision was the existence of a long-standing authority that mere late acceptance of a Part 36 offer is not a basis for making an award of indemnity costs. His Honour Judge Hughes QC accepted that he was bound by authorities in the Court of Appeal, as was the Deputy District Judge, and allowed the appeal.

In Excelsior Industrial and Commercial Holdings v Salisbury Hammer Aspden and Johnson [2002] EWCA Civ 879, Lord Woolf set out the need for there to be something more than merely a non-acceptance of an offer of payment by a defendant before it is appropriate to make an indemnity order for costs. He said:

“In my judgment it is dangerous for the court to try and add to the requirements of the CPR which are not spelt out in the relevant parts of the CPR. This court can do no more than draw attention to the width of the discretion of the trial judge and re-emphasise the point that has already been made that, before an indemnity order can be made, there must be some conduct or some circumstance which takes the case out of the norm. That is the critical requirement.”

Keoghs comment

It follows that, unless a specific provision in Part 36 provides for an award of costs on an indemnity basis, it will be rare for the court to depart from the usual order of costs on the standard basis.