Has Part 36 lost its teeth?

Part 36 Offers – Case Law

In the recent conjoined appeals of Hislop v Perde and Kaur v Ramgharia Board [2018] EWCA Civ 1726 the Court considered the question of whether indemnity costs should be ordered against a defendant who accepts a claimant’s offer late.

Part 36 Offers Explained

For those not in the know, Part 36 offers were originally introduced as a way to encourage parties to settle cases wherever possible, thereby minimising the costs of litigation. The methodology was that if a party accepted an offer beyond 21 days after the offer was made (well, technically, served upon them) they would face costs consequences.  The traditional consequence was deemed to be “indemnity costs”, in contrast to the traditional “standard costs.”

Rule 44 of the Civil Procedure Rules defines “indemnity costs” as meaning the winning party will receive all of their costs apart from costs which have been unreasonably incurred or unreasonable in amount.  The difference between that rule and “standard costs” is that with standard costs the Court will also not allow any costs which “have been disproportionately incurred or to be disproportionate in amount.”

Essentially, the costs will always be higher on the indemnity basis as the Court allows more of them.

This then served as a strong incentive to engage in sensible settlement negotiations: ignore a reasonable offer and you could get stung with a bigger costs order at the end.

This sensible system functioned well for a number of years and I still recall many years of drafting careful Part 36 offers, whether it was for an injury at work claim or a road traffic accident, trying to strike the correct balance.

Then, in 2013, following sweeping reforms to the legal sector, a number of areas, including personal injury, were made subject to “fixed costs.”

Part 36 Offers in Fixed Costs Cases

With “fixed costs” the costs are by their nature fixed dependent upon what stage the case settles at.  The various amounts increase as the stages progress, so there remains some incentive to settle early, but what was to become of Part 36 in fixed costs cases?  In the years that followed the assumption was that if a defendant accepted an offer late then the costs would be fixed up to 21 days from when the offer was made and then it would be standard or perhaps indemnity costs thereafter.  After all, this appeared logical as the very reason for Part 36 was to encourage early settlement – what incentive would there be if no consequences followed ignoring an offer until say the day before trial?  A range of decisions then followed: sometimes the Court left it as fixed costs, other times standard, on other occasions indemnity – the position was uncertain.

In Hislop, the Court of Appeal held that there was no automatic reason to order indemnity costs for late acceptance – there would have to be “exceptional circumstances.”

The Court held:

“A long delay with no explanation may well be sufficient to [argue exceptional circumstances]; a short delay with a reasonable explanation will not.”

The point being made therefore is that it all depends upon the circumstances and that indemnity costs could be awarded if the circumstances suggested so.  The Court held however that establishing “exceptional circumstances” would be a high hurdle to overcome.

Where does this leave us?

Well the first thing to remember is that, as is becoming more and more common it seems, is that this decision only impacts claimants; the general benefits of Part 36 continue to be there for defendants.

Also, this only applies to late acceptance: Broadhurst v Tan remains good law in circumstances in which a Claimant beats their Part 36 offer at trial.

Unhelpfully the position has been left somewhat uncertain as we now face the nebulous question of “how poor does a defendant’s conduct need to be before indemnity costs will be triggered?”  This will always be subjective to a degree and one can perhaps empathise with the Court’s reluctance to be overly prescriptive but, at the same time, I find myself lamenting the fact the millions of pounds, and years, spent in tinkering (sabotaging one might say) with the justice system, following pressure from the insurance industry lobby, have left us now in a situation more nebulous and likely to provoke satellite litigation than we were back in say 2011.

The other obvious consequence is that with no incentive to accept sensible settlement offers cases are likely to further drag on and clog up the increasingly overloaded UK court system, increasing costs as a consequence.  Finally, not that anyone seems to have much sympathy these days, innocent injured people are likely to have to wait longer to recover the compensation they are entitled to.

Time and (British tax payer’s) money well spent?  One thinks not.

By James Winterbottom, Solicitor. 

Aston Knight Solicitors Bury are a specialist firm of solicitors that specialise in serious injuries including medical negligence claims and work injury compensation. If you would like to discuss further then please contact a member of our team on 0800 999 6661 or info@astonknightsolicitors.co.uk for a free and confidential discussion.