The High Court has awarded a claimant indemnity costs where the defendant conceded liability shortly before a split trial, having previously refused the claimant's Part 36 offer to accept liability for 95% of damages to be assessed: Jockey Club Racecourse Limited v Willmott Dixon Construction Limited [2016] EWHC 167 (TCC).

When the new version of CPR Part 36 was introduced from April 2015 (see post), one of the changes made was to address a perceived difficulty with the previous rules, in that a claimant could obtain the benefits of Part 36 by making an offer for nearly all the relief sought in the action. It was clear from previous case law that there had to be some genuine element of concession, so that a request for total capitulation would not be effective (see AB v CD [2011] EWHC 602 (Ch) summarised here). However, it was not clear how much of a concession there had to be; in Huck v Robson [2002] EWCA Civ 398, for example, a claimant’s offer for 95% of the value of the claim was given effect.

The new rules addressed this issue by adding a further factor the court must take into account in deciding whether it would be unjust to order the Part 36 costs consequences, namely "whether the offer was a genuine attempt to settle the proceedings”. The idea was that a very high claimant offer was unlikely to be a genuine attempt to settle the claim, and so the new factor should mean the court would decline to give effect to a claimant’s offer which contained little in the way of concession.

The present decision suggests, however, that even with this new factor the courts may be prepared to give effect to claimant offers for a very large proportion of the claim value, though of course each case will turn on its facts. In the present case, the judge commented that although the discount was "very modest", it could not be described as "derisory".

Background

Where a claimant obtains a judgment that is more advantageous than its Part 36 offer, the court must (unless it considers it unjust to do so) order the costs consequences set out in CPR 36.17, including indemnity costs and enhanced interest from the date on which the relevant offer period expired.

In considering whether it would be unjust to order the Part 36 costs consequences, the court must take into account all of the circumstances of the cases, including the factors set out at CPR 36.17(5). As from 1 April 2015, a new factor was added to this list:

"(e) whether the offer was a genuine attempt to settle the proceedings."

In the present case, the claimant brought proceedings against the defendant in relation to the design and construction of a new grandstand at Epsom Race Course. Directions were given for a split trial on liability but by the time of the pre-trial review in December 2015 the defendant had conceded liability.

The claimant applied for indemnity costs on the basis of the defendant's failure to accept a Part 36 offer made by the claimant in January 2015. That was an offer to settle the issue of liability on the basis that the defendant would accept liability for 95% of damages to be assessed. (It was accepted that questions of whether any of the other Part 36 consequences should be awarded should await the final outcome of the litigation.)

Decision

The court (Edwards-Stuart J) awarded the claimant indemnity costs from some four months after the date of the Part 36 offer.

The first question was whether the claimant's offer might not be a genuine Part 36 offer at all, either because it did not reflect an available outcome at trial, or because it came close to requiring total capitulation on the part of the defendant. 

On the latter point, the judge referred to AB v CD, in which Henderson J had said it was clear that a request that the defendant submit to judgment for the entirety of the relief sought could not be an offer to settle within the meaning of Part 36. There had to be some genuine element of concession on the part of the claimant, to which a significant value could be attached in the context of the litigation. It could not be "all take and no give". The judge in the present case endorsed and adopted that explanation of what is meant by an offer, concluding that although the claimant's offer in this case was "hardly generous" it could not be described as "all take and no give".

On the first point, the judge noted that this was a claim where the outcome could only be success or failure for either party; there was no room for apportionment of liability, and so a finding of 95% liability was not an available outcome at trial. However, that did not mean an offer to settle for 95% was not a valid Part 36 offer: cases are frequently settled on the basis of an assessment of risk which combines the risk of failure and uncertainty as to quantum, so that the settlement does not necessarily reflect a likely outcome at trial. That view was supported by the decision in Huck v Robson, where the Court of Appeal said there was no need to measure the offer against the likely outcome.

The defendant submitted that Huck v Robson could be distinguished because it was decided under the previous version of the rules which did not include the present requirement for the court to consider whether the offer was a genuine attempt to settle the proceedings. The judge rejected that submission, saying he had no doubt that the Court of Appeal's view would have been no different if that provision had been included in the rule at the time; the court had specifically considered whether the offer was a genuine attempt to settle, although it was not an express requirement of the rules.

Accordingly, the judge concluded that the offer in this case was a valid offer within the meaning of Part 36 and that it was a genuine attempt to settle the claim. Although the discount was very modest, it could not be described as derisory.

However, the judge accepted the submission that it would be unjust to award indemnity costs from 21 days after the date of the offer, since at that stage the defendant had only just been made aware that the claim had been increased very significantly. The award of indemnity costs should run from the earliest date the defendant could reasonably have put itself in a position to make an informed assessment of the strength of the claim on liability. That date was four months from the date of the offer, so the claimant was awarded its costs in relation to liability on the standard basis up to that date and thereafter on an indemnity basis.