Summary

Any party may seek to settle at any stage of legal proceedings and in whatever way it chooses. However, only offers which comply with CPR 36.5 will have the potential cost-shifting consequences of a Part 36 offer if the other party fails to beat the offer at trial.

A rather surprising County Court decision in Sutherland v. Khan (unreported) 21 April 2016 (Kingston upon Hull County Court) may be a warning to any party looking to accept a Part 36 offer out of time.

Facts

Sutherland v. Khan was a low-value RTA claim. The claimant made a Part 36 compliant offer which the defendant accepted some 28 or 30 days after the expiry of the 21 day period for acceptance, without the court's permission.

The issue before the court was the extent of any additional benefits the claimant was entitled to and, in particular, whether it was limited to recovering fixed costs (the normal basis in low-value personal injury claims) or possibly standard, rather than indemnity costs.

Application

As the claimant had made a valid Part 36 offer which was accepted before trial, the proceedings were stayed pursuant to CPR 36.14 (1). The parties were unable to reach agreement as to costs and the claimant issued an application for its costs under CPR 36. 

The Judge looked to CPR 36.13 for guidance. CPR 36.13 (4)(b) provides that where a Part 36 offer is accepted after the expiry of the relevant period, liability for costs must be determined by the court where the parties cannot agree. CPR 36.13 (5) provides that in the present situation the court must, unless it is unjust to do so, order that the claimant be awarded costs up to the date of the expiry of the relevant period (21 days after the offer) and the offeree (here the defendant) must also pay the costs of the offeror (here the claimant) up to the date of acceptance. The rule does not specify on what basis those costs should be awarded.

In Fitzpatrick Contractors Ltd v. Tyco Fire Ltd [2009] EWHC 274 (TCC), an argument that indemnity costs should be awarded following late acceptance of a Part 36 offer failed before the High Court. The Judge in Sutherland, said, however, that the legal landscape had changed since that decision and that Fitzpatrick provided no incentive for an offeree to accept promptly.

The defendant submitted that to make an order for indemnity costs, the Judge must be satisfied that there was some form of bad faith or unreasonable conduct. The Judge disagreed, stating that there is no such pre-requisite given that "...part 36 offers are meant to have teeth".

The Judge referred to the matters set out in CPR 36.17 (usually only relevant post-trial, where an offer has been beaten) and ordered that the defendant pay the claimant's costs, on a fixed basis up until the expiry of 21 days after the offer, and then on an indemnity basis from this date until the date of acceptance.

Comment

It is surprising that the Judge did not follow Fitzpatrick. The Judge held that "if there was no incentive or penalty there would be little point in a defendant accepting offers early…as opposed to waiting immediately prior to trial. It [is] unsatisfactory that there should be penalties flowing if you do not beat an offer at trial whereas if you settle before trial there are none". Arguably, however, the Judge's approach, if followed by other courts, would be to discourage settlement after the 21 day 'relevant period' for acceptance without the court's permission, and parties may do better to be guided by the High Court decision in Fitzpatrick. In any event, if you intend to accept a Part 36 offer you should seek to do so within the time limit prescribed by the offeror or, in the County Court at least, you appear to risk indemnity costs.