CONSEQUENCES OF FAILING TO BEAT PART 36 OFFER WON'T APPLY IF UNJUST

In Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch), Mr Justice Briggs in the High Court considered whether the costs consequences of Part 36 should apply where a claimant had obtained £98 in damages (and interest of £4.10) at trial – being the loss suffered due to his demotion – in the face of a Part 36 offer for £1,000 inclusive of costs. Whilst the sums here were small, the principles are of broader application.

The claimant was employed by the defendant. He was demoted as a result of comments posted on Facebook. He challenged the demotion and claimed damages for breach of contract. A further limb to his claim – a declaration that the demotion was incompatible with his Human Rights – had been struck out at an early stage in the proceedings.

The defendant made a Part 36 offer of £1,000, calculating that the maximum damages the claimant could recover if successful was £0.84.

CPR 36.14(1)(a) and (2) provide that: if a claimant fails to obtain a judgment more advantageous than a defendant's Part 36 offer, unless the court considers it unjust to do so, it will award the defendant his costs (with interest) from the date on which the "relevant period" expired.

CPR 36.14(1A) provides that for the money element of a claim "more advantageous" means "better in money terms by any amount".

Briggs J said the question was not whether it was reasonable for the claimant to refuse the offer, but whether an order that the claimant should pay the costs would be unjust. The court should assess which party is in reality the unsuccessful party, and who has been responsible for the fact that costs have been incurred which should not have been.

This was not really a case about money. The claimant sought to restore his reputation and the defendant to uphold the correctness of its disciplinary procedures. That the case was transferred to the High Court reflected this. The £1,000 offer would, therefore, have left the real matters in issue between the parties unresolved.

The court ordered that there be no order as to costs – it was not fair for the defendant to be wholly deprived of Part 36 protection. Neither was it unjust for the claimant to bear his own costs. The burden caused by the failure to proceed in the Employment Tribunal in sufficient time lay with the claimant. He had also failed in arguing for a more generous quantification of damages, meaning that to the extent the case was about money, the claimant was unsuccessful.

The burden on a claimant to show injustice is, Briggs J emphasised, "a formidable obstacle to the obtaining of a different costs order" – such a result will be rare. The judgment provides an interesting example of what such unusual circumstances might look like, but should not be taken to undermine the purpose of Part 36.