SG v Hewitt 02.08.12
 
In the recent case of SG v Hewitt, the Court of Appeal departed from the normal Part 36 costs rules by allowing the Claimant to recover all his costs despite accepting the Defendant’s Part 36 offer two years after expiry.
 
Have Part 36 offers become a less effective tool in avoiding excessive costs?
 
Part 36: the rule
 
Where a claimant does not beat the defendant’s offer, the defendant is entitled to costs from the end of a 21 day acceptance period plus interest on those costs unless the court considers it unjust to make such an order. In considering whether it would be unjust to make such an order, the court "will take into account all the circumstances of the case", which specifically includes any information available to the parties at the time the offer was made (CPR 36.14).

Background

In SG v Hewitt, the six year old Claimant suffered severe brain damage in a road traffic accident in 2003, the impact of which would not be certain until he fully matured.

The Defendant made a Part 36 offer of £500,000 before the start of the proceedings in April 2009 in full and final settlement of the claim. In 2011 a firm prognosis of the Claimant’s condition was made, following which the offer was accepted. The Court approved the settlement and costs were agreed up to the end of the acceptance period. However, a dispute arose as to who was liable to pay the costs from the end of the 21 days in which the offer could have been accepted.

At first instance, Mr Justice Popplewell was not satisfied that the case was exceptional or that it would be unjust for the Claimant to pay the Defendant’s costs. As such, the Claimant was ordered to pay the Defendants costs incurred from expiry of the Part 36 Offer. He appealed.

Circumstances of the case

The Court of Appeal decided that Popplewell J should have provided greater consideration of the facts of the case. In particular the Court considered that:

  • There was considerable doubt as to whether it would have been possible for the lower court to approve the settlement before the Claimant’s adolescence
  • All the costs incurred after the offer was made related to investigating the adequacy of the offer and obtaining evidence which would enable the Claimant to make a decision
  • The offer was made at a time when the Claimant’s prognosis was uncertain
  • The offer was not rejected
  • The Claimant’s solicitors kept the Defendant informed of the fact that further expert reports were being obtained to assess the Claimant’s development
  • The Defendant had the option of withdrawing the offer and choose not to do so

In light of the above, the Court decided that it would be unjust for the Claimant to pay the Defendant’s costs from the date of expiry of the offer. The costs order was set aside and the Claimant was able to recover all his costs.

Comment

The Court of Appeal judgment reminds us that the court has and will use its discretion to vary Part 36 costs rules when it considers it fair to do so. Whilst on the face of it the result in this case is disappointing for defendants, it must be remembered that each case will be considered on its own facts. Indeed, the Court said that it was unlikely such factors, as those present in the case, would be replicated in other cases.

Whilst Calderbank offers can be viewed as an alternative approach to Part 36 offers, and a useful tactic to try to limit costs, Part 36 offers remain a powerful tool at a defendant’s disposal. Their importance looks set to continue under the current civil justice reforms, which make it clear that in order to secure any costs protection and avoid punitive sanctions defendants must, at the earliest possible opportunity, make good fighting offers under Part 36. Properly valuing a claim at an early stage should either bring the claim to a conclusion quickly or provide costs protection if the case progresses.