A claimant is entitled to indemnity costs following its making a Part 36 offer only if it does as well as, or better than, the Part 36 offer upon judgment.

The claimant in Fitzpatrick Contractors Ltd v Tyco Fire & Integrated Solutions (UK) Ltd made an offer to settle the claim pursuant to Part 36 of the Civil Procedure Rules (CPR). The defendant had an initial 21 days from the making of the offer to accept it and pay the claimant's costs on a standard basis if not otherwise agreed. The offer was not accepted but was not withdrawn by the claimant either, thereby remaining on the table. Following a trial of a preliminary issue, in which the claimant was substantially successful, the defendant accepted the claimant's offer which, by this stage, had been made almost a year earlier. The claimant sought its costs on an indemnity basis contending that, had there been a trial and damages were awarded in the same amount as the Part 36 offer, it would have been entitled to indemnity costs, unless it was unjust to make such an order. The claimant argued there was no difference between recovering a sum equivalent to the offer at trial and recovering a sum equivalent to the offer before trial.

Costs on the indemnity basis leads to a much higher recovery of costs (i.e. all costs incurred unless unreasonably incurred) than on a standard basis (i.e. only those costs reasonably incurred).

The court held that as there had been a valid acceptance of a Part 36 offer, the starting point had to be the provisions in Part 36 on acceptance. These did not provide for indemnity costs and there was no presumption of indemnity costs in this situation. There had been an acceptance, not a judgment. The two basis of entitlement to indemnity costs were expressly spelt out in the CPR and the court could not order indemnity costs for any other reason or on any other basis. Acceptance of a claimant's part 36 offer, however delayed, was not one of those two situations and did not give rise to an entitlement to indemnity costs. It might give rise to the right to recover interest on the costs incurred after the offer was made though, as it did in this case.

Things to consider

The whole tenor of the CPR is to encourage parties to settle wherever possible. If an acceptance of a Part 36 offer before trial could lead to an indemnity costs order, a defendant might be discouraged from accepting the offer out of time and settling which would detract from what is intended.