The High Court has held that a defendant who accepted a Part 36 offer almost a year late should be awarded its costs for the period of delay, reversing the normal costs rule, because of the claimant’s failure to comply with the applicable pre-action protocol: Webb Resolutions Limited v Waller Needham & Green (a firm) [2012] EWHC 3529 (Ch).

The decision is a reminder of the sanctions the court may apply where a party fails to comply with a relevant pre-action protocol. Although the judgment does not give precise figures, it seems likely that the effect of the non-compliance was to deprive the claimant of any benefit from the action, as the costs were significantly greater than the amount agreed in settlement.

Background

Where a Part 36 offer is accepted after the ”relevant period” specified in the offer (normally 21 days) the usual order under CPR 36.10(4) is that the claimant is awarded its costs up to expiry of the relevant period (as if the offer had been accepted in time) but thereafter the costs are payable by the offeree. The rationale is that the offeree has caused these further costs to be incurred by its delay in accepting the offer.

The court can however make a different order. Previous cases in which it has done so include where the offeror had reminded its opponent (a litigant in person) that an offer remained open for acceptance but without spelling out the costs consequences of late acceptance (Kunaka v Barclays Bank [2010] EWCA Civ 1035) and where the offeror had unreasonably refused to mediate (PGF II SA v OMFS Company and another [2012] EWHC 83 (TCC)).

In the present case, the claimant sent the defendant solicitors a letter of claim pursuant to the Professional Negligence Pre-action Protocol. The defendant replied requesting disclosure of certain documents which it said were essential for it to assess the extent of its possible liability. The defendant’s position was that it could not send a letter of response pursuant to the Protocol without this disclosure. The claimant asserted that it had complied with the Protocol in disclosing the documents it had already provided, and that the defendant was not entitled to any further disclosure until it had formally admitted liability.

Shortly following this correspondence, on 17 May 2011, the claimant made a Part 36 offer. Proceedings were served in September 2011, and disclosure and inspection took place between March and May 2012. The proceedings settled on 23 May 2012 when the defendant accepted the claimant’s Part 36 offer.

The decision

The deputy judge (Mr John Baldwin QC) referred to previous cases which establish that there should not be a departure from the usual costs order under CPR 36.10(4) unless the court is satisfied that such an order would be unjust. In considering whether it would be unjust to make the usual costs order, the court must consider all the circumstances of the case, including whether there had been substantial compliance with the Protocol.

Here the court held that the claimant had failed to comply with the Protocol in refusing without good reason to supply the documents requested, and in refusing to give further disclosure unless liability was admitted. The deputy judge described this as “clearly acting well outside the letter and spirit of the Protocol”. The claimant’s non-compliance with the Protocol made it unjust for the normal order under CPR 36.10(4) to flow from late acceptance of the offer.

The court held that the claimant should have its costs up to the end of the relevant period. The claimant would have been entitled to those costs if the offer had been accepted in time, and it would be a rare case where a party could improve its position on costs by accepting a Part 36 offer only after the expiry of the relevant period.

Thereafter, the claimant should pay the defendant’s costs, since it was significantly more likely than not that those costs would not have been incurred had the claimant acted reasonably and responded properly to the request for disclosure.

Comment

This decision gives a further example of when a court might decide that it would be unjust to apply the usual costs consequences under Part 36, namely where the offeror has failed to comply with an applicable pre-action protocol. This approach is most likely to be adopted where (as here) a party has accepted an offer late, and that delay is justified by the offeror’s failure to provide information or documents in accordance with a relevant protocol. It is more difficult to see how a failure to comply with a pre-action protocol could (in itself) justify an opponent’s failure to accept an offer at all, in circumstances where the opponent failed to beat that offer at trial, so as to make it unjust to apply the Part 36 costs consequences against that opponent.

In any event, the decision is a reminder of the importance of complying with both the letter and the spirit of any applicable pre-action protocol (or with the practice direction on pre-action conduct uin cases where no specific protocol applies) unless there is good reason not to do so, such as where a limitation period is about to expire or where there is a jurisdiction race.