Mckeown v Venton, Liverpool County Court (12/6/2017) 

Although the substantive case was in respect of a road traffic accident the appeal was concerned with the question as to whether a claimant could be awarded indemnity costs for a defendant’s late acceptance of their Part 36 offer.

The facts

The claimants were involved in a road traffic accident and pursued a claim that was started in the portal. The claim exited the portal and Part 36 offers were made in the sum of £1,500 for each claimant. The Part 36 offers should have been accepted by the defendant by 5 April 2016 but they were not. The claimants issued proceedings and the defendant accepted both Part 36 offers several weeks after the “relevant” (21 day) period had expired.

The claimants sought their costs on the indemnity basis for the period after the relevant period had expired up until the date when the defendant accepted their Part 36 offers. At first instance, the judge concluded that late acceptance did not entitle the claimants to costs on the indemnity basis.

The claimants appealed this decision arguing that one of the consequences of the defendant’s late acceptance was that indemnity costs could be awarded after the “relevant” period for accepting their Part 36 offer had expired.

The claimants relied on the case of Broadhurst v Tan [2016] EWCA Civ 9, arguing that the court had a residual power to make orders for indemnity costs where Part 36 offers were accepted out of time.

Decision

The court noted that there is a specific provision under CPR, r. 36.20 that deals with the situation where a defendant’s Part 36 offer is accepted late. This rule specifically provides that the defendant’s costs entitlement is capped at the appropriate fixed costs rate but there is no equivalent position in respect of a claimant’s Part 36 offer being accepted late.

The court stated that the question to be addressed is whether the policy of incentive to settle and to resolve disputes at an early stage, which is encouraged by the civil justice reforms and endorsed by the Court of Appeal in Broadhurst v Tan [2016] EWCA Civ 94, enabled the courts to have discretionary powers to award indemnity costs to claimants as a result of late acceptance of their Part 36 offers.

It was held that in the absence of any issue of conduct, the only power to award indemnity costs was after judgment, which was in accordance with CPR, r. 36.17. It was concluded that this approach applied to fixed costs cases where there is a sufficiently clear and concise matrix of applicable costs to enable a claimant to easily determine their costs entitlement.

The court did not agree that the incentive for claimants to make Part 36 offers would be significantly undermined because the fixed costs entitlement fell to be determined by reference to the stage in which the claim was concluded. It was seen that a defendant who delayed in accepting a reasonable offer ran the risk of tipping the case into the next fixed costs stage where the defendant would be liable to pay the claimant further costs.

It was stated that CPR, r. 45.29J gave the court the power to award costs in excess of fixed recoverable costs in “exceptional circumstances” so claimants did have a remedy under this rule in the event that there was a deliberate or tactical delay of accepting a reasonable Part 36 offer that had been made at an earlier stage.

It was concluded that the “rough and ready” approach of the fixed costs regime meant that the system could work just as much in favour of a claimant as a defendant and if an issue of conduct arose the discretionary power to award costs, including indemnity costs, was exercisable under CPR, r. 44.2.

The court held that there was no power to award indemnity costs in cases of late acceptance unless there were conduct issues on the part of the defendant. As a result, the claimant’s appeal was dismissed.

What this means for you

This is a welcome judgment for defendants as it is another example of the courts not awarding indemnity costs simply because there has been late acceptance by a defendant of a claimant’s Part 36 offer. This case supports the argument that indemnity costs can only be awarded in cases of late acceptance where there are issues in respect of a defendant’s conduct.

This case follows the approach taken by the High Court in Fitzpatrick Contractors Ltd v Tyco Fire and Integrated Solutions (UK) Limited [2009] EWHC 274 (TCC), where it was held that Part 36 did not specify any presumption that indemnity costs would apply in a situation where there was late acceptance of a Part 36 offer prior to trial. Here, the defendant had taken nearly a year to accept the defendant’s Part 36 offer but it was held that indemnity costs could only apply if the defendant’s conduct had been unreasonable.

In the current climate, claimants are continuing to argue that indemnity costs can be awarded, in the absence of conduct issues, where there has been late acceptance of a Part 36 offer. This case can be used to argue against indemnity costs being awarded where there has been late acceptance on the part of a defendant.

This decision is in direct conflict with Sutherland v Khan, Kingston upon Hull (21/4/2016), where the court held that a late accepting defendant did not have to be guilty of inappropriate conduct in order for an order for indemnity costs to be made. Here, the claimant was awarded fixed costs up to the expiry of the relevant period for acceptance of their Part 36 offer. After this period, the claimant was awarded indemnity costs to be assessed by the court.

It can be argued that the costs received by claimants for late acceptance of a Part 36 offer should not be more than what the defendant receives for late acceptance. Currently, in fixed costs cases the costs which a defendant receives for late acceptance is the difference between the fixed costs at the date of acceptance and the fixed costs the claimant is entitled to on the date when the relevant period expired. In some cases, the defendant may not receive any costs if the fixed costs stage at the time of late acceptance is the same as the stage which the claim was at when the relevant period for accepting the offer expired.

As a result of the current uncertainty in respect of the costs consequences for late acceptance of a claimant’s Part 36 offer, there will need to be a thorough assessment and consideration of all Part 36 offers received. Also there is the need to bear in mind and potentially reconsider any existing Part 36 offer if new evidence comes to light in respect of liability or quantum etc. during the progress of a claim.