Today, Regional Costs Judge Besford handed down judgment in the case of Whalley v Advantage Insurance and concluded that his earlier widely reported decision in Sutherland v Khan "is unsupported and can no longer stand". 

The judgment deals with the costs consequences of late acceptance of a claimant’s Part 36 offer in a fixed costs case subject to Part 45. In Sutherland, it was held that the late acceptance of a Part 36 offer automatically entitled the claimant to an award of indemnity costs, and provided an escape route out of fixed costs. The basis of the decision applied the Broadhurst principle that a claimant beating a part 36 offer that proceeded to trial, was entitled to escape fixed costs, to cases that did not proceed to trial but were settled by accepting Part 36 offers outside the 21 day period for acceptance.

The central issue is whether fixed, standard or indemnity basis costs apply in fixed costs cases where there has been late acceptance when the court is determining the liability for costs under CPR 36.13(5). Part 36 is silent on this issue save that references are made to CPR 36.17. The defendant should be encouraged to settle before trial without unfair costs penalties, whereas a claimant does not want to be put to additional work without appropriate costs reimbursement.

In Whalley, it has been confirmed that unless there are ‘exceptional circumstances’ or conduct justifying indemnity costs, the fixed costs regime applies to acceptance of part 36 offers out of time. This provides welcome certainty to a contentious issue. The claimant conceded that late acceptance does not automatically trigger an entitlement to indemnity costs. The Sutherland decision has been the subject of many conflicting Circuit Judge appeals, some finding that the Sutherland decision was wrongly decided and others supporting it.

The defendant was represented by BLM’s costs specialist, Dean Holmes who confirmed that it was decided to tackle Sutherland head-on rather than simply continue to add to the body of Circuit Judge appeals by bringing the point before the same Regional Costs Judge. Dean commented that, "we were always confident that the Judge, with the benefit of full submissions and reference to the appropriate law, would change position from the one articulated in Sutherland."

Adam Burrell, Head of BLM’s Costs Practice Group pointed out that, "The Sutherland decision has been widely relied upon by claimants seeking to recover additional costs beyond the prescribed fixed costs on cases that do not proceed to trial, and are settled by accepting part 36 offers out of time. Hopefully this detailed reconsideration and very clear declaration that it can no longer stand will resolve the significant number of cases arguing this point."