The decision in Hochtief (UK) Construction Ltd and another v Atkins Ltd  EWHC 3028 (TCC) is an important reminder of the potential benefits for a party in making a well-judged offer and, conversely, the substantial risks – particularly for a defendant – in not accepting such an offer. It is another reminder as well of the strict code set out in Part 36 and the courts’ observance of this.
The decision emphasises the fact that, where a claimant beats its offer by only a slim margin, this does not displace the costs consequences of the Part 36 regime. This is consistent with the High Court’s decision earlier last year in JLE v Warrington & Halton Hospitals NHS Foundation Trust  EWHC 1582 (QB), where the court reversed the first instance decision and concluded that it was not open to judges to take into account the amount by which a Part 36 offer was beaten.
Interestingly, while beating its offer, the claimant in Hochtief in fact failed on one of the two claims it had pursued. However, this resulted in only a modest reduction in the amount of costs awarded to it. Ultimately, the defendant paid a heavy price for not accepting the offer.
A dispute arose over the construction of two new dual carriageway roads to improve transport links in East Kent. The claimant brought proceedings, seeking damages in respect of remedial works to a bridge (the Bridge claim) and to an underpass (the Underpass claim). They made a Part 36 offer encompassing both claims and proceeded at trial to succeed on one claim and fail on the other. They bettered the Part 36 offer by £4,847. It fell to the court to determine the consequences of the offer.
Part 36 costs consequences
CPR 36.17(4) deals with the costs consequences following judgment of an unaccepted claimant’s offer that is matched or bettered by the claimant at trial. Unless it considers it unjust to do so, the court must order that the claimant is entitled to:
- Interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired.
- Costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired.
- Interest on those costs at a rate not exceeding 10% above base rate.
- An additional amount, which shall not exceed £75,000 and which is calculated by reference to the sum awarded to the claimant (whether that be damages or, in the case of a non-monetary award, costs).
When considering whether such an order would be unjust, the court must take into account all the circumstances of the case, including: the terms and timing of the offer, whether it was a genuine attempt to settle the proceedings and the conduct of the parties.
The claimant’s position was that it had beaten its offer and therefore was entitled to recover all its costs on the favourable terms of CPR 36.17(4).
The defendant, on the other hand, argued that the court should make an issues-based or proportional costs award to reflect the fact that the offer was beaten by only a very small margin and the defendant was the successful party in respect of the Underpass claim.
The court made it clear that the amount by which the offer was beaten was irrelevant, citing CPR 36.17(1)(b).
It concluded that it would not be unjust to apply the provisions of CPR 36.17. Relevant factors were that:
- The terms of the offer were clear.
- The offer was made at a very early stage in the proceedings, after the letter of claim but before issue of the formal claim.
- By that time, extensive investigations and remedial works had been concluded. The parties had sufficient information to make an informed judgment as to the merits of the case.
- The offer was at a level that indicated it was a genuine attempt to settle the dispute.
The claimant was therefore awarded an enhanced rate of interest on damages and costs at 6% above base rate, which took into account the fact that the defendant's conduct was not unreasonable so as to attract the maximum rate of 10%. The court also awarded the claimant an additional sum of just over £65,000.
The court also ordered that the claimant’s costs be assessed on the indemnity basis. As to those costs, the court did acknowledge that it would be unjust to require the defendant to pay the claimant’s costs of the unsuccessful Underpass claim. It contemplated whether to make an issues-based order but declined to do so on the basis that, in the court’s opinion, this would not give sufficient weight to the fact that the claimant’s offer, which was an offer to settle both claims, was one that should have been accepted. The court concluded that a proportional order was fairest and that the defendant should pay 85% of the claimant’s costs.