Court of Appeal decision on Part 36 offers to settle

The Court of Appeal has dismissed an appeal against a split costs order awarding costs to the claimant for certain periods and the defendant for certain periods of the litigation: Thinc Group Limited v Jeremy Kingdom [2013] EWCA Civ 1306. The judgment is of interest principally for two reasons:

1. The court refused to disturb the judge's decision to award the defendant its costs for the period following its Calderbank offers, despite the claimant having beaten those offers at trial. This was principally on the basis of the claimant's conduct in failing to indicate why the offers were not acceptable. In light of this decision parties may wish to set out their reasons for rejecting an offer of settlement, rather than ignoring the offer or giving a bare rejection. This is consistent with recent authorities emphasising the need to engage constructively with an offer of mediation (see post).
2. The decision suggests that where the court concludes that it would be unjust to award the relevant Part 36 costs sanctions in their entirety (such as an order for indemnity costs), it can make a partial order reflecting what it considers would be a just result. This is not obvious from the wording of Part 36 itself. Although the point was not considered by the Court of Appeal in the present case, the same reasoning would appear to apply to the new sanction for claimants' offers made on or after 1 April 2013 (see post). 

Background

Where a claimant is awarded more at trial than a Part 36 offer it has made, the court must apply the Part 36 costs sanctions unless it considers it unjust to do so. For claimants’ offers made before 1 April 2013 (as in this case) the relevant costs sanctions are an order for indemnity costs, plus enhanced interest on both damages and costs (at up to 10% above base rate), from the expiry of the relevant offer period. Where a party makes an admissible offer to settle which does not bear the Part 36 costs sanctions (such as a "without prejudice save as to costs", or Calderbank offer) it will still be taken into account by the court in exercising its discretion on costs.

In this case the claimant's claim was for £28,530. In August 2011 the defendant made a Calderbank offer to pay the claimant £9,500 plus costs, payable in thirty-six instalments. This was met with a bare rejection, as was the defendant's further offer a month later for £16,000 inclusive of costs payable over 5 years.

In June 2012 the claimant made a Part 36 offer of £9,510 inclusive of interest. The defendant requested confirmation of the amount of the claimant's costs in order that it might properly consider the offer. The claimant did not respond to that request.

The judge (His Honour Judge Salomonsen in the Plymouth County Court) ultimately awarded the claimant approximately one third of the original claim, namely £9,510 plus interest of £10,086. In relation to costs, the effect of his order was that:

• The defendant had to pay the claimant's costs up to the date one month after the defendant's August 2011 Calderbank offer .
• The claimant had to pay the defendant's costs from that date until the date 14 days after the claimant's June 2012 Part 36 offer.
• Thereafter the defendant had to pay the claimant 20% of its costs on the indemnity basis.

Both parties appealed against the judge's costs order.

Decision

The Court of Appeal (Arden, Ryder and Macur LJJ) dismissed both the appeal and cross-appeal.

In relation to the period following the defendant's Calderbank offer, the judge was entitled to give considerable weight to the fact of an "entirely realistic offer in monetary terms". The judge's award of costs to the defendant for that period was based on his assessment of the parties' conduct, in particular the defendant's reasonable defence of the claim as compared to the claimant's "peremptory, dismissive and uncooperative" approach, in particular by not indicating why the defendant's offers were not acceptable. The judge's assessment was "unassailable" on appeal.

The judge's approach to costs following the claimant's Part 36 offer also could not be criticised. The claimant had bettered its Part 36 offer. Nonetheless the court had to consider whether the Part 36 costs consequences should follow or would be "unjust". The claimant's lack of response to the defendant's reasonable request for information as to the claimant's costs was a relevant consideration. This factor, together with the whole history of the claimant's conduct of the litigation, meant the judge was justified in his conclusion that it would be unjust for the claimant to recover all of its costs for that period.

The court dismissed the defendant's argument that the judge's discretion as to costs was fettered by a bi-polar evaluation of "unjust" – i.e. the claimant had to receive its costs on an indemnity basis or not, and the court could not apportion the costs in percentage terms and on an indemnity basis for the period in question. The court said the CPR 36.14 requirement that the court must apply the Part 36 costs sanctions "unless it considers it unjust to do so" bears the obvious interpretation of "unless and to the extent of".