Court of Appeal finds Part 36 precludes split costs order unless full costs recovery would be unjust

The Court of Appeal has overturned an order depriving a claimant of part of her costs where she had beaten her own Part 36 offer: Webb v Liverpool Women's NHS Foundation Trust [2016] EWCA Civ 365.

Where a claimant obtains a judgment that is more advantageous than its own Part 36 offer, the court must (unless it considers it unjust to do so) award the claimant costs on an indemnity basis from the date on which the relevant offer period expired, together with certain other favourable consequences.

The present decision establishes, contrary to previous authority, that in such circumstances the claimant must be awarded all of its costs from that point onward, unless to do so would be unjust. In other words, an effective Part 36 offer curtails the court's discretion to deprive the successful claimant of part of its costs to reflect a lack of success on one or more issues.

Background

In the present case, the claimant brought a negligence claim against the defendant NHS Trust for personal injuries suffered during her birth. There were two main allegations of negligence. The trial judge upheld the first but rejected the second. The result was that the claimant was entitled to full recovery of damages for her injury and loss.

The claimant had made a Part 36 offer, which the defendant rejected, to settle liability on the basis of a 65% recovery. The judgment was therefore more advantageous to the claimant than the offer she had made. However, the judge ordered that the claimant's recoverable costs, both before and after expiry of the relevant offer period, should exclude the costs referable to the second (unsuccessful) allegation of negligence, which he assessed to be 25% of her solicitors' time costs and the fees of the relevant expert.

In essence, the judge held that an effective Part 36 offer does not prevent the court from making an issues-based or proportionate costs order, and that such an order would be just in the circumstances of this case. The Part 36 costs consequences (indemnity costs and enhanced interest) were to be applied to the claimant's costs, after deduction of the excluded costs, from the end of the relevant offer period. 

The claimant appealed against the judge's costs order.

Decision

The Court of Appeal allowed the appeal (Sir Stanley Burnton giving the lead judgment, with which Simon and Gloster LJJ agreed).

(i) In relation to costs incurred before expiry of the relevant period, the court held that the judge could not properly have deprived the claimant of her costs relating to the second allegation. It was not unreasonable for the claimant to pursue that allegation, which was supported by expert evidence. Although a finding of unreasonableness was not necessary in order to deprive the claimant of part of her costs, it was a significant factor. It was not unusual for a claimant to succeed on some, but not all, allegations, particularly in a personal injury claim. There was nothing to take this case out of the ordinary or to justify the claimant being deprived of part of her costs.

(ii) In relation to costs incurred after expiry of the relevant period, the court held that in light of the claimant's Part 36 offer, the court could not deprive the claimant of part of her costs unless it would be unjust to award her costs in full. 

Part 36 provides that, where a claimant beats its own Part 36 offer, the court will (unless it is unjust to do so) order that the claimant is entitled to (among other things) "costs on the indemnity basis from the date on which the relevant period expired". In this context, the court held, "costs" meant all the claimant's costs. Therefore, a claimant who beat its own offer was entitled to all its costs on an indemnity basis, unless that would be unjust.

The Court of Appeal distinguished its previous decision in Kastor Navigation Co Ltd v Axa Global Risks (UK) Ltd [2004] EWCA Civ 277, as it was based on provisions of Part 36 and Part 44 that were materially different from the current rules. In particular, at the time that case was decided, the factors the court was to take into account in exercising its general discretion on costs under Part 44 included any admissible offer to settle, including a Part 36 offer. In contrast, the present wording of Part 44 expressly precludes consideration of a Part 36 offer when the court exercises its general discretion on costs. The Court of Appeal concluded:

"In deciding what costs order to make under Part 36, the court does not first exercise its discretion under Part 44. Its only discretion is that conferred by Part 36 itself. ... It follows from the above, and in particular that Part 36 is a self-contained code, that the discretion under [Part 36] relates not only to the basis of assessment of costs, but also to the determination of what costs are to be assessed. I agree with the Judge that Part 36 does not preclude the making of an issue-based or proportionate costs order. However, a successful claimant is to be deprived of all or part of her costs only if the court considers that it would be unjust for her to be awarded all or that part of her costs."

In this case, it could not be said that it would be unjust for the claimant to be awarded all her costs. The judge did not take into account, as he should have, the fact that the defendant could have avoided all the costs of the trial by accepting the claimant's favourable Part 36 offer. And the considerations which applied before the expiry of the relevant period applied even more strongly after that date, when the question was not whether it was just for the claimant to be awarded all her costs, but whether it would be unjust for that award to be made.