Determining the basis for costs consequences of Part 36 offers falls under the purview of CPR rule 36.17. When an offer to settle made under Part 36 is refused, for example, by a defendant, cost consequences will be awarded if the claimant achieves a better result in litigation.

This assumes, however, that the offer made validly qualifies under Part 36. The method for determining whether an offer legitimately qualifies under Part 36 was recently considered in the High Court case of Jockey Club Racecourse Limited v Willmott Dixon Construction Limited [2016] EWHC 167 (TCC).

The defendant was a contractor employed to design and construct a new grandstand at the claimant’s race course. After the completion of the grandstand, damage was subsequently sustained to the roof in two incidents caused by reasonably high winds. During a case management hearing the claimant applied to have costs awarded on an indemnity basis, as the claimant had bettered their offer after the defendant failed to accept it.

The judgment on this application was given by Mr Justice Edwards Stuart.

The main issue in this case was whether the offer letter made by the claimant qualified under Part 36 and, therefore, whether it would be unjust to award costs on an indemnity basis for the defendant’s failure to accept it. The claimant’s offer proposed that the defendant accept 95% liability for the losses resulting from the roof’s defects, which were still to be assessed at the time of the offer. The defendant did not respond to this offer and it subsequently expired after 21 days. It was not until after the expiry date had passed that the sums of the claim were finally determined.

The defendant submitted that the claimant’s application was invalid for three reasons. First, the claimant’s offer did not qualify under Part 36; second, the offer was made before the claimant’s claim was fully pleaded; and finally, the claimant could only better the offer if 95% of the roof had to be replaced.

Edwards Stuart J swiftly dismissed the latter two objections, highlighting that the offer pertained to liability rather than quantum. He reiterated that the offer was for 95% of the assessed claim, rather than 95% of the roof itself. He did concede, however, the fact that the offer preceded the determination of a final claimed sum and could influence whether indemnity costs would be unjust from the date the offer could have been accepted.

As Edwards Stuart highlighted, there were three queries to take into account when determining the basis on which the claimant should be awarded litigation costs with regard to liability. First, was the claimant’s offer a legitimate Part 36 offer? Second, if so, was it genuinely intended to settle the question of liability? Finally, if the preceding questions are answered in the affirmative, would it be unjust to award costs that reflect some or all incentives outlined in Part 36?

With regard to the first issue, the judge intimated that this case was not one where the claimant’s offer reflected a potential outcome of litigation, as there was no potential for reduction for contributory negligence. As such, he questioned whether an offer can qualify under Part 36 in such circumstances. He further considered whether an offer that requires nearly-complete capitulation can reasonably constitute an offer. Relying on the valuation of Henderson J in AB v CD [2011] EWHC 602 (Ch), Edwards Stuart endorsed the need for a sincere element of concession on the claimant’s behalf to result in a legitimate Part 36 offer. 

He conceded that, despite its lack of overt munificence, the offer made by the claimant did involve an element of concession. The judge further relied on Tuckey and Schiemann LJJ in Huck v Robson [2003] 1 WLR 1340, a case where the offer made included the same 95:5 ratio of liability, to corroborate that the offer need not reflect a likely outcome of litigation to qualify under Part 36. He further referenced this determination to satisfy his second query, that the offer was a legitimate attempt at settling liability.

Having satisfied his first two queries in the affirmative, the judge had only to determine the proper basis on which to award costs. He resolved this by critiquing what he perceived to be the defendant’s rather apathetic approach to investigating the claim. The defendant was slow to instruct the necessary experts, despite knowing that there were deadlines by which these assessments were to be completed.

Edwards Stuart ultimately awarded costs on an indemnity basis from ‘the earliest date […] by which the defendant could reasonably have put itself in a position to make an informed assessment of the strength of the claim on liability’, which the judge determined to be 29 May 2015. All costs up to that date were awarded on a standard basis. The judge did not, notably, rule on rate or period of interest, which he determined to be for future consideration.

As highlighted in this case, a valid Part 36 offer only requires there be some degree of concession from the offering party, regardless of whether it is considered by the other party to be somewhat less than magnanimous.

The judgment also establishes that, when there is uncertainty over which basis costs should be awarded on, the validity and intention of the offer to settle must first be ascertained, in conjunctive consideration with the behaviour of the paying party. Whether the parties are able to meet these standards depends entirely on their willingness genuinely to engage with the process.

Masood Ahmed is also a member of the Civil Procedure Rule Committee. Claire Pennells, University of Leicester, co-authored this article