John Schmitt examines two recent cases considering whether a Defendant will face indemnity costs when a Part 36 Offer is accepted late

24 Oct, 2016

What are the costs consequences in a personal injury claim of a Defendant accepting a Claimant's Part 36 offer out of time?

Claimant's solicitors frequently seek orders for indemnity costs against Defendants grounded solely on a Defendant's late acceptance of a Part 36 Offer. There may be an instinct to think "indemnity costs" as soon as a Part 36 Offer is accepted out of time, but what do the rules say?

The Relevant Provisions of the CPR

36.13(4)(b) provides that where a Part 36 offer which relates to the whole of the claim is accepted after expiry of the relevant period…the liability for costs must be determined (where parties cannot agree) by the court - in which case 36.13(5) provides the court must, unless it considers it unjust to do so, order that;

  • (a) the claimant be awarded costs up to the date on which the relevant period expired; and
  • (b) the offeree do pay the offeror's costs for the period from the date of expiry of the relevant period to the date of acceptance.

So rule 36.13 in actual fact is silent about the basis of any costs order…

Rather, in considering whether it would be unjust to make the orders specified in 36.13(5), the court must take into account all the circumstances of the case, including the matters listed in rule 36.17(5).

CPR 36.17(5) provides, in considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4), the court must take into account all the circumstances of the case including;

  • (a) the terms of any Part 36 offer;
  • (b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;
  • (c) the information available to the parties at the time when the Part 36 offer was made;
  • (d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and
  • (e) whether the offer was a genuine attempt to settle the proceedings.

Case 1: Sutherland v Khan (DJ Besford, 21 April 2016, Kingston upon Hull): indemnity costs order made against the Defendant for late acceptance of a Part 36 offer

In Sutherand, the claimant in a low-value road traffic accident claim applied for an order for costs in accordance with CPR Part 36 following the defendant's late acceptance of the claimant's Part 36 offer. The matter had been submitted to the portal on 31st July 2013 and proceedings were subsequently issued. The claimant had made a valid Part 36 offer of £2,475 two days after pre-trial checklists were lodged. The defendant accepted the offer outside the 21-day prescribed period by some 30 days.


The Defendant relied on Fitzpatrick Contractors Ltd v Tyco Fire and Integrated Solutions (UK) Ltd [2009] EWHC 274 (TCC), [2009] B.L.R. 144 which showed, if the court were to award the claimant indemnity costs as provided for in Part 36, it would have to be satisfied that the defendant's conduct had been unreasonable. No such criticism could be made in the instant case where it was accepted that the only criticism against the Defendant was they did not accept the part 36 offer within the relevant period.

The Claimant submitted that in general Part 36 offers are meant to have teeth; Part 36 is meant to encourage both parties to make and accept offers; and it is meant to incentivise parties to do so. Broadhurst & Anor v Tan & Anor [2016] EWCA Civ 94 was relied upon "as an indication of the pendulum swinging" towards the robust enforcement of Part 36's costs sanctions.


The judge noted that CPR Part 36, whilst dealing with situations where the claimant accepts out of time a defendant's offer, would appear to be silent as to a defendant accepting a claimant's offers out of time or prior to trial. Looking at part 36.13 and part 36.13(5) and (6) in particular, the judge considered he had to take into account all the circumstances of the case, including the matters listed in rule 36.17(5).

The judge considered that if there was no incentive or penalty there would be little point in a defendant accepting offers "early doors", as opposed to waiting immediately prior to trial. It was also unsatisfactory that there should be penalties flowing if a Defendant does not beat an offer at trial, but where a Defendant settles before trial there are none. The judge did not find this position to sit comfortably with the overriding objective of saving expense. He held that the court did not have to find that the defendant had, in some way, been guilty of inappropriate behaviour before it could consider making an order for costs on an indemnity basis.

Instead the judge considered 36.13(6) which requires the court, when considering whether it would be unjust to make the usual order on late acceptance specified in 36.17(5), to take into account all the circumstances of the case, including the matters listed in 36.17(5). When examining the factors in the latter rule, the offer was unambiguous, made at an appropriate stage, was made with all material information available and was a genuine offer to settle, and there was no relevant conduct by either party.

The judge concluded that for the court to deny the consequences flowing from accepting a Part 36 offer out of time, the court had to make pretty exceptional findings and there had to be some very good reason as to why it was unjust to make the usual order. In the absence of such findings, the usual consequences of Part 36 should flow. Accordingly, indemnity costs were awarded against the Defendant from the expiry of the Claimant's Part 36 Offer.

Case 2: Whiting v Carillionamey (Housing Prime) Limited (Claim No B80YM364): Deputy District Judge's decision to award indemnity costs against a Defendant successfully appealed

I am grateful to Andrew Hogan's excellent blog "Costs Barrister" for news of HHJ Hughes QC's decision just last week. Whiting was not a fixed costs case and the issue was simply one of whether costs payable should be standard or indemnity costs following again the Defendant's out of time acceptance of the Claimant's Part 36 Offer. The offer here of £3,000 was made on 23rd June 2015, proceedings were issued on 8th September 2015, directions were made on 14th January 2016 with a trial window commencing 6th June 2016. The Part 36 Offer was accepted on 18th May 2016, that is, ten months late. As in Sutherland above there was no material before the court to suggest any misconduct on the part of the Defendant; it was simply a matter of the Defendant's late acceptance that was relied upon by the Claimant in seeking indemnity costs.

The Claimant sought indemnity costs from the date of expiry of its Part 36 Offer which were awarded at first instance by Deputy District Judge Haig-Haddow. However, on appeal HHJ Hughes QC considered himself bound by Court of Appeal authority on when it is appropriate to award indemnity costs, namely Excelsior Industrial and Commercial Holdings v Salisbury Hammer Aspden and Johnson [2002] EWCA Civ 879.

Excelsior case was under the old CPR rules 36.20 and 36.21, the precursors to 36.13 and 36.17. Lord Woolf observed that "the clear inference from the absence of any reference to an indemnity basis in (as it was then) 36.20 is that, in normal circumstances, an order for costs which the court is required under that Part to make, unless it considers it unjust to do so, is an order for costs on the standard basis."

Accordingly, Lord Woolf considered there must be some "justification" for ordering indemnity costs, some "conduct" or some "circumstance" that takes the case out of the norm. Simply not accepting a Part 36 Offer did not amount to such a justification in Lord Woolf's judgment and he relied on Lord Justice Brown in Kiam v MGN Ltd (No 2) [2002] 2 All ER 242 who thought conduct needed to be "unreasonable to a high degree" rather than "merely wrong or misguided in hindsight." Lord Woolf concluded that "it will be a rare case indeed where the refusal of a settlement offer will attract under Part 44 not merely an adverse order for costs, but an order on an indemnity rather than standard basis…There needs to be something more than merely a non-acceptance of a payment into court, or an offer of payment, by a defendant before it is appropriate to make an indemnity order for costs". The order for indemnity costs was successfully appealed on this basis.


Of course, CPR 36.17 provides that where, upon judgment being entered, judgment against the defendant is at least as advantageous to the Claimant as the proposals contained in a Claimant's Part 36 offer, the Claimant's entitlement to indemnity costs flows as a direct result. However, it is not correct to take the view that a Defendant's late acceptance of a Claimant's Part 36 Offer will automatically warrant indemnity costs. Evidently, it was sufficient, without more, in Sutherland for an order for indemnity costs to be made, but Andrew Hogan regards the result in Sutherland above as "curious" and Whiting reveals the powerful and successful arguments in opposition to it.

Nonetheless, Broadhurst has recently seen the Court of Appeal hold, in fixed costs personal injury claims governed by CPR Pt 45 s.IIIA, that costs were payable on the indemnity basis under CPR 36.14 where a claimant made a Part 36 Offer and then obtained judgment which was more advantageous than the offer. The Master of Rolls' judgment acknowledged that this resulted in a "generous outcome" but considered that "is consistent with rule 36.14(3) as a whole and its policy of providing claimants with generous incentives to make offers, and defendants with countervailing incentives to accept them." This authority will remain a powerful weapon for the Claimant to argue for indemnity costs - and it clearly proved persuasive on District Judge Besford in Sutherland whose judgment references a "tightening up as to the ‘carrot and stick' effect of Part 36 Offers".

It is also notable that the Claimant's solicitors in Whiting did not put in an application or witness statement seeking to obtain an award of indemnity costs, and so no case was put forward for indemnity costs on the merits. Practitioners should be alive to the need to provide the court with the necessary witness evidence, if available, regarding the CPR 36.17(5) 5) factors and in particular any relevant conduct of the Defendant beyond the bare acceptance of an offer out of time.


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