Late Acceptance of Part 36 Offer – Entitlement to Indemnity Costs?
I am often asked about the consequences of late acceptance of a Part 36 offer. Recently, the most pressing question from clients who are acting on behalf of the Claimant seems to be whether there is an entitlement to indemnity costs when there is late acceptance of a Part 36 Offer. My first thought was that there is a requirement to have bettered the Offer at trial pursuant to CPR 36.17. However, on further examination, there are authorities supporting the recovery of indemnity costs from expiry of the 21-day period even if the matter does not go to trial.
What the CPR says
CPR 36.13(4) provides:-
(a) a Part 36 offer which was made less than 21 days before the start of a trial is accepted; or
(b) a Part 36 offer which relates to the whole of the claim is accepted after expiry of the relevant period; or
(c) subject to paragraph (2), a Part 36 offer which does not relate to the whole of the claim is accepted at any time,
the liability for costs must be determined by the court unless the parties have agreed the costs.”
Caselaw in support of indemnity costs
Support for indemnity costs can be found in a number of cases, including Broadhurst v Tan and Taylor v Smith  EWCA Civ 94 (23 February 2016), Sutherland v Khan, Kingston-Upon-Hull County Court, Case number A81YM424 and in Hart v Pizza Hut, 1 November, Chester County Court. It is in Sutherland v Khan that the argument is perhaps best set out by Judge Besford who refers to a tightening up of the ‘carrot and stick effect’ of part 36 offers. He highlights that without an incentive or penality there’s little reason for the defendant to accept an offer “early doors,” rather than simply waiting until immediately before the trial. In his view it is “unsatisfactory” that there are penalties if an offer is not beaten at trial but no penalties for settling before trial. So many of the recent changes to process have been introduced to align with the overriding objective of saving expense and, in the view of Judge Besford, this doesn’t sit well with that goal. His conclusion in the case was:
“I do not find that the court has to find that the defendant has, in some way been guilty of inappropriate behaviour or conduct capable of censor before I can consider making an order for costs on an indemnity basis.”
Caselaw against indemnity costs
In Sutherland v Khan Judge Besford referred to caselaw where previous decisions had been made against the award of indemity costs. In particular, he focused on the decision of Coulson J in Fitzpatrick Contractors Ltd v Tyco Fire v Integrated Solutions (UK) Ltd  2 Costs LR 115. “In my view, I think that Fitzpatrick is perhaps a statement of the law as it was in 2009, but not necessarily the way the law in respect of part 36 is being interpreted in 2016.”
However, the decision in Fitzpatrick was followed in the recent case of Whiting v Carillionamey (Housing Prime) Ltd where the Judge overturned the previous decision made by the Deputy District Judge to award indemnity costs. The leading judgment of Excelsior Industrial and Commercial Holdings v Salisbury Hammer Aspden and Johnson  EWCA Civ 879 also held that the late acceptance of a Part 36 Offer was not conduct justifying a decision to award costs on the indemnity basis. In that case, the judge felt that it was dangerous for the court to try to add to what was not said explicitly in the CPR.
“This court can do no more than draw attention to the width of the discretion of the trial judge and re-emphasise the point that has already been made that, before an indemnity order can be made, there must be some conduct or some circumstance which takes the case out of the norm. That is the critical requirement.”
Tipping the balance
My own view is that the authorities against an award of indemnity costs in respect of late acceptance outweigh the sensible decision of District Judge Besford. So, a Claimant would need to refer to conduct, other than merely the late acceptance, to justify an award of indemnity costs. If there is no such conduct, Claimant Solicitors can seek some solace in CPR 44.4(3)(ii)) and pursuant to CPR 44.3(5), “Costs incurred are proportionate if they bear a reasonable relationship to – (d) any additional work generated by the conduct of the paying party.” As a result of these provisions, on assessment the Court will have regard to the efforts made, if any, before and during the proceedings in order to try to resolve the dispute, which may be of some use.
This article was written by Melanie Homersham who is an experienced Costs Lawyer, and leads Burcher Jennings’ Bristol office as Practice Manager. She has worked for over 15 years in costs litigation, mostly in the South West. Melanie provides a bespoke, high-quality service; she understands clients’ needs, having worked in-house and externally, and for both Claimants and Defendants.