Ever since the inception of the Civil Procedure Rules, CPR 36 has provided a powerful and invaluable tool to parties seeking to encourage settlement and avoid unnecessary litigation and the costs which flow therefrom.
Whilst CPR 36 has always been, and remains a self-contained code and was in its early days already utilised as a strong incentive to parties to settle where possible it has, more recently (since 6 April 2015), been given even sharper teeth for those who fall foul, with the amendment to include the current CPR 36.17 which not only effectively overruled and reversed the decision of the Court of Appeal in Carver v BAA Plc  EWCA Civ 412 such that, in effect, a miss was now as good as a mile, but also provided (at subparagraph (4)) further penalties to be applied where a claimant/receiving party bettered their own Part 36 offer.
Since the inception of the revised CPR 36 it had always been assumed that the further penalties at subparagraph 4 followed the event in their entirety and, indeed, there was no guidance upon the same either within the White Book notes accompanying that part nor from the courts. Until now…
In the matter of JLE v Warrington & Holton Hospitals NHS Foundation Trust  EWHC B18 (Costs), the successful claimant in the action had put forward a Bill totalling £615,751 and, further, put forward a Part 36 offer in the sum of £425,000 inclusive of interest. The offer was not accepted by the Defendant and the matter proceeded to a detailed assessment hearing whereupon Master McCloud ordered the defendant to pay costs of £421,089 plus interest of £10,723 whereupon the claimant sought to invoke the consequences of subparagraph 4, CPR 36, namely
interest on the whole or part of any sum of money awarded to rate not exceeding 10% above base rate starting with the date on which the relevant period expired;
costs on the indemnity basis from the date on which the relevant period expired;
interest on those costs at a rate not exceeding 10% above base rate; and
an additional amount of 10% of the amount awarded
and it was this latter aspect (“the 10% penalty”) under Rule 36.17(4)(d) to which the defendant sought to take great exception.
The defendant sought to argue that it would be unjust and disproportionate to award the 10% penalty on the basis that the claimant had only bettered their offer by approximately £7000, as against the £43,000 additional benefit that they would gain by the imposition of the 10% penalty, especially in light of the fact that the bill been significantly reduced upon assessment.
Conversely, the claimant argued that the court did not have the power to do anything other than award all of the consequences under CPR 36.17(4) and, as such, could not choose to select just some of them.
Whilst acknowledging that there were no rulings directly upon the point, Master McCloud found that the inclusion of the words “unless it considers unjust to do so” within subparagraph 4 indicated that the penalties contained therein were severable, with each capable of being individually judged as to whether the imposition of the same would be unjust.
Having found that the extent to which any offer had been beaten was not “a very material factor”, the Master went on to consider each of the penalties individually, applying the injustice test to each element, finding that “It is only where the cost penalty created by the 10% rule would be clearly disproportionate that one would incline to exercise the discretion to waive it.
“But, that said, if the court was unduly unwilling to exercise its discretion on facts such as these – for example requiring something akin to ‘exceptional circumstances’ – then a party in the position of the defendant might be discouraged from taking the risk of legitimately going as far as assessment at all, despite having various meritorious objections to the bill as drawn and which have (in this case) been shown in many instances to be correct.”
It was also found to be significant that, the offer having been made late within the proceedings, the parties would have had sufficient information against which to judge the reasonableness or otherwise of the same, with the Master highlighting within her conclusions the “most significant factors”, at paragraph 40, as being
“the very small margin by which the offer was beaten relative to the much greater size of the bill”
“the fact that where a Bill is reduced (and seems to have been expected to be reduced) significantly, it will on the whole generally be very difficult for a party to know precisely or even approximately to within a few percent, where to pitch an offer such that even a competent Costs Lawyer would operate close to chance level as to whether an offer is likely to be ‘over’ or ‘under’ at the end of the hearing, and”
“the large size of the 10% ‘bonus’ award relative to the margin by which the offer was beaten.”
thus concluding that “…the ‘bonus’ of 10% in this case would be a clearly disproportionate sum and it would be unjust to award it. That is also the case when one looks at the overall effect in the round of what would be the cumulative penalties in sub-rules (a)-(c) added to (d).” and accordingly that “…the award of the 10% figure would be disproportionate.”
This ruling, as well as assisting to clarify the application of CPR 36, further serves to not only reinforce the importance of making both strong and competitive Part 36 offers, but also for parties who may have only marginally been unsuccessful in a close fought matter to remind the Court that the imposition of the penalties under subparagraph 4 may be, if not wholly, then individually disproportionate and unjust.
The ruling is, of course, that of a Master sitting in the Senior Courts Costs Office, and thus not binding. It is, however, likely to be highly persuasive upon any other court and it is not as yet known as to whether or not any appeal against the same is likely to be embarked upon which might serve to reverse the decision.
As ever, it is very much a case of “watch this space”…
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