Court orders Defendant to pay indemnity costs following late acceptance of Part 36 offer

Sutherland -v- Khan (unreported21 April 2016, Kingston upon Hull County Court), was a simple low value RTA claim, to which fixed costs applied under CPR 45.29A.

The case was settled by way of the Defendant’s acceptance of the Claimant’s Part 36 offer. The offer had been made by the Claimant after the parties had lodged their pre-trial checklists. The Defendant accepted the offer about a month after the relevant period for acceptance, i.e. 21 days had elapsed. The offer had been a valid Part 36 offer and had been made at an appropriate point in the case.

As the parties were unable to agree costs, the Claimant applied for an order for costs under CPR 36. CPR 36 does not deal explicitly with a scenario where the Defendant accepts a Claimant’s offer out of time; however it does deal with the reverse position.

The Claimant contended that the ‘usual’ order should be made, i.e. that they were entitled to indemnity costs from the end of the relevant period for acceptance of the Part 36 offer.

The Defendant relied on the case of Fitzpatrick Contractors Ltd -v- Tyco Fire and Integrated Solutions (UK) Ltd [2009] EWHC 274 (TCC), asserting that in order to award indemnity costs the Court would have to decide that the Defendant’s conduct had been unreasonable.

DJ Besford considered the changes to Part 36 since the case of Fitzpatrick. He found that the rules on Part 36 had been ‘tightened’ since that judgment was given. He considered that there would be no incentive for a Defendant to accept a Part 36 offer early (or within the relevant period) if there was no penalty for late acceptance. This was also in direct conflict with the overriding objective which places a duty on parties to save court time and expense.

The Court therefore found that it did not have to follow Fitzpatrick and it did not have to find that the Defendant had acted unreasonably. Under rule 36.13, the court had to take into account all the circumstances of the case.

For the court to refuse to apply the penalties incurred as a result of accepting a Part 36 offer out of time, the court would have been required to identify a compelling reason as to why it was unjust to make the usual order.  As there was no such reason identified, the usual costs consequences flowed. It was therefore ordered that indemnity costs would be recovered after the end of the relevant period.

From a Defendant’s perspective, it is of concern that the Court did not follow Fitzpatrick. The CPR makes no specific provision for the consequences of a Defendant accepting a Claimant’s offer after the 21 day period for acceptance has expired. There may be an argument that this could in fact discourage a Defendant to accept an expired offer, this could certainly be considered to clash with the Overriding Objective.

Although a County Court decision is not a binding decision, claimants are likely to refer to this case during arguments about costs consequences arising from a defendant’s late acceptance of a Part 36 offer. Insurers should therefore note the importance of giving prompt consideration to any Part 36 offers received, in order that an appropriate response may be given within the relevant period.

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