Under the old rule 36.20, the costs consequences for a claimant applied where that claimant “failed to better” a part 36 payment. Under this rule, it was generally accepted that beating a part 36 payment by as little as £1 was doing better than the payment into court and the claimant therefore escaped the cost consequences of part 36, although the court retained its general discretion on costs under rule 44.3.
Under the new regime, part 36 payments no longer play any role and only part 36 offers remain. The new cost consequences following judgment are set out in the new CPR 36.14. They apply where a claimant fails to obtain a judgment “more advantageous” than a defendant’s part 36 offer.
The Court of Appeal held that under the amended part 36 regime, money claims and non-money claims are to be treated in the same way; “more advantageous” is an “open-textured” phrase which permits a more wide-ranging review of all the facts and circumstances of the case in deciding whether the judgment obtained was “worth the fight”. The effect of the decision is wide-reaching: parties now need to ensure they consider the broader context in which they refuse a part 36 offer.
There will no doubt be new, more subjective, factors which can be raised at costs hearings following trial beyond those set out in rule 44.3, such as the emotional toll of the litigation, when parties seek to argue whether the judgment was more or less advantageous than a rejected part 36 offer.
The background to the case was that Miss Carver, an air hostess flying in and out of
Argument ensued about costs with Miss Carver’s costs being £57,000 plus VAT. At first instance, the judge applied the new part 36 and awarded costs to BAA from the date the offer period ended. The approach to the proceedings taken by Miss Carver was criticised by the judge with her legal team having failed to engage in any meaningful settlement negotiations or put forward a reasonable offer on her behalf. Miss Carver appealed, arguing that she should receive all her costs.
The Court of Appeal agreed with the trial judge. Lord Justice Ward, who gave the Court’s judgment, placed weight on the modern approach to litigation: “The CPR, and part 36 in particular, encourage both sides to make offers to settle. Compromise is seen as an object worthy of promotion for compromise is better than contest, both for the litigants concerned, for the court and for the administration of justice as a whole. Litigation is time-consuming and it comes at a cost, emotional as well as financial. Those are, therefore, appropriate factors to take into account in deciding whether the battle was worth it. Money is not the sole governing criterion.”
The result of this clarification of part 36 is that for cases that do proceed to trial, the clear line in the sand which existed under the old regime has been removed. This may well increase the court’s ability to do justice in the individual cases before it, but it comes at the price of certainty.
The case might have the effect of increasing levels of acceptance of part 36 offers and deterring parties from proceeding to trial for fear of how the court, when awarding costs, may take into account more subjective factors in weighing up whether a judgment is more advantageous than a rejected part 36 offer. The risk, though, is that it will encourage a new industry of costs arguments as parties seek to establish non-monetary disadvantage caused by the other party taking the case through to trial, resulting in further costs.
As at the date of publication, no application for permission to appeal the decision had been lodged with the House of Lords.
Simon Clarke is a partner and Laura Durrant is an associate in the litigation and arbitration division of Herbert Smith.