The matter arose from a clinical negligence claim arising out of the claimant's birth in 2004. In 2017 the parties reached a settlement with the defendant paying a lump sum of £2,500,000, and periodical payments for care and case management of £260,000 per annum are payable until the claimant is aged 19, and thereafter at £312,000 per annum for life.
The claimant served a bill of costs totalling £615,751.51 and during the course of the detailed assessment proceedings made a Part 36 offer of £425,000 inclusive of interest. The matter was subsequently assessed by the Master in the sum of £431,813.05. The Master ordered the defendant to pay the claimant's costs of the detailed assessment and summarily assessed those in the sum of £44,745.16 plus indemnity interest of £10. She made orders in respect of CPR r.36.17(4)(a)-(c) – these being minimal and not opposed – but no order in respect of CPR r.36.17(4)(d).
The bill of costs had been reduced by 30% and the claimant had beaten their own offer by just under £7,000 or 1.6%.
The relevant Civil Procedure Rules
CPR r.47.20(4) allows parties to make Part 36 offers in detailed assessment proceedings.
Pursuant to CPR r.36.17(4) where a Part 36 offer is beaten:
"…the court must, unless it considers it unjust to do so, order that the claimant is entitled to –
(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;
(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;
(c) interest on those costs at a rate not exceeding 10% above base rate; and
(d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is –
(i) the sum awarded to the claimant by the court; or
(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs –
Amount awarded by the court
Up to £500,000
10% of the amount awarded
10% of the first £500,000 and (subject to the limit of £75,000) 5% of any amount above that figure.
The CPR goes on to state when the court may find it unjust to make the above orders:
"(5) 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.
(6) Where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest must not exceed 10% above base rate..."
Decision at first instance
The Master declined to make the additional award stating:
"40. Taken together in my mind the most significant factors are (1) the very small margin by which the offer was beaten relative to the much greater size of the bill (2) 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 (3) the large size of the 10% 'bonus' award relative to the margin by which the offer was beaten.
41. In all the circumstances in my judgment 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)…."
Findings on appeal
In allowing the claimant's appeal, Mr Justice Stewart considered the three reasons given by the Master stated above.
Dealing with the small margin the offer had been beaten by, the judge referred to Lord Justice Jackson's Review of Civil Litigation Costs: Final Report:
I confirm my provisional view expressed in the Preliminary Report that Carver [v BAA] introduces an unwelcome degree of uncertainty into the Part 36 regime and also that it tends to depress the level of settlements. I recommend that the effect of Carver should be reversed either judicially…or by rule change. It should be made clear that in any purely monetary case "more advantageous" in rule 36.14(1)(a) means better in financial terms by any amount, however small."
Accordingly, it was not open to judges to exercise discretion where a Part 36 offer has been beaten for risk of re-introducing Carver and the adverse consequences which the amended Civil Procedure Rules had reversed.
In relation to the large size of the 10% "bonus" relative to the margin by which the offer was beaten, the judge held that the additional award should not be treated as a 'bonus' and it was meant to be compensatory. There should be some penalty to the paying party when the claimant has made an adequate offer.
Further, it was determined that the Master had erred in principle by finding that there was some difficulty in assessing the bill of costs due to the level of reduction applied to the bill at assessment.
Therefore, the judge determined that the Master had erred in finding it unjust to award the additional amount. If judges had a wider ambit of discretion to withhold the additional amount, it would encourage similar arguments in other detailed assessments.
Finally, although obiter, the judge briefly considered whether it was open to award less than the prescribed 10% uplift. He found that this was an all or nothing award and that there was no discretion to award any other amount.
Reading the full text of this judgment, the court makes it clear there will be circumstances when defendants can contend that it would be unjust to apply the additional 10% award. For example, if the claimant had inflated the level of costs claimed, and caused the defendant to incur significant levels of costs investigating the claim prior to being in a position to consider any offer. It will be for the paying party to show the award is unjust. However, it is clear that it will be a high hurdle for the paying party to get over.
For receiving parties, this provides welcome clarification of the benefits of a well-pitched offer even if it is only marginally beaten.
For further information please contact William Mackenzie, Senior Manager DWF Costs on 020 7645 9507 or at William.email@example.com