Costs: Successful appeal to High Court's better judgment on Part 36
25 July 201925 July 2019
The High Court has overturned a decision which held that the Court may apply the 'injustice' test separately for each part of CPR 36.17(4).
The Claimant presented a Bill of Costs in the sum of £615,751.51, and made a Part 36 offer of £425,000 inclusive of interest. The offer expired and at detailed assessment, the Claimant was awarded £431,813.05, therefore beating their offer.
During the assessment, the Claimant invited the Court to award the consequences of paragraphs (a), (b), (c) and (d) of CPR Part 36.17.
Applying paragraph (d) would have result in an additional 10% being awarded.
The Defendant argued that it would be unjust for the consequences of paragraph (d) to apply as the Claimant had only beaten its offer by a small margin of £7,000. Allowing the additional 10% would provide the Claimant an additional sum in excess of £40,000.
The Defendant submitted that the Court, when applying Rule 36.17(4), should deal with the question of whether it is 'unjust' to make an order under the Rule separately for each of the consequences set out in paragraphs (a)-(d). In other words; the Court has the power to award all, some, or none of the penalties. The Claimant disagreed that the Court should be entitled to disapply one of the penalties, that it was an 'all or nothing' approach.
Master McCloud adopted the Defendant's view, albeit expressing doubts, disapplying paragraph (d) and declining to award the additional 10%.
The Claimant appealed.
The appeal was granted, and the additional amount of 10% was awarded.
There were two grounds of appeal:
There is a single test of unjustness so that all or none of the consequences of 36.17(4) should apply.
If the test for unjustness can be applied to each sub-paragraph of 36.17(4) separately, the correct approach was still the application of all of the sub-paragraphs in most cases, save for "the most exceptional cases" – of which this claim was not one.
First ground of appeal
Mr Justice Stewart concluded that it was not a single test of unjustness, as "there is nothing in the wording [of Rule 36.17] to suggest it should not be applied separately for each of those subparagraphs." In addition, the authorities considered contained nothing which would have been binding on the Court either way.
Second ground of appeal
The high threshold of proving injustice was not met, and therefore, the Claimant's submissions were successful on this point.
Mr Justice Stewart found that "all three reasons given by the Master were inadmissible reasons for finding it to be unjust to make the additional award."
The small margin by which the offer was beaten relative to the bill
Mr Justice Stewart stated "it was not open to judges to take into account… the amount by which a Part 36 offer was beaten." The Rule Committee had addressed this issue previously in the aftermath of Carver v BAA PLC which had muddied the waters on the interpretation of the phrase "more advantageous".
The effect of a significant reduction in the bill
The significant reduction of the bill was not a valid reason to disapply paragraph (d) on this occasion. Referring to the decision in Cashman v Mid Essex Hospital Services, there was no reason why a factor rendering it not unjust to make an award under 36.17(4)(a) to (c) "should be a factor rendering an award under 36.17(4)(d) unjust."
Master McCloud was found to have erred by deciding that a bill "reduced by some 30% could be a reason to find it unjust to make the additional award". Any perceived injustice would be on the basis of the amount of the award, which is impermissible.
The size of the 10% 'bonus' relative to small margin of betterment of offers
It was incorrect to characterise the additional award as a bonus, and it is not meant to be compensatory. It is "a penal element" to a defendant where a claimant has made an adequate offer.
What can we learn?
Our initial analysis of the decision at first instance was that parties should not place reliance upon the first instance in the expectation of penalties being disapplied. The decision of Mr Justice Stewart validates that analysis.
Master McCloud stated that the penalties are not intended to be compensatory, but as an incentive to settle. Mr Justice Stewart agreed, but found that disapplying one of the penalties in circumstances such as this claim would prompt a number of challenges in similar cases and would not encourage "good practice and incentivising parties to make and accept appropriate offers."
The Defendant asked the Court to award a lower percentage than the additional amount of 10% if the appeal was successful. They argued that the Court had the power to do so. Mr Justice Stewart offered obiter comments on this issue. He found that the terminology regarding this additional amount was "expressly prescriptive" and that it is "all or nothing". The 10% must be awarded in full unless it is unjust to do so.