The normal costs rules under part 36.10(5)(a) and (b) provide that, where a part 36 offer is accepted after the relevant period has expired and unless the court orders otherwise, the claimant will be entitled to the costs of the proceedings up to the date on which the relevant period expired and the claimant will be liable for the defendant’s costs for the period from the date of expiry of the relevant period to the date of acceptance. The court has discretion as to whether to depart from the rules.

Rule 36.14, which deals with the costs consequences of a part 36 offer following judgment, states that where the claimant fails to obtain a judgment more advantageous than a defendant’s part 36 offer, the court will, unless it considers it unjust to do so, order that the defendant is entitled to his costs from the date on which the relevant period expired and interest on those costs (see 36.14(1)(a) and (2)(a) and (b)). In considering whether it would be unjust to make the order, the court will take into account all the circumstances of the case including the factors listed in part 36.14(4)(a) to (d).

The Court of Appeal recently set aside an order which was made in accordance with the normal costs rule in SG v Hewitt [2012] EWCA Civ 1053. The claimant had sustained injury as a result of a road traffic accident. The defendant made a part 36 offer at the pre-action stage. Although expert evidence and counsel’s advice had been obtained by the claimant, the claimant’s solicitors made it clear to the defendant that they were unable to advise their client as to the reasonableness of the offer because the claimant’s prognosis was unclear. The offer was eventually accepted by the claimant and the settlement was approved by the High Court.

However, each party contended that their costs incurred from after the time of acceptance of the part 36 offer should be paid by the other party. The defendant relied upon the normal costs rule. The claimant argued that, because of the particular circumstances of the case, the court should order otherwise. The judge found in favour of the defendant and the claimant appealed.

On appeal the defendant stressed the importance of the normal costs rule in achieving certainty and encouraging early settlement of disputes by conferring costs benefits on parties who make realistic offers of settlement, thus benefiting individual litigants and the administration of justice as a whole. The defendant also submitted that to preserve the benefits of the part 36 provisions it was important to confine the scope of the cases in which it was seen to be unjust to depart from the normal rule and that a court should be very slow to make exception to it. It was argued that part 36 balances the interests of the claimant and the defendant, giving advantages to each.

The claimant may accept the part 36 offer at any time until it is withdrawn, even if he or she has expressly rejected it and irrespective of whether the circumstances have changed since it was made; this may lead to the claimant getting more generous damages than would otherwise be the case. The defendant’s advantage is that if the claimant accepts the offer out of time, the claimant will normally pay the costs incurred after the time for acceptance expired. The defendant submitted that an order in the claimant’s favour in this case would disrupt the balance between the parties, leaving the claimant with his advantage but depriving the defendant of his.

The claimant argued that it was unjust not to depart from the normal costs rule and that the judge had not given weight to the difficulties caused by the need to wait for assessment of the damage caused to the claimant. The claimant had no choice but to wait for expert evidence to be collated to be in a position to make a more reliable prediction as to the future and the court could be satisfied that the offer was appropriate. It was further argued that rule 36.14(4)(c) required the court to take into account the information available to the parties at the time when the part 36 offer was made. The claimant was lacking this information.

Giving the leading judgment, Black LJ considered the issue of how the court should approach the question of whether it would be unjust to make the normal order. Black LJ noted that although the factors listed in rule 36.14(4) were relevant in determining whether it would be unjust to make the normal costs order, other factors could be considered and guidance could be taken from decided authorities. In this regard Matthews v Metal Improvements Co Inc [2007] EWCA Civ 215 was relevant. In that case, Stanley Burnton J (as he then was) addressed three issues which were relevant to the present case.

Those issues were: (i) the implications of the claimant being a ‘patient’ within the meaning of the then CPR 21; (ii) the relevance of the reasonableness of the claimant’s conduct in relation to the part 36 offer; and (iii) the problem of uncertainties in the value of the claim.

In respect of the first issue in Matthews, Black LJ was of the opinion that the courts will consider all the circumstances of the case and the fact that a claimant is a patient/protected party or child. This would differentiate a case from the case in which there is a competent claimant and this could not simply be ignored by a court. Black LJ approved of the judge’s conclusion that reasonableness, as considered in Matthews, was relevant but not necessarily determinative. Finally, it was clear from Matthews that costs decisions were fact-sensitive and that it was difficult to determine one case by comparing it with another.

Black LJ warned: ‘I would be equally resistant to encouraging a time-consuming practice of citing authorities on costs for the purpose of persuading courts to follow decisions on the facts as if they were precedents. This too has the capacity to lead to intensive investigations designed to demonstrate similarities and differences between the two sets of facts. I would therefore hope that a firm distinction is made between, on the one hand, principle and guidance which can valuably be transported from one case to another and, on the other, consideration of the individual facts which cannot.’

The defendant also argued that if the claimant had accepted the offer then the claimant would have received a significant windfall in damages. Black LJ rejected this argument and held that there may often be uncertainty as to whether the claimant has or has not done well out of the settlement and that it often depended on factors which will not be known until a future date or may never be ascertained.

Black LJ also held that the judge had erred in exercising his discretion and was therefore incorrect in his conclusion that ‘the fact that any settlement would require the approval of the court is not of itself a relevant factor’. Black LJ stated: ‘It seems to me that more was required on the facts of this particular case and that the judge erred in taking this approach, with the result that the issue did not enter into his determination as it should have done.’

Other relevant matters were that the offer had been made before the claimant had commenced proceedings, which was at a time when the prognosis was uncertain. Black LJ observed: ‘It seems to me material that the inherent uncertainty in prognosis would have resolved well before the limitation period expired by the passage of time so the claimant would not need to commence proceedings before the position was clear. The offer was not rejected and the defendant knew that further expert reports were being obtained as to the claimant’s development. These were not designed to improve or expand the claimant’s claim, merely to ascertain whether the deterioration that could occur with puberty/adolescence was in fact occurring or likely to occur.

The defendant knew the nature of the variables intrinsic in the head injury that had the capacity to affect the quantum of damages and he knew the timescale that would render the claim more certain. Not only did he have the advantage of choosing when to make the offer, he also had the option to withdraw it at a later stage but chose not to do so.’ Finding in favour of the claimant, Black LJ noted that the judge did not give weight to the particular features of this case which should have been put into the balance against the normal order. This meant that the order was unjust and was set aside.

Masood Ahmed, Birmingham City University