This case concerned a situation where a Claimant beat its own Part 36 offer by £4,800 and so the Defendant had to pay an extra £65,000 and costs in excess of £500,000 were ordered to be paid on account.
In Hochtief (UK) Construction Ltd & Anor v Atkins Ltd  EWHC 3028 (TCC) Mrs Justice O’Farrell considered the consequences of a claimant being its own Part 36 offer. The claimant beat its own offer by a small amount but still gained considerable advantage.
The claimant succeeded at trial, in June 2019, in a claim for damages in the sum of £802,475.33 and interest of £77,372.41. The claimant succeeded on a claim concerning a bridge, but lost on a smaller claim relating to an underpass. In May 2017 the claimant had made a Part 36 offer, including interest, in the sum of £875,000. The claimant beat its own offer by £4,847.00.
CPR 36.17(4) provides that in such circumstances, the court must, unless it considers it unjust to do so, order that the Claimant is entitled to:
a) enhanced interest on the damages awarded at a rate not exceeding 10% above base rate;
b) costs on the indemnity basis from the date on which the relevant period expired;
c) enhanced interest on those costs at a rate not exceeding 10% above base rate; and
d) an additional sum not exceeding £75,000, calculated by applying the prescribed percentage to the sum awarded as damages by the court (10% of the first £500,000 awarded and 5% of the amount above that figure).
In considering whether it would be unjust to make the orders referred to above, CPR 36.17(5) provides that 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;
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.
As was stated by the Court, in respect of interest awarded: “In some cases, a proportionate rate will have to be greater than purely compensatory to provide the appropriate incentive to defendants to engage in reasonable settlement discussions and mediation aimed at achieving a compromise, to settle litigation at a reasonable level and at a reasonable time, and to mark the court’s disapproval of any unreasonable or improper conduct, as Briggs LJ put the matter, pour encourager les autres.”
The ruling serves as a warning to all litigants that seemingly tough outcomes for failing to beat a Part 36 offer continue to be imposed by the courts.
In giving her judgment, O’Farrell J stated the claimants had achieved a judgment sum at least as advantageous as the one they had offered. A further costs order, she noted, should only come based on the terms of the Part 36 offer, the stage in proceedings when it was made, the information available to the parties at the time, the conduct of the parties and whether the offer was a genuine attempt to settle proceedings.
The judge said of Hochtief: ‘The terms of the offer were clear. The Part 36 offer was made at a very early stage in the proceedings, after the letter of claim but before the issue of the formal claim. By that time, extensive investigations and remedial works had been concluded.’
She ruled the claimants, who had been involved in a contract dispute, were entitled to an enhanced rate of interest on damages and costs from the date of expiry of the offer. She set interest on damages at 6% above base rate and ordered that costs be assessed on an indemnity basis. The claimants will receive an extra £65,123 as a result on top of their awarded damages.
The judge stated that “Subject to the issue of costs addressed below, it would not be unjust to apply the provisions of CPR 36.17 in this case. The terms of the offer were clear. The Part 36 offer was made at a very early stage in the proceedings, after the letter of claim but before the issue of the formal claim. By that time, extensive investigations and remedial works had been concluded. The parties had sufficient information to make an informed judgment as to the merits of the case. The offer was at a level that indicated it was a genuine attempt to settle the dispute.”
Having regard to those matters, the Claimant was entitled to an enhanced rate of interest on damages and costs from the date of expiry of the offer. The Defendant’s conduct was not unreasonable so as to attract the maximum rate. However, the Court awarded 6% above base rate (the mid-point between the 2% agreed on damages and the maximum of 10%) which amounted to the additional sum of £65,123.77. The Claimant was also entitled to have such costs as are ordered assessed on an indemnity basis.
The claimant recovered indemnity costs from the last date for acceptance of the Part 36 offer. A discount was made for the fact that it did not succeed on the underpass part of the case.
The Claimant’s position is that it had beaten its Part 36 offer and therefore is entitled to recover all its costs on the more favourable terms set out above.
The Defendant submitted that the court should make an issues-based or proportional costs award to reflect the following:
i) the Claimant beat the Part 36 offer by a very small margin (less than £5,000); and
ii) The defendant was the successful party in respect of the Underpass claim.
The Court found that the fact that the Claimant beat the Part 36 offer by a very small margin did not displace the Part 36.17 regime: CPR 36.17(1)(b).
The total costs in the approved Claimant’s budget were £650,998.74.Their total costs were significantly higher, in the sum of £1,075,441. The claimant recovered £500,000 on account of costs.
CPR 44.2(8) provides that where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is good reason not to do so.
Where the amount of costs is to be assessed on the indemnity basis:
i) the court will only allow costs which have been reasonably incurred and are reasonable in amount: 44.3(1); but
ii) the court will resolve any doubt as to whether costs were reasonably incurred or reasonable in amount in favour of the receiving party: CPR 44.3(3).
In assessing the reasonableness of the incidence and amount of the costs incurred, the court will have regard to all the circumstances, including the conduct of the parties, the value of the claim, the importance of the matter to the parties, the complexity of the issue, and the receiving party’s last approved or agreed budget: CPR 44.4.
In the absence of an approved revised costs budget, for the purpose of a payment on account, the judge used the original approved budget but took into account the Court’s observations as to the reasonableness of additional costs incurred. Having regard to the proportional costs order made, and taking the above matters into account, the judge considered that a reasonable sum on account of costs was £500,000.