Part 36 and costs liabilities when there are multiple defendants

28th July 2014

Making a Civil Procedure Rules (CPR) Part 36 offer is one of the most useful tools in litigation. It enables a party to make a formal settlement offer knowing that if the opposition rejects it and the offeror goes on to do better at trial, the opposition will have to pay the offeror’s costs from a prescribed date – as well as interest and potentially an additional discretionary payment. Not surprisingly, a properly drafted Part 36 offer letter and the consequent risk of costs liabilities, places considerable pressure on a recipient to consider the offer seriously.

But what happens when there are several defendants? If one of the defendants accept a Part 36 offer and settles and the others do not, who pays the offeror’s costs? Does the defendant have to pay the whole of the costs in the litigation – or just the elements that relate to its own defence? And what about the disbursements such as experts fees and travel expenses?

This was the issue that arose recently in the case of Haynes v Department of Business Innovation and Skills [1].

The claimant’s husband died from causes relating to asbestos exposure and she brought a claim for £195,000 against 10 of her husband’s former employers alleging that they were all severally liable for his death. She sent Part 36 offers to 6 of them suggesting she would accept £18,000 from each of them. Only the defendant, (who was defendant number 8), accepted. The claimant then abandoned the claims against the other defendants and claimed all her costs of £58,097.31 from the defendant.

The Costs Master and then Master Simons each held that the defendant should not bear the full costs liability. The claimant appealed and the High Court’s decision was based on the interpretation of the wording of Part 36 and the relevant case authorities – but also resounds of common sense.

CPR Part 36.10 (1) provides that where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings up to the date on which notice of acceptance was served on the offeror.

CPR Part 36.10 (3) provides that such costs will be assessed on the standard basis if not agreed.

CPR Part 44.9 provides that where such a right to costs arises, a costs order will be deemed to have been made on the standard basis.

The High Court split the claimed costs into types and dealt with each separately:

The costs attributable to the action (solicitors’ fees etc.). The judge was adamant as to the meaning of ‘the costs of the proceedings’ in Part 36.10(1): it referred to the costs of proceeding against the defendant against whom the deemed costs order has been made. The defendant was not therefore liable for the costs of the other defendants.

The common or generic costs. These split into:

• costs such as court fees, medical reports and travel expenses. Such costs as these have to be incurred regardless of how many defendants there are. As there was a deemed costs order in the claimant’s favour, these costs were therefore to be met by the defendant in full. The judge added that had other defendants also accepted the offer, the claimant could have sought 100% of these particular costs from any of them – leaving the defendants to argue amongst themselves as to their apportionment; and
• non-specific costs such as counsel’s fees for advising on the liability of all the defendants. These costs can be identified and are divisible and the defendant should only have to pay what was attributable to his part in the proceedings. The Judge also addressed the issue of how to decide on what share should be paid. The Master had ordered a one tenth division to be paid on the basis that there were 10 defendants. An approach which simply divided between the number of defendants was rough and ready but the judge thought the Master justified given that the claimant had supplied no evidence on which to reach a more reasoned decision. The judge made clear, however, that the general rule required an evidence-based decision to be made on how to split the costs liabilities.

If you think a Part 36 offer is invalid – say so straight away
During the hearing, the defendant claimed for the first time that the claimant’s Part 36 offer did not comply with Part 36 and was therefore invalid. The judge said it was too late to argue this point at the trial: by not making the point on receipt of the offer, the defendant had effectively waived his right to rely on the claimant’s non-compliance with the strict requirements of Part 36.

This is a reminder that any problems with a Part 36 offer should be raised immediately. Not doing so could prove costly.

[1] Haynes v Department of Business Innovation and Skills [2014] EWHC 643 (QB)