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Part 36 offers – the safety valve

CPR Rule 36.10(4) provides:

(b) “[Where] a Part 36 offer is accepted after the expiry of the relevant period, if the parties do not agree the liability for costs, the court will make an order as to costs.” 

Rule 36.10(5) provides: 

“Where paragraph 4(b) applies, unless the court orders otherwise – 

(a) the claimant will be entitled to the costs of the proceedings up to the date on which the relevant period expired; and 

(b) the offeree will be liable for the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.” 

In SG v Hewitt [2012] EWCA Civ 1053 the Court of Appeal considered when a court should exercise its discretion to depart from the normal costs rule in CPR r.36.10(5). 

In March 2003 the Claimant, aged 6, was injured in an RTA and suffered severe frontal lobe damage. Expert evidence was unable to provide a definite prognosis on the extent of the injury until the Claimant reached adolescence. On 2 April 2009 the Defendant made a pre-action Part 36 offer in the sum of £500,000 in full and final settlement of the claim. 2 years later in 2011 the Claimant accepted this offer, after the date of expiry. On 22 August 2011 Part 8 proceedings were issued for approval of the settlement and on 2 December 2011 the settlement was approved by Popplewell J. 

A dispute arose as to who was liable to pay the costs following the expiry of the Part 36 offer. Popplewell J was not satisfied that the case was exceptional or that it would be unjust for the normal order as to costs to be made pursuant to CPR r.36.10(5).The Claimant was required to pay the costs of the Defendant from the date the Part 36 offer was accepted. 

The appellant appealed this decision on the basis that Popplewell J had failed to take into account the particular circumstances of the case. The Claimant argued that he could not have reasonably accepted the offer when it was made and should not therefore have been at risk as to costs if he chose to wait. 

The appeal was allowed. The Court of Appeal set aside the costs order and substituted an order that the Claimant was entitled to his costs throughout proceedings, including costs incurred after 23 April 2009. Relevant factors justifying a departure from the normal rule were (a) whether the matter had commenced at the time the offer was made, (b) whether the offer was rejected and (c) whether the Defendant knew if any further expert reports were being obtained. 

However the most important factor in this case was the uncertain prognosis period. The time that elapsed between the date on which the Part 36 offer expired and the date on which that offer was accepted was needed to enable those advising the child to be satisfied that the offer could properly be accepted. This was because the prognosis for the claimant’s injury could only accurately be determined by waiting until he neared or reached adolescence. 

Lady Justice Arden commented that the power of the court to depart from the normal rule was a “deliberate and important safety valve” built into a part 36 offer. Both Claimants and Defendant insurers should therefore always check for such a safety valve in any part 36 offer before reaching an agreement on costs.

Vaughan Jacob / 22nd Oct 2012


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