The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.
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In
Lejonvarn v Burgess & Anor [2020] EWCA Civ 114
the Court of Appeal considered in detail the type of conduct that can lead to an indemnity costs order, including failure to beat a defendant’s early Part 36 offer, and the relevance of the costs budget.
Generally, failure to beat a defendant’s Part 36 offer will not result in an order for indemnity costs, but rather the failure of the winning claimant to recover post Part 36 costs, as well as having to pay the defendant’s post Part 36 costs.
Here the claimants lost completely.
The claimants alleged that the defendant was negligent in the design of their garden, which he had carried out free of charge.
There had been a trial on the issue of whether the defendant owed a duty of care and that issue went to the Court of Appeal, which held that he did, but at the substantive trial the claimants failed badly and were awarded no damages.
The trial judge dismissed the claims and awarded the defendant her costs on the standard basis, and the issue before the Court of Appeal was whether indemnity costs should have been ordered.
The defendant had made a Part 36 offer of £25,000 three weeks after proceedings had been issued; it was not accepted.
There were three issues before the Court of Appeal:
(i) whether this was a case in which the claimants’ pursuit of what were described as “speculative, weak, opportunistic or thin claims” could properly be described as out of the norm such as to warrant an order for indemnity costs;
(ii) whether the claimants’ failures to beat the defendant’s Part 36 offer, made at a very early stage in the proceedings, either on its own or taken together with the pursuit of these particular claims, also meant that indemnity costs should be ordered;
(iii) the relevance, if any, of the fact that the defendant’s approved costs budget was £415,000, whereas any indemnity basis assessment would start at the defendant’s actual costs figure of not less than £724, 265. (Paragraph 4)
On the facts the Court of Appeal held that the claimant should have realised, after the Court of Appeal judgment in relation to there being no contractual liability, that the remaining claims were so speculative/weak that they were very likely to fail, and should not be pursued.
Consequently, indemnity costs were awarded on this basis from one month after the Court of Appeal judgment on the breach of contract point.
On the facts here, the Court of Appeal held that the claimants’ failure to accept the very early Part 36 offer of the defendant justified an indemnity costs order, but only from one month after the Court of Appeal judgment.
Consequently, on the facts of the case, it did not entitle the defendant to any extra indemnity costs over and above those awarded on the weak case basis.
As to Part 36, the court said that the facts here were “relatively extreme” and wholly rejected the argument that there was any presumption that a defendant should ever get indemnity costs due to the claimant failing to beat the defendant’s offer.
That was most certainly not what the Civil Procedure Rules said, and it was not the intention of Parliament.
On the costs budget point, the Court of Appeal said that once an order for indemnity costs is made, any approved budget becomes irrelevant.
“96. Secondly, for the reasons explained in Section 8.2 above, there is as a matter of principle no overlap between a costs budget, which will have been approved on the basis of a projected series of figures for costs that were assessed as reasonable and proportionate, and the actual costs to be assessed by reference to the indemnity basis (where reasonableness might still be an issue, but proportionality is not). Thus, even if there had been an approved budget figure, it could not affect whether or not the court should make an order for indemnity costs.”
Comment
A sensible, helpful and well-reasoned judgment which should finally put to bed any submission that, absent something out of the norm, a defendant can expect indemnity costs simply because the claimant failed to beat the defendant’s Part 36 offer.
Some of our less bright colleagues at the Bar still do not get it, so yet again I will spell it out.
When a claimant wins, but fails to beat a defendant’s Part 36 offer, that winning claimant is punished severely in two ways.
Firstly, that winning claimant does not recover its costs for the post Part 36 expiry period.
Secondly that winning claimant has to pay the defendant’s post Part 36 expiry costs.
I remember when growing up being bemused by TV reports of severely injured winning plaintiffs as they then were, getting nothing “due to legal reasons” that is failing to beat a payment in the court.
So you win and get nothing and indeed outside the QOCS protected world of personal injury you can win and be bankrupt.
That is precisely why QOCS limits the penalty on a Part 36 event to the damages and costs recoverable by the claimant.
That, ladies and gentleman, is the extreme penalty as a claimant.
The position of a losing defendant who has failed to come in at less than a claimant’s Part 36 offer is entirely different.
They would just pay the costs of losing so a claimant’s Part 36 offer would be pointless.
That is why a claimant who matches or beats its Part 36 offer gets indemnity costs; otherwise there would be no penalty, on an offer-ignoring defendant.
It is not rocket science but is apparently beyond the Queen’s Counsel in this case who described it as “scandalous” and, on any view, “an oversight”.
The Court of Appeal in a hard hitting attack said that “the making of these colourful submissions ended up blinding both Mr Flannery and the judge from the real position.”(Paragraph 71) and that those “submissions about the Rules were misconceived.” (Paragraph 72).
Quite.
Advocates who make such submissions in the future must be at risk of a Section 51 wasted costs order.
