Part 36 offers and multiple defendants: when is it unjust for the consequences to apply?

02.11.2020

Where a claimant beats its Part 36 offer, the Defendant faces heavy consequences under CPR 36.17(4):  interest on the judgment sum at a rate not exceeding 10% above base, costs on the indemnity basis, interest on costs at a rate not exceeding 10% above base and a further amount (note exceeding £75,000) calculated as percentage of the judgment sum.

The court must order that the claimant is entitled to these sums, unless it would be unjust to do so.  By CPR 36.17(5) “unjustness” requires the court to take into account all the circumstances of the case, including the terms of the offer and the stage in the proceedings that it was made.

Max Cole appeared for the Respondents In Re IT Protect Limited (Bramston and Or v Pye and Or). In this case the liquidators brought misfeasance proceedings against a de jure director (R1) and (alleged) de facto director (R2) of the company. The claim against R1 succeeded, but on the basis only of an amended case.  The claim against the de facto failed entirely on the basis that she was not a director of the company. The liquidators’ case against her was “extremely thin”.

Three months before trial the liquidator made a part 36 offer to the Respondents jointly on the basis of a single payment.  The liquidators beat that offer in respect of R1  but not in respect of R2.

On disposal, the first question for the court was whether it would be unjust for R1 to face the consequences under CPR 36.17(4).   The judge cast doubt on whether CPR 36.17(4) applied at all where a part 36 offer is made jointly to two respondents but is beaten by only one of them.  In any event, the court found that R1 should not face the adverse consequences.   The offer had been made relatively late, when all significant costs had been incurred.  More significantly the offer been made jointly so that R1 could not accept it without R2  also accepting.  That would make R2 liable to pay damages and costs for which she was not liable. If R1 had accepted the offer, it would have made him liable for all the costs, including the costs of the claim against R2.

On costs generally, the court found that if the liquidators had not pursued its original case R1, and if they had not pursued the case against R2 at all, the trial would have taken half the time.  The court was critical of the way in which in which the liquidators had presented their case and reminded office holders that  it is incumbent on them to set out their case clearly.  In the circumstances R1 was to pay 50% of the liquidators costs.  The liquidators were to pay all the costs of R2.

The decision illustrates the dangers of adopting a one size fits all to Part 36 offers.  Where a claimant brings different claims against two defendants, it should consider differentiating the offers made to each or making them severally.  This is particularly important where the claim against one Defendant is weaker than against the other.  It is also a reminder to claimants  and their advisers to review the elements of their claims with a critical eye or face costs consequences.

A summary of the costs judgment is here  and the trial judgment is here.

 

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