In a decision that should remind dispute lawyers of the importance of giving proper consideration to the potentially significant consequences of Part 36 offers, an appeal against a decision that indemnity costs were recoverable in circumstances where only nominal damages had been awarded, was dismissed.
Background
The case of Shah & Anor v Shah & Anor [2021] EWHC 1668 (QB) involved a family contractual dispute. The claimant was successful in recovering indemnity costs in accordance with Part 36.17(4) from the expiry of a Part 36 offer, in the sum of £1, because damages were awarded by the County Court judge in the more advantageous sum of £10. Costs were awarded in the sum of £75,000.
Decision
On appeal, the High Court considered the following key issues:
- Whether the Part 36 offer of £1 was a genuine attempt to settle and,
- Whether the awarding of costs on the indemnity basis was unjust.
The offer was deemed to be a genuine attempt to settle because it was close to the sum of damages awarded at trial. Further, at the time the offer was made, whilst significant costs had been incurred there were still substantial savings to be made by both parties in avoiding a trial.
It was acknowledged that the consequences of Part 36.17 on this occasion were punishing, but this did not amount to the award being unjust, the threshold for which is very high. The judge commented that all Part 36 offers are tactical, the purpose of Part 36 being to make parties face up to difficult decisions, to encourage settlement of disputes and, ultimately, avoid litigation. In Shah, the defendant found the claimant’s Part 36 offer unattractive as it required them to concede a point on liability. It was for the defendant to consider how much more it might cost them if the offer was not accepted and they had the option of making a counter offer which they chose not to do, therefore accepting the risk the Part 36 offer posed.
Comment
The judgment acts as a stark reminder to ensure that all Part 36 offers are carefully considered, not just at the time they are received but throughout the life of a case. This is important as matters develop and prospects of success may change. A Part 36 offer that is considered to pose little risk, may later pose a significant one. This is of particular importance in cases where damages will be modest as costs can be disproportionately high, something which will not, however, satisfy the threshold for it being considered unjust for indemnity costs to apply.
The family dispute in Shah was driven by the desire of both parties to win, circumstances which are commonly encountered in cases where there is a close relationship and emotions can run high, for example cases involving an employer/employee. In such cases, it is important to take a step back and fully consider the prospects of success against the risk posed by a Part 36 offer and whether a commercial approach to settlement should be taken.
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