Costs

Question 1

Why are costs a crucial factor in litigation, and how do they impact a client’s decision to proceed with a case?

Answer 1

Costs are important in litigation because they directly affect a client’s decision on whether to initiate or continue legal proceedings.

This includes not only the amount the case will cost but also the likelihood of recovering costs from the opposing party.

At various stages, such as interim hearings and at the trial’s conclusion, costs orders are made that determine which party will bear the costs.

Both the claimant and defendant could potentially be ordered to pay costs, which is why the successful party is called the “receiving party” and the losing party the “paying party

Question 2

What is the general rule regarding who pays the costs in litigation, according to CPR Part 44, and what discretion does the judge have?

Answer 2

The general rule in CPR Part 44 is that the unsuccessful party pays the costs of the successful party. These costs may include solicitor’s fees, court fees, expert’s fees, and pre-action costs.

However, this rule is only the starting point. Judges have discretion to issue different orders if they deem it appropriate, based on factors such as conduct, offers to settle, and the nature of the case. The judge’s decision can result in cost arrangements other than the general rule.

Question 3

What is the role of costs management and budgeting in multi-track cases, and how does the court become involved?

Answer 3

In multi-track cases, costs management and budgeting play a key role. Before the case management conference, each party must submit a costs budget detailing both the costs incurred and anticipated future costs.

The court can then issue a costs management order, providing control and oversight over the case’s legal expenses.

Even if no order is made, the court still considers these budgets when assessing costs later in the case. Effective cost management helps avoid unforeseen expenses and ensures that costs are proportionate to the case’s complexity.

Question 4

How do costs vary depending on the track to which a case is allocated, and what are the differences between small claims track, fast track, and multi-track?

Answer 4

• Small claims track: Legal costs are not recoverable, except for disbursements such as court fees.
• Fast track: Costs are typically summarily assessed by the court at the end of the trial or hearing.
• Multi-track: Costs are subject to detailed assessment, which involves a thorough review of all incurred costs.
  Each track has different rules regarding how and when costs can be recovered or assessed.

Question 5

What are fixed costs, and how do they benefit or disadvantage litigants under CPR Part 45?

Answer 5

Fixed costs, governed by CPR Part 45, are predetermined amounts that a party may recover from their opponent in specific situations.

The benefit of fixed costs is that they provide certainty to the losing party, as they know in advance how much they will owe if they lose.

However, this system can be disadvantageous to the successful party, as fixed costs rarely cover all expenses incurred, often leaving a shortfall that the party must cover themselves.

Fixed costs apply to certain actions, such as default judgment and enforcement of judgments, but not generally for the entire fast track process.

Question 6

What is a summary assessment of costs, and in what situations is it typically used?

Answer 6

Summary assessment is a process where the court determines the amount of costs to be paid immediately at the end of a hearing. It is most commonly used in fast track trials or in any hearing lasting less than one day.

To facilitate this, the parties must file and serve a statement of their costs (a detailed breakdown) at least two days before a fast track trial or 24 hours before an interim hearing. The general rule is that a summary assessment should be made unless there are good reasons not to, and the judge will decide the costs without a lengthy detailed assessment process

Question 7

What is the process for detailed assessment of costs, and when is it used instead of summary assessment?

Answer 7

The detailed assessment process is used when the court cannot make a summary assessment of costs, usually in multi-track cases due to the complexity, length of proceedings, or the amount of costs involved. This process occurs after judgment, and it involves several key steps:

1. Notice of Commencement: The receiving party (the party entitled to recover costs) must serve a Notice of Commencement to the paying party (the party ordered to pay costs). This includes the receiving party’s bill of costs and supporting evidence, such as receipts or invoices.
2. Points of Dispute: The paying party has 21 days to challenge the bill of costs by serving “points of dispute,” which highlight any specific items in the bill that they contest, either in terms of necessity or the amount claimed.
3. Reply to Points of Dispute: After receiving the points of dispute, the receiving party has 21 days to respond with a “reply,” addressing the challenges raised by the paying party.
4. Request for Assessment Hearing: If the parties cannot agree on the costs after these exchanges, the receiving party must file a request for a detailed assessment hearing within three months of the expiration of the notice period. At the hearing, the court examines the bill and disputes in detail to determine the amount payable.
5. Provisional Assessment: If the total costs claimed are less than £75,000, the court may conduct a provisional assessment. This involves a judge reviewing the case without an oral hearing to determine what costs are appropriate based on the written submissions. The decision is made in the absence of the parties.
6. Oral Hearing: If either party is dissatisfied with the provisional assessment, they can request an oral hearing within 21 days. However, if the requesting party fails to achieve a reduction or increase of at least 20% in their favor, they will be liable to pay the costs of the oral hearing.

This step is meant to deter parties from challenging costs unless they have a strong case for a significant adjustment.

The detailed assessment is time-consuming and expensive, so parties are encouraged to agree on costs wherever possible to avoid this lengthy process.

Question 8

What mechanisms does the court use to discourage unnecessary oral hearings in the detailed assessment process, and why is this important?

Answer 8

To discourage parties from requesting oral hearings unnecessarily during the detailed assessment process, the court imposes a significant financial risk on the party challenging the provisional assessment. The specific mechanisms include:

1. 20% Rule: If a party requests an oral hearing after a provisional assessment and fails to secure an adjustment of at least 20% in their favor, they will be ordered to pay the costs of the hearing. This penalty acts as a deterrent to parties who might otherwise request a hearing without having strong grounds for a significant reduction or increase in the assessed costs.
2. Cost of the Hearing: The party that unsuccessfully challenges the provisional assessment is not only responsible for their own costs but also for the other party’s costs incurred as a result of the hearing. This can include legal fees, disbursements, and any other expenses related to preparing for and attending the hearing. This can make the process quite expensive if the challenge is not well-founded.
3. Judicial Approach: Judges take a robust stance when determining what costs are appropriate. They focus on ensuring that costs are reasonable, proportionate, and in line with the complexity and value of the case. As a result, it is difficult for parties to succeed in adjusting costs unless they can demonstrate clear reasons why the original assessment was inaccurate or unjust.
4. Efficiency and Finality: This mechanism promotes efficiency in the judicial system by reducing the number of unnecessary disputes over costs. It encourages parties to settle cost issues early or accept the court’s provisional assessment unless there are strong reasons for further challenge. This is important because cost disputes can prolong litigation, drain resources, and increase overall legal expenses for both parties.

By making the process of challenging costs risky, the court seeks to ensure that only genuine disputes about the accuracy or fairness of the assessment proceed to a full hearing, while encouraging parties to resolve cost issues amicably and efficiently.

Question 9

What is the effect of a Costs Management Order on costs recovery in multi-track cases, particularly regarding standard and indemnity basis assessments?

Answer 9

A Costs Management Order (CMO) in multi-track cases primarily influences the recovery of costs at trial based on the budgeted costs:

1. Standard Basis Costs Recovery:

• A party awarded costs on the standard basis will typically recover the amount of its last approved or agreed budgeted costs.
• The court can depart from the budgeted costs if there is a good reason, such as:
• Costs for a particular phase were not incurred at all.
• Costs were significantly lower than the budgeted amount.
  2. Indemnity Basis Costs Recovery:
• When costs are awarded on the indemnity basis, the court will assess the incurred costs in the usual way unless the parties have agreed otherwise.

This system allows for flexibility while ensuring that budgeted costs are generally adhered to, except in cases where deviations are justified.

Question 10

What does the term “inter-partes costs” mean, and how are they dealt with during interim hearings in litigation?

Answer 10

Inter-partes” refers to costs that occur “between the parties” in a legal dispute. As a case progresses, there may be interim hearings to address procedural matters like applications for summary judgment, setting aside default judgments, or striking out a statement of case. At the conclusion of each interim hearing, the judge will determine which party is responsible for paying the costs of that specific application and will typically make a summary assessment of costs, meaning the amount is decided immediately without a detailed review.

Question 11

What happens to inter-partes costs at the final stage of litigation, and what two key questions arise?

Answer 11

At the final stage of litigation, after settlement or judgment, the court addresses two key issues concerning costs:

1. Who pays the costs? Generally, the losing party is ordered to pay the winning party’s costs (“loser pays” rule).
2. How much is paid? The amount to be paid can be subject to dispute, requiring the court to assess the appropriate amount. This is influenced by several factors, such as the conduct of the parties and the complexity of the case.

Question 12

What factors does the court consider under CPR Rule 44.4 when assessing the amount of costs to be paid?

Answer 12

he court takes into account the following factors when deciding the amount of costs:

1. The conduct of the parties and attempts to resolve the dispute.
2. The value of any money or property involved in the litigation.
3. The importance of the matter to the parties.
4. The complexity of the legal or factual issues.
5. The skill, effort, specialized knowledge, and responsibility involved.
6. The time spent on the case.
7. The location and circumstances in which the work was done.
8. The receiving party’s last approved or agreed budget, if any.

Question 13

What is the “standard basis” for assessing costs, and what principles govern it?

Answer 13

The standard basis is the most common method for assessing costs in litigation. Under this basis:

• Costs must be proportionate to the issues at hand. Proportionality means that the costs must bear a reasonable relationship to factors such as the amount of money in dispute, the complexity of the case, and any non-monetary relief sought.
• Any doubt regarding the reasonableness of costs is resolved in favor of the paying party
• Even if the costs were reasonably incurred, they might still be reduced if they are deemed disproportionate.

Question 14

How does the “indemnity basis” differ from the standard basis in assessing costs, and when is it applied?

Answer 14

The indemnity basis is used in situations where the court is penalizing a party for misconduct during litigation. The key differences between the indemnity and standard basis are:

• There is no requirement for proportionality on the indemnity basis. All costs that were reasonably incurred and are reasonable in amount can be recovered.
• Any doubt about the costs is resolved in favor of the receiving party (the party being awarded costs), rather than the paying party.
• This basis is generally applied as a penalty for improper behavior before or during the proceedings.

Question 15

What is the process for assessment of costs on the standard basis, and what does Stage 1 involve?

Answer 15

Detailed assessment involves a structured process to determine the exact amount of costs payable:

Stage 1: The judge conducts a line-by-line review of the bill of costs, scrutinizing each item. The judge disallows any costs that were unreasonably incurred or are unreasonable in amount. For example, costs for an expert report not authorized by the court may be entirely disallowed, even if the report was reasonable in the context of the case.

Question 16

What happens during Stage 2 of the assessment of costs on the standard basis?

Answer 16

In Stage 2, the judge evaluates the proportionality of the overall costs by referring to the factors listed in CPR Rule 44.4 (such as the value of the claim, complexity, etc.).

*	If the total costs are found to be proportionate, no further reductions are made.

*	If the costs are deemed disproportionate, the judge may make additional reductions by scrutinizing categories of costs, such as disclosure or factual evidence, to determine whether they are excessive. After this, the final amount of costs is determined.

Question 17

What is the role of non-party costs orders, and when might they be applied?

Answer 17

A non-party costs order allows the court to order a third party (who is not directly involved in the litigation) to pay the costs. This typically occurs if the third party is found to be the real party interested in the litigation or responsible for bringing the proceedings.

• Third-party funders who financially support the litigation with a vested interest may be at risk of such an order, while casual supporters, such as family, friends, or crowdfunding contributors with no interest in the outcome, are not.
• Such an order is exceptional and requires the court to add the non-party as an official party to the proceedings before determining the issue of costs.

Question 18

What is the process for assessing costs on the indemnity basis, and how is the recoverability of costs determined?

Answer 18

On the indemnity basis, the court assesses costs by following a structured process:

1. Was the item reasonably incurred?
   * Yes: Proceed to the next question.
   * No: The item is disallowed and is not recoverable.
2. Was the item reasonable in amount?

• Yes: The item is recoverable in full.
• No: The item is recoverable but reduced in amount.

3. Resolution of Doubt:

• On the indemnity basis, any doubt about the costs is resolved in favor of the receiving party. This means that if there is uncertainty regarding the reasonableness of the costs, the benefit of that doubt goes to the party seeking to recover costs.

Question 19

How are costs assessed on the standard basis, and what additional considerations apply to the proportionality of the total costs?

Answer 19

On the standard basis, the assessment of costs involves a step-by-step evaluation:

1. Was the item reasonably incurred?

• Yes: Proceed to the next question.
• No: The item is disallowed and is not recoverable.

2. Was the item reasonable in amount?
   * Yes: Proceed to the next stage.

• No: The item is recoverable but reduced in amount.

3. Proportionality Test:

The total costs for each phase must be proportionate to the matters in issue. Proportionality means that costs must have a reasonable relationship to:
* The sums in issue;
* The value of any non-monetary relief;
* The complexity of the litigation;
* Any additional work caused by the paying party’s conduct;
* Any wider factors, such as reputation or public importance.
* Yes (Proportionate): The total costs will be allowed.
* No (Disproportionate): The total costs will be disallowed or reduced.

4. Resolution of Doubt:
   On the standard basis, any doubt is resolved in favor of the paying party. This means if there is uncertainty about the costs, the decision will favor the party who is responsible for paying the costs, potentially reducing the amount they owe.

Question 20

What is the importance of security for costs in litigation, and what risks do defendants face if it is not ordered?

Answer 20

In litigation, the claimant decides whether to proceed with the case, but the defendant has no choice but to defend the claim. If the defendant wins, they may be awarded an order for their costs. However, there are risks involved:

• The defendant may not recover the full costs awarded, even if they win.
• The claimant may be unable or unwilling to pay the costs, leaving the defendant in a position where they must either:
• Bear their own legal costs, or
• Spend further time and money trying to enforce the costs order.

Security for costs (as governed by Part 25 of the Civil Procedure Rules) provides protection for defendants by requiring the claimant to provide a financial deposit or guarantee in advance to cover the defendant’s potential costs, should they win.

Question 21

What are the conditions under which a court can grant a security for costs order?

Answer 21

The court has discretion to grant a security for costs order if two conditions are met:

1. The court must find it just, considering all the circumstances of the case, to make the order.
2. At least one of the conditions outlined in Part 25 of the Civil Procedure Rules must apply. These include:
   * Claimant is resident outside a 2005 Hague Convention State: This means the claimant lives outside England, Wales, or a State bound by the Hague Convention, making enforcement of a costs order difficult.

• Claimant is an impecunious company: If the defendant can show that the claimant company is unable to pay costs, this condition is met.
• Claimant has taken steps to avoid or frustrate enforcement: If the claimant has moved or hidden assets to avoid paying a future costs order, the court may order security for costs.

Question 22

How does the claimant’s residency outside a Hague Convention State influence the granting of a security for costs order?

Answer 22

One key condition for a security for costs order is when the claimant is resident outside England, Wales, or any State bound by the 2005 Hague Convention. This is because enforcing a costs order against someone outside of these jurisdictions can be more difficult and costly for the defendant.

• For individual claimants, the court considers where they habitually live.
• For companies, it considers where the central management and control is located.

This condition recognizes the practical difficulties a defendant might face in enforcing a costs order across jurisdictions not covered by the Convention, which simplifies enforcement between its signatory states.

Question 23

What must the defendant prove regarding the claimant’s financial status to obtain a security for costs order?

Answer 23

If the defendant believes that the claimant is unable to pay the defendant’s costs if they lose, they can apply for a security for costs order based on the claimant’s financial instability. This typically applies when the claimant is an impecunious company (one with insufficient funds or assets).
To secure this order, the defendant must provide evidence of:

• The company’s financial position,
• Their inability to meet potential costs, and
• The likely total costs of the litigation.

The court will assess whether the company has enough financial resources to cover the costs if they lose. If the evidence shows that the claimant lacks sufficient assets, the court may grant the order.

Question 24

How can steps taken by the claimant in relation to their assets influence the court’s decision to grant security for costs?

Answer 24

A security for costs order may be granted if the claimant has taken steps that would make it difficult for the defendant to enforce a costs order. Examples of such steps include:

• Hiding or moving assets abroad,
• Relocating to a different country for reasons unrelated to litigation but still making enforcement harder (e.g., moving to take up a job in a country not bound by the Hague Convention).

The court looks at the effect of the claimant’s actions, not their motivation. For example, if the claimant moves to Saudi Arabia for work, enforcement becomes more difficult, even if the move was unrelated to avoiding costs.

Additionally, failing to disclose assets or other attempts to frustrate enforcement can justify a security for costs order. In extreme cases, the defendant might also apply for a freezing injunction to prevent the claimant from moving assets out of reach.

Question 25

What factors does the court consider to determine if it is just to make a security for costs order?

Answer 25

The court must be satisfied that it is just to order security for costs. The decision is influenced by several factors, including:

1. Strength of the Claim and Defence: If the claimant has a strong case, the defendant’s request for security may be seen as less justified.
2. Claimant’s Ability to Provide Security: If the claimant has a reasonable prospect of success, the court will avoid making an order that the claimant cannot comply with, as it would unfairly stifle the claim.
3. Cause of the Claimant’s Financial Problems: If the claimant’s financial difficulties were caused or contributed to by the defendant’s actions, the court may be less likely to grant the order.
4. Claimant’s Property in the Jurisdiction: If the claimant has sufficient assets within England and Wales (or other relevant jurisdictions), the court may not require security.
5. Timing of the Application: The defendant should make the application as soon as practicable to avoid unnecessary delays.

Question 26

What procedural steps must a defendant follow when applying for a security for costs order?

Answer 26

The procedure for applying for security for costs involves the following steps:

1. Voluntary Request: The defendant must first write to the claimant requesting that they provide security voluntarily.
2. Court Application: If the claimant refuses, the defendant can submit a notice of application to the court.
3. Supporting Evidence: The defendant must include a witness statement with the application, establishing that one of the conditions for security is met and persuading the court that it is just to make the order.
4. Court Decision: If the order is granted, the court will specify:
   * The amount of security to be provided,
   * The deadline for providing the security, and
   * The form of security, which is most often a payment into court.

Question 27

What are the consequences for both parties when a Part 36 offer is accepted, and how does timing affect the outcome?

Answer 27

A Part 36 offer is a formal offer to settle a case. The consequences of accepting such an offer depend on the timing:

1. Acceptance within the relevant period (usually 21 days):

• The defendant pays the sum offered to the claimant within 14 days.
• The claimant is entitled to their costs incurred up to the date of acceptance, which will be assessed on the standard basis.

2. Late acceptance (after the relevant period):

• If the claimant accepts late, the court will typically order:
• The defendant to pay the claimant’s costs up to the expiry of the relevant period, and
• The claimant to pay the defendant’s costs from the end of the relevant period to the date of acceptance.
• If the defendant accepts late, they will usually be ordered to pay all the claimant’s costs up to the date of acceptance.

In both cases, the proceedings are stayed to allow for payment of the offered sum and costs.

Question 28

What is a Part 36 offer, and why is it important in the context of litigation?

Answer 28

A Part 36 offer is a formal mechanism under the Civil Procedure Rules (CPR) allowing one party to propose settlement terms to the opposing party. It is significant because it offers a structured way to settle disputes early, without proceeding to trial, while creating financial pressure on the other party. If a party rejects a Part 36 offer and the court later deems the offer to have been reasonable, the rejecting party may face significant cost penalties. This puts pressure on the opposing party to seriously consider accepting the offer to avoid potential adverse financial consequences. Part 36 offers are treated as without prejudice save as to costs, meaning they cannot be disclosed to the court until the question of costs is being determined.

Question 29

What are the formal requirements that a Part 36 offer must satisfy to be considered valid under the Civil Procedure Rules?

Answer 29

A valid Part 36 offer must comply with several formal requirements, ensuring clarity and fairness:

1. In writing: The offer must be made in writing.
2. Expressly state it is made pursuant to Part 36 of the Civil Procedure Rules.
3. Specify a period of at least 21 days (the “relevant period”), during which the defendant must accept the offer and agree to pay the claimant’s costs. This creates a time window for serious consideration.
4. State whether the offer relates to the whole of the claim or only a part, and whether it takes into account any counterclaim.
   The offer is considered made when it is served on the opposing party. It remains inclusive of interest until the expiration of the relevant period. These formalities ensure that both parties fully understand the terms and consequences of the offer.

Question 30

What are the consequences for the parties if a Part 36 offer is accepted within the 21-day relevant period?

Answer 30

If a Part 36 offer is accepted within the relevant period (normally 21 days):

1. The defendant must pay the agreed sum to the claimant within 14 days of acceptance. If the defendant fails to do so, the claimant can enter judgment for the unpaid sum.
2. The claimant is also entitled to recover their costs up to the date of acceptance. If the parties cannot agree on the costs, the court will assess them on the standard basis.
3. The proceedings are stayed (paused) to allow for payment of the sum and costs.
   This early resolution avoids further litigation, with the court’s involvement limited to determining the appropriate costs if the parties cannot agree.

Question 31

What are the consequences of accepting a Part 36 offer after the relevant period has expired?

Answer 31

If the claimant accepts a Part 36 offer after the relevant period has expired, but the parties cannot agree on costs, the court will typically order:

1. The defendant to pay the claimant’s costs up to the expiry of the relevant period (usually Day 21).
2. The claimant to pay the defendant’s costs from Day 22 (the day after the relevant period) until the date of acceptance.

If the defendant accepts the claimant’s offer late, the defendant is usually ordered to pay the claimant’s costs for the entire period up to the date of acceptance.
In all cases, the proceedings are stayed to allow for payment of the sum offered and the associated costs.

Question 32

What are the consequences of rejecting a Part 36 offer, and how does it impact costs if the offer is not beaten at trial?

Answer 32

If a party rejects a Part 36 offer and the case proceeds to trial, significant consequences arise if the rejecting party fails to obtain a better outcome:

1. If the claimant rejects the offer and is awarded less than the defendant’s offer at trial, the claimant will face penalties for continuing the litigation unnecessarily. This may include paying the defendant’s costs from Day 22 onwards, and possibly interest on those costs.
2. If the defendant rejects the claimant’s Part 36 offer, and the claimant’s judgment equals or exceeds the offer, the defendant faces penalties, including:

• An additional payment of up to 10% of the damages awarded (subject to limits).
• Indemnity costs from Day 22 onward.
• Enhanced interest on damages, potentially up to 10% above the base rate.
  These penalties are designed to discourage parties from refusing reasonable offers and wasting court resources.

Question 33

What factors does the court consider when determining whether to impose Part 36 penalties on a party for rejecting an offer?

Answer 33

When deciding whether to impose Part 36 penalties, the court must consider whether it would be just to do so, based on several factors:

1. The terms of the offer and the timing of when it was made.
2. The proximity of the offer to the trial date and whether the recipient had enough time to assess the offer.
3. Disclosure of information: Whether the offeror provided sufficient information for the other party to make an informed decision.
4. The conduct of the parties and whether the offer was a genuine attempt to settle the dispute.
   Penalties are imposed in the vast majority of cases unless the court finds that it would be unjust to do so. This might happen if key information was withheld or crucial allegations were introduced late in the case.

Question 34

What are the consequences if the claimant wins at trial and beats their own Part 36 offer?

Answer 34

If the claimant wins at trial and obtains a judgment that is equal to or greater than their Part 36 offer, several significant penalties will be imposed on the defendant:

1. The defendant must pay an additional amount, calculated as:
   * 10% of the first £500,000 of damages.

• 5% of any damages between £500,000 and £1 million (with a maximum total additional amount of £75,000).

2. The claimant is entitled to indemnity costs from Day 22 (the day after the relevant period ends) onward, allowing for more favorable cost recovery than the standard basis.
3. The claimant can recover enhanced interest on damages (up to 10% above the base rate).
4. Interest is also awarded on indemnity costs, again up to 10% above the base rate.
   These penalties ensure that the defendant faces significant financial consequences for failing to accept a reasonable settlement offer.

Question 35

What happens if a claimant wins at trial but fails to obtain a judgment that exceeds their own Part 36 offer?

Answer 35

If the claimant wins at trial but does not obtain a judgment that is more advantageous than their Part 36 offer, no penalties are imposed on either party:

1. The claimant was justified in making an offer but set it too high.
2. The defendant was correct to reject the offer, as the trial outcome showed the offer exceeded the proper value.
   In this scenario, both parties acted reasonably, so there are no additional cost consequences.

Question 36

What penalties apply if the claimant wins at trial and beats the defendant’s Part 36 offer?

Answer 36

If the claimant wins at trial and obtains a judgment that is more advantageous than the defendant’s Part 36 offer, the claimant is entitled to the following:

1. The defendant must pay the full amount of the judgment plus any interest claimed in the particulars of claim.
2. The defendant must pay the claimant’s costs on the standard basis.
   In this case, the claimant was justified in rejecting the offer, and Part 36 has no additional effect beyond the usual costs order.

Question 37

What are the detailed consequences if a claimant wins at trial but fails to obtain a judgment that is more favorable than the defendant’s Part 36 offer?

Answer 37

If a claimant wins at trial but does not beat the defendant’s Part 36 offer (i.e., the damages awarded at trial are equal to or less than what the defendant offered in their Part 36 offer), the claimant will face significant cost penalties. Here’s what happens in detail:

1. Split Costs Order:
   The court will usually issue a split costs order, which divides the responsibility for paying costs between the parties based on the timing of the rejection of the offer. The split occurs after Day 21, which is the end of the relevant period for accepting the defendant’s Part 36 offer. The court will typically order:
   * Up to Day 21 (Relevant Period):
   * The defendant must pay the claimant’s costs incurred up to Day 21 (the end of the relevant period). This is because, during this period, the claimant had not yet unreasonably rejected the defendant’s offer.

• From Day 22 (Post-Relevant Period) to Judgment:
• The claimant must pay the defendant’s costs from Day 22 until the date of the judgment. The rationale is that, by this point, the claimant should have accepted the defendant’s offer to avoid wasting time and resources on unnecessary litigation.

2. Interest on Defendant’s Costs:
   The claimant will also be required to pay interest on the defendant’s costs from Day 22 onwards. The interest rate can be set at 1-2% above the base rate, which further penalizes the claimant for not accepting the reasonable offer. This interest accumulates until the costs are fully paid.
3. Why This Happens:
   The claimant’s failure to beat the defendant’s offer is considered a misjudgment in retrospect. By rejecting a reasonable offer, the claimant has not only increased their own legal costs but has also forced the defendant to continue litigation, incurring additional costs unnecessarily. The penalties are designed to reflect this unnecessary prolongation of the case and compensate the defendant for the costs and time wasted after the claimant should have accepted the settlement.
4. Example Scenario:
   * Suppose the defendant makes a Part 36 offer of £200,000. The claimant rejects this offer and proceeds to trial. After the trial, the claimant wins but is only awarded £180,000 in damages—an amount lower than the defendant’s Part 36 offer.
   * In this scenario, the court will likely order:

• The defendant to pay the claimant’s costs incurred before Day 21 (the end of the relevant period).
• The claimant to pay the defendant’s costs incurred after Day 21 (from Day 22 until judgment), along with interest on those costs.

5. Impact on the Claimant:
   Even though the claimant has “won” the case, they are penalized because their decision to reject the defendant’s Part 36 offer was not justified in hindsight. The claimant may end up with a reduced overall financial benefit from the trial due to the shift in cost liability and the additional payment of interest on the defendant’s costs.

Question 38

What are the consequences of a claimant or defendant accepting a Part 36 offer, both within and outside the relevant period?

Answer 38

Defendant Serves Part 36 Offer on Claimant:

• If the claimant (C) accepts the offer:
• Proceedings are stayed.
• The defendant (D) pays money to C within 14 days.

If accepted within the relevant period (21 days):
* D pays C’s costs up to the date of acceptance on the standard basis.

If accepted late (outside the relevant period):
* D pays C’s costs up to the date of expiry of the relevant period.

• Then, C pays D’s costs from the expiry of the relevant period to the date of acceptance on the standard basis.

Claimant Serves Part 36 Offer on Defendant:

• If the defendant (D) accepts the offer:
• Proceedings are stayed.
• D pays money to C within 14
  days.

If accepted within the relevant period (21 days):

• D pays C’s costs up to the date of acceptance on the standard basis.

If accepted late (outside the relevant period):

• D pays C’s costs up to the date of acceptance on the standard basis.

Question 39

What are the consequences if the claimant wins at trial and equals or beats their own Part 36 offer?

Answer 39

If the claimant (C) wins at trial and equals or beats their own Part 36 offer:

• Damages are awarded.
  
  • Additional penalties include:
  • For damages up to £500,000, an additional 10% is awarded.
  • For damages between £500,000 and £1 million, an additional 5% is awarded, with a maximum of £75,000.

Up to Day 21 (the end of the relevant period):

• C receives interest on damages from the date of loss, as claimed in the particulars of claim.
• C’s costs are assessed on the standard basis up to Day 21.

From Day 22 to judgment:

• Interest on damages is applied at up to 10% above the base rate.
• C’s costs are assessed on the indemnity basis.
• Interest on these indemnity costs is also applied, at up to 10% above the base rate.

Question 40

What are the consequences if the claimant wins at trial but does not beat the defendant’s Part 36 offer?

Answer 40

If the claimant (C) wins at trial but does not beat the defendant’s Part 36 offer:

• C is awarded damages and interest from the date of loss, as claimed in the particulars of claim.

Up to Day 21 (the end of the relevant period):

• The defendant (D) pays C’s costs on the standard basis for costs incurred up to Day 21.

From Day 22 to judgment:

• C must pay D’s costs from Day 22 to judgment, assessed on the standard basis.
• Interest on D’s costs is applied at 1% or 2% above the base rate.