The Court overturned a decision to award indemnity costs to a defendant who had beaten its own Part 36 Offer, emphasising the approach to be taken under CPR 36.17(3)
SHALABY v LONDON NORTH WEST HEALTHCARE NHS TRUST [2018] EWCA CIV 1323
CPR 36.17(3) : DEFENDANT’S PART 36 OFFER : PART 36 : CPR 36.17(3)
“… In normal circumstances, an order for costs which the court is required under that Part to make, unless it considers it unjust to do so, is an order for costs on the standard basis. That means that if the court is going to make an order for indemnity costs, as it can …, it should do so on the assumption that there must be some circumstance which justifies such an order being made … there must be conduct or (I add) some circumstance which takes the case out of the norm.”
Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm) [2002] EWCA Civ 879 [19]
This was an appeal against the decision of Andrew Baker J to i) dismiss the Appellant’s claim and ii) to award costs to the Respondent on an indemnity basis from 1 November 2015.
The Appellant was employed by the Respondent. Between November 2009 and June 2012 he was on secondment. At the material time he was employed as an Associate Specialist Surgeon.
The Appellant brought a claim in the High Court for breach of his contract of employment. The claim was issued on 31 July 2015. The particulars of claim were later revised on 27 November 2015.
The Appellant alleged that he had been underpaid for a period of time between July 2012 and June 2015. He claimed that he had worked more hours than the Respondent had paid him for.
The Appellant’s claim was that the Respondent did not pay him properly for his participation in the On-Call rota that came with his job during the relevant period.
It was common ground that the Appellant was entitled to an On-Call Availability Supplement of 4% of his basic pay for the whole three year period from July 2012 and that the Trust had failed to pay that supplement at the time. However, by the time of the trial the supplement had been paid*, after the proceedings were commenced, on 31 October 2015.
*The Respondent made a Part 36 offer on 11 September 2015 to pay £10,842.15. On 30 October 2015 it was ordered to pay that sum by the order of Master Leslie and did so on that date.
The trial before Andrew Baker J took place over four days from 23 to 26 January 2017. The evidence was heard on the first three days. Submissions were made on the fourth day. Judgment was given on the fifth day when the claim was dismissed.
The Respondent applied for an order that costs should be awarded on an indemnity basis from 1 November 2015, the day after the Respondent paid the supplement to which the Appellant was entitled.
At para. 3 of his judgment on costs the judge said:
“In relation to the indemnity basis of that part of the costs order, that follows as the default rule because the Claimant has failed to better the Part 36 offer, the first Part 36 offer, made I am told in September 2015, which was an offer to settle the matter for the 4% supplement amount paid at the end of October.”
At para. 5 of the costs judgment, the judge said:
“I emphasise (in case it matters) that Mr Cunnington only put his application on the basis of Part 36, but of course would say that certain features of the judgment that I have delivered which might even in the absence of a Part 36 offer perhaps have led to a submission with some force that costs should be awarded on an indemnity basis on any view make it not unjust to apply the Part 36 default rule.”
Having upheld the Judge’s substantive ruling on breach of contract Lord Justice Singh turned to his decision on costs.
51. It was and is common ground that the Appellant failed to obtain a judgment which was more advantageous than the Respondent’s Part 36 [offer] and therefore CPR 36.17(1)(a) applied. It followed that CPR 36.17(3) also applied: where that provision applies the court must, unless it considers it unjust to do so, order that the defendant is entitled to costs from the date on which the relevant period expired.
52. The terms of para. (3) are different from those of para. (4). Para. (4) applies in a case falling within CPR 36.17(1)(b), that is where judgment is given against the defendant which is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer. Where that provision applies, costs are to be awarded on the indemnity basis: CPR 36.17(4)(b).
53. Before this Court Mr Cunnington fairly and candidly accepted that the judge did not receive the assistance from him that he should have done and therefore fell into error. The judge appears to have thought that the provision relating to costs on an indemnity basis also applied to the present sort of case, when judgment is entered against a claimant. In fact it has been made clear by this Court that the significance of the absence of any reference to an indemnity basis in what is now CPR 36.17(3) is that:
“… In normal circumstances, an order for costs which the court is required under that Part to make, unless it considers it unjust to do so, is an order for costs on the standard basis. That means that if the court is going to make an order for indemnity costs, as it can …, it should do so on the assumption that there must be some circumstance which justifies such an order being made … there must be conduct or (I add) some circumstance which takes the case out of the norm.”
See Excelsior Industrial and Commercial Holdings v Salisbury Hammer Aspden and Johnson [2002] EWCA Civ 879, at para. 19 (Lord Woolf CJ).
54. At one time there was before this Court a Respondent’s Notice, in which it was suggested that, although the basis on which the judge made the costs order on an indemnity basis was wrong, nevertheless the judge was entitled to make such an order because of the conduct of the appellant. This is something to which the judge himself alluded in giving his costs judgment, at para. 5. However, it is important to note, as the judge himself did, that the only basis on which the application for costs to be on an indemnity basis was made by Mr Cunnington was that this was the default position required by Part 36. Before this Court, having had the opportunity to reflect on his position and take instructions, Mr Cunnington informed us that he would not pursue the grounds raised in the Respondent’s Notice.
55. In those circumstances I have come to the conclusion that the appeal against the costs order must be allowed. The only basis on which costs were ordered to be on an indemnity basis was that this was required by CPR Part 36. That was wrong as a matter of law, as is now conceded by the Respondent. Accordingly I would substitute an order that the costs had to be paid on the standard basis and not the indemnity basis.
56. For the reasons I have given I would dismiss the appeal against the order dismissing the claim for breach of contract but allow the appeal against the order that costs should be paid on an indemnity basis and substitute for that an order that the costs awarded below should be on the standard basis.
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Toby Moreton
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