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Part 36

Jackson proposed the creation of a qualified one way costs shifting (‘QOCS’) system, that is that a winning claimant recovers costs from a losing defendant but a winning defendant does not recover costs from a losing claimant, except where the claimant has failed to beat a defendant’s Part 36 offer. The continued existence of Part 36 makes the scheme meaningless.

The 10% uplift in general damages will only apply where the successful claimant does NOT have a CFA with a recoverable success fee in place.

There are obvious problems in relation to the interplay between Part 36 the and general damages uplift. Supposing a claimant now offers £10,000 and a defendant now offers £9,500 and in April 2013 the court awards £9,200, uprated by 10% to £10,120. Has the claimant beaten its own offer, thus qualifying for indemnity costs, or has the claimant failed to beat the defendant’s offer, thus incurring liability for all of the defendant’s costs from 21 days after the defendant’s offer? Why should a defendant who has made an offer now, which is above what a court would order now, not get the Part 36 benefits?

In the scenario set out above salt will be rubbed in to the defendant’s wound as he will have to pay indemnity costs as well. Of course it can be argued that any defendant can now increase its Part 36 offer by 10%, but why should a defendant pay over the odds now in relation to a regime not yet in? In any event that is not a complete solution. Supposing a defendant in a clinical negligence case made an offer of £200,000 in August 2010 and now, in August 2012, increases that to £220,000 and in April 2013 the court awards £190,000 uprated to £209,000.00. The defendant has at each stage offered more than the claim is worth, but presumably will only get costs protection from the Part 36 offer made in 2012. Thus, entirely unfairly, the defendant will have to pay both its own costs and the claimant’s costs for the two years between August 2010 and August 2012, even though throughout that period there was on offer a sum which should have been accepted.

In McPhilemy v Times Newspapers, the court pointed out that indemnity costs are a reward for a claimant who matches its own Part 36 offer, not a punishment of the defendant and this implied no wrong doing on the defendant’s part. Where a defendant accepts a claimant’s Part 36 offer out of time, there is no right to indemnity costs. Contrast this with the position of a claimant who accepts a defendant’s Part 36 offer out of time who has to pay the defendant’s costs from the last date that the defendant’s Part 36 offer could have been accepted in time. Costs shifting is the reward for a defendant who makes the right Part 36 offer; indemnity costs is the reward for a claimant who makes the right offer. It is illogical and grossly unfair that a claimant has to match its Part 36 offer at trial to get that reward but a defendant gets the reward the moment the time for acceptance passes.