Eiles v London Borough of Southwark

A settlement offer which includes a term concerning costs is not a valid Part 36 offer. The court may nevertheless exercise its discretion under Civil Procedure Rules 1998, rule 36.1(2), to give the offer Part 36 consequences where the substantive judgment independently exceeds the offer and the offer is clear, serious and affords no prejudice. The threshold under rule 36.21 is assessed by reference to the substantive liability or judgment, not by adding an offered costs advantage. Where the threshold is met, the court should ordinarily order enhanced interest and indemnity costs unless that would be unjust. Interest on costs may run from when the costs were incurred, rather than only when they were paid.

The claimant succeeded in a claim concerning damage caused by tree roots and obtained judgment for £76,005.84, together with her costs. Before trial, she had offered to accept £60,000 inclusive of interest and 90% of her costs. The offer was expressed to be a Part 36 offer but included a term dealing with costs.

The defendant argued that the offer was invalid and should not attract the enhanced consequences under Civil Procedure Rules 1998, rule 36.21. The claimant argued that it was valid or, alternatively, that the court should order it to have equivalent consequences under rule 36.1(2). The issues were whether the offer was valid, whether the discretion should be exercised, and what orders should follow.

1. Validity. The offer was not a valid Part 36 offer because it included a provision as to costs. The reasoning in Mitchell v James applied generally. A costs term conflicts with the automatic consequences of rule 36.14, complicates the substantive comparison required by rule 36.21, and creates uncertainty and potential abuse.
2. Discretion under rule 36.1(2). The invalidity of the offer did not prevent the court from ordering that it have Part 36 consequences. Under the guidance in Trustees of Stokes Pension Fund v Western Power Distribution (South West) plc, the offer was clear, open for 21 days, genuine and serious. It complied with the relevant acceptance requirements, and the defendant was neither misled nor prejudiced. Hertsmere Primary Care Trust v The Estate of Balsubramanium Ranindra-Anandh demonstrated that technical invalidity could be overcome.
3. The claimant satisfied the rule 36.21 threshold independently of the costs term because the substantive judgment exceeded £60,000. The costs provision could not itself establish that threshold, but it did not prevent the court exercising its discretion once the threshold was met.
4. The consequences should ordinarily follow unless unjust. The offer was made with sufficient time and information for evaluation, and the defendant had not raised any timely objection to its form. The enhanced consequences encouraged settlement and furthered the overriding objective.
5. The claimant was awarded interest at 8% above base rate on the judgment sum, indemnity costs from 14 March 2006, and interest on those costs at 4% above base rate from the date the work was done or liability for disbursements was incurred. A conditional fee agreement did not prevent an order for enhanced interest on costs.