Part 36 uncertainty continues

In yet another departure from the strict interpretation of Part 36, the Commercial Court has refused to apply the usual Part 36 costs consequences, believing it would be unjust to do so given the “exceptional circumstances” of the matter. By way of background, a Part 36 offer is a prescribed form of settlement offer which, if rejected, has significant costs consequence upon the declining party if they subsequently fail to beat that offer at final trial.

In the matter of Ted Baker plc and another v AXA Insurance UK plc and others [2014] EWHC 4178 (Comm), the claimants succeeded in relation to the preliminary issues on liability but ultimately failed to obtain a money judgment more advantageous than any of the defendants’ three settlement offers, including a Part 36 offer made at an early stage of the action.

The Court held there were exceptional circumstances that meant it would be unjust for the claimants to pay the entirety of the costs of the preliminary issues, notwithstanding the defendants’ offers. It was commented that the fact that a defendant may make a Part 36 offer does not give him carte blanche to run any defence whatsoever, so as to entitle him necessarily to expect that the Part 36 consequences would automatically apply to those issues on which the defendant lost.

This case shows the continuing importance of proportionality in litigation and that a party’s general conduct within the litigation is always under scrutiny and can override established assumptions on, amongst other things, costs.

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