The Court of Appeal and TOWIE – more clarity on Part 36

The Court of Appeal has allowed the appeal in Sugar Hut Group –v- AJ Insurance, thereby allowing parties more confidence in predicting the consequences of a Part 36 offer.  The case concerned a claim for damages arising from a fire at a nightclub that had featured prominently in “The Only Way is Essex”.  The Defendant made a Part 36 offer of £250,000.  The Claimant was awarded at trial damages of £277,000 – more than the Part 36 off but substantially less than the value of its claim. 

It is settled law that there is no “near miss” rule for Part 36 offers.  In other words, unless a Part 36 offer at least equals the sum awarded at trial the consequences of Part 36 will not follow.  However, when deciding costs, the Trial Judge appeared to take the Part 36 offer into account.  He made a general reduction of 30% of the Claimant’s costs to reflect the fact that the Claimant’s case had not been wholly successful.  However, he also disallowed the Claimant’s costs entirely from the date of the Part 36 offer and ordered the Claimant to pay the Defendant’s costs from that date.

The Claimant was granted permission to appeal on the second part of the costs order.  The Court of Appeal gave several reasons for allowing the appeal:

• The effect of the costs order was the same as if the Part 36 offer had not been beaten, whereas it had.
• The fact that the Claimant had been awarded less at trial than the value of its claim did not in itself amount to misconduct to justify a costs penalty.
• By reducing the Claimant’s costs generally by 30% the Judge had already made the appropriate deduction for the shortfall between the value of the claim and the damages awarded.  The further deduction amounted to a double penalty.

Having considered the matter afresh the Court of Appeal decided that the appropriate costs order would be a 30% reduction in the Claimant’s costs across the board.  In other words, the Part 36 offer was to be disregarded entirely.

This case provides some welcome clarity because it removes the suggestion of a reintroduction of the near miss rule.  When considering making a Part 36 offer a Defendant now knows that unless it is exceeds the value of damages awarded at trial it will not provide any costs protection at all.