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Effect of Part 36 offer in arbitration on costs of court proceedings
Practical Law Legal Update 2-502-7965 (Approx. 3 pages)
Effect of Part 36 offer in arbitration on costs of court proceedings
by PLC Dispute Resolution
| Law stated as at 14 Jul 2010 • England, Wales |
An update on Paul Price and another v Ian Carter (t/a Ian Carter Building Contractors) [2010] EWHC 1737 (TCC), in which the court assessed the costs of two applications to enforce an arbitration award and to set aside that award, and took into account an offer to settle made in the underlying arbitration proceedings.
In Paul Price and another v Ian Carter (t/a Ian Carter Building Contractors) [2010] EWHC 1737 (TCC), Edwards-Stuart J summarily assessed the costs of two applications for the enforcement of an arbitration award and to set aside that award. He held that all of the costs claimed by the successful party, Carter, were reasonable.
He went on to consider the effect of what he described as a Part 36 offer of £100,000 made by the claimant, Carter, in the underlying arbitration. The arbitrator had awarded Carter £96,984 plus VAT, and directed that Mr and Mrs Price should pay the arbitrator's fees of £14,172.
Edwards-Stuart J noted that Carter had not obtained an award that was more advantageous than its own offer. However, he considered that he should ask himself what, if anything, Mr and Mrs Price had gained by pursuing the arbitration to award and then applying for permission to appeal, and concluded that the answer was nothing. He found that the Prices should have taken into account that they were always going to have to pay not only the net sum recovered by Carter but also the fees of the arbitrator when they considered the Part 36 offer. Unless the difference between Carter's offer and the award was more than the arbitrator's fees, there would be no commercial advantage in resisting Carter's arbitration claim. He held therefore that Carter should be treated as a party whose Part 36 offer had not been bettered, and he awarded interest at an enhanced rate of 10% under CPR 36.14(3).
This decision is surprising for a number of reasons:
- CPR 36 does not apply to arbitrations but the judge here appears to have treated the Part 36 offer as a valid one. Presumably, he was doing this on the basis that it was effectively a sealed offer (for more on sealed offers, see Practice note, Sealed offers).
- He justified applying some of the provisions under CPR 36.14(3) on the basis that the powers of the court and not those of the arbitrator were relevant here. He also emphasised that he was only dealing with the costs of the application to appeal and the question of the interest for the period during which Carter had been kept out of its money. The costs of the arbitration were a matter for the arbitrator. However, a Part 36 offer only has the Part 36 consequences in relation to the costs of the proceedings in respect of which it was made, and not in relation to the costs of any appeal from the final decision in those proceedings (CPR 36.3(4)). Here, the Part 36 offer was made in the arbitration proceedings and not in the subsequent court proceedings, yet the judge took it into account.
- The judge applies CPR 36.14(3) which only arises where "judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer" (CPR 36.14(1)(b)). Yet, the judge holds that the claimant did not get a result more advantageous than his own offer (paragraph 31). In order to get home on his argument the judge has to consider whether the result was at least as advantageous to the defendant, which is not what CPR 36.14(1)(b) says. Further, in so doing, the judge has taken an approach akin to that taken in Carver v BAA [2008] EWCA Civ 412, in that he takes into account the Prices' obligation to pay the arbitrator's fees and asks himself whether they had gained anything by pursuing the arbitration. This ignores the approach advocated in the more recent Court of Appeal decision in Gibbon v Manchester City Council [2010] EWCA Civ 726, which emphasises that "In most cases, obtaining judgment for an amount greater than the offer is likely to outweigh all other factors".
- The judge allowed the full amount of Carter's costs. This was despite finding that Carter's solicitors spent rather more time on the enforcement proceedings than might have been taken by a specialist who was familiar with the procedure. He justified this on the basis that their rates were lower than a specialist's and there was still likely to be a saving overall.