Shalaby v London North West Healthcare NHS Trust [2018] EWCA Civ 1323

The Court of Appeal has ruled that the provisions of Part 36 do not entitle a Defendant to recover costs on an indemnity basis if a Claimant has not beaten a Part 36 offer.

In the case of Shalaby, Mr Shalaby had brought a claim for breach of his employment contract on the basis that he had worked more hours than he was paid after returning to work from a secondment.  His claim was dismissed by the High Court.  The Defendant had made a Part 36 offer in the sum of nearly £11,000 during the course of the substantive matter which had not been accepted by the Claimant.

The High Court Judge Mr Justice Andrew Baker ordered that the Defendant was entitled to be awarded indemnity costs following success at Trial and beating the Part 36 offer made, following Counsel’s submissions that indemnity costs was the default position when failing to beat a Part 36 offer.

Mr Shalaby appealed to the Court of Appeal on both the substantive matter as well as the indemnity costs issue.  The Court of Appeal dismissed the substantive claim but allowed the appeal in relation to the indemnity costs issue.

The Court of Appeal said that Mr Justice Andrew Baker “did not receive the assistance” from the Defendant’s Counsel that he should have done and “therefore fell into error”.  The reason being was that Part 36 only allowed indemnity costs to be ordered when the Claimant beat a Part 36 offer, not when he failed to do so.

The relevant sections of Part 36 are as follows:-

  • CPR 36.17(1)(a) states that “where a Claimant fails to obtain a Judgment more advantageous than a Part 36 offer” then the provisions of CPR 36.17(3) apply that the Defendant is entitled to “costs from the date on which the relevant period expired.”

  • CPR 36.17(1)(b) relates to when Judgment is given against the Defendant which is at least as advantageous to the Claimant as a Part 36 offer. In those circumstances, CPR 36.17(4)(b) applies which awards costs on an indemnity basis.

Therefore it followed that the Defendant was not automatically entitled to indemnity costs if the Claimant fails to beat a Part 36 offer and will only deviate from standard basis costs in such a circumstance when it is considered just to do so and in circumstances which justify such an order being made.

The lesson to be learnt from this case is that it pays to be acutely aware of the provisions of Part 36 from whichever side of the fence you sit.  It appears that it would take special circumstances, such as poor conduct from the Claimant, for the Court to order indemnity costs against a Claimant that fails to beat a Part 36 offer.


James May