The recent Court of Appeal decision in Harrison v University Hospitals of Derby and Burton NHS Foundation Trust will have significant implications for costs set-off in where settlement under a Part 36 offer requires the Court’s order.

The claim was brought on the basis of serious injuries incurred during a caesarean section operation. The Defendant made an early Part 36 offer and admitted liability before the first CCMC. The Defendant then incurred substantial costs in defending the claim for quantum because it was their case that the Claimant’s claim was substantially overstated. The Claimant subsequently accepted the Defendant’s Part 36 offer which was approximately 7% of the pleaded claim.

Deductible benefits had accrued since the Part 36 offer was made, which meant that the Court’s permission was required for the offer to be accepted. HHJ Sephton QC on 9.03.22 gave permission for the offer to be accepted, but also added a paragraph that the Defendant may not set off or enforced the costs order in it favour against the Claimant under CPR 44.14. The appeal that has just been decided was in respect of this restriction made by HHJ Sephton QC and as a result, the net damages that the Defendant must pay to the Claimant (since if the appeal was found in their favour, they could use their costs order as a set-off). The Court of Appeal was also required to determine the parties’ overall liability for costs under CPR 36.13(4)(b).

The Court of Appeal determined that the Defendant is not entitled to enforce the costs order in its favour. Coulson LJ, in coming to this decision, acknowledged that it clashes with the policy aims of CPR 36. Since we now have a binding judgment that is directly in conflict with the aims of Parliament in passing the law, it will be interesting to see the implications caused by this case and is certainly a worrying prospect from a defence point of view. From the Defendant’s perspective, the Claimant overstated their claim, caused substantial costs to be incurred after a good offer had been made and suffers no repercussions for the costs that she wrongly caused the Defendant to incur. The decision in this matter risks eroding the position of Defendants in personal injury and clinical negligence cases to the point where there is no benefit to the Defendants in defending claims as a result of the risk of incurring substantial costs which they may never be entitled to, in direct opposition of the costs implications set out by Part 36. 

However, we would note that this case does concern one very specific element of the interaction between Part 36 and needing the Court’s permission to accept offers, so is likely to have an impact on a restricted section of cases. Coulson LJ also noted that the rules relating to set-off under QOCS are currently being reviewed by the Civil Procedure Rule Committee which could result on the entire basis of the appeal (and the distinction between settlements between the parties and requiring the permission of the Court) no longer being an issue.

Until the Civil Procedure Rule Committee confirms their proposed changes, we will be keeping a close eye on the cases following this one to see if the decision has any lasting effects.