Extent of the application of Part 36 offers confirmed

HMRC v Blue Sphere Global [2010] EWCA Civ 1448

On 16 December 2010 the Court of Appeal gave judgment in a case that has confirmed the extent of the application of Part 36 offers. This is believed to be the first occasion on which Part 36 has been effective in a Revenue case.  

Andrew Post, Head of the Hailsham Chambers Costs Group acted for BSG; Richard Drabble QC and Philip Moser acted for HMRC.

The facts

Blue Sphere Global had made a Part 36 offer in proceedings in which they sought to recover from HMRC sums paid by way of VAT. HMRC had refused repayment on the grounds that the transactions were connected with fraud. That refusal of repayment was upheld by a VAT Tribunal but reversed by a High Court Judge. The Revenue then appealed to the Court of Appeal. BSG made a Part 36 offer in relation to the appeal, and in the event the appeal was successful. BSG therefore sought orders under CPR 36.14 for indemnity costs, enhanced interest on costs and enhanced interest on damages.

The arguments

HMRC argued that Part 36 had no application to cases that started in tribunals, such as the VAT tribunal, where the CPR costs regime did not apply; that if the rule did apply then it would be unjust to make an order because this was a test case; it was in the public interest to clarify the law and therefore the HMRC acting in the public interest should not face punitive orders under 36.14; and that no order should be made as BSG's offer was only just beaten.

BSG argued that the powers in 36.14 are not punitive, and that the purpose of the provisions is to compensate a party for its continued involvement in proceedings where it had made proper efforts to end its involvement by a sensible offer of settlement. It submitted that the fact that the law needed clarification was no good reason for the costs of that process to be borne by the successful rather than the unsuccessful party. It argued that a claimant's Part 36 offer should have effect even if only just beaten.

The decision

The Court of Appeal rejected the HMRC's submissions and accepted BSG's case. It ordered that full effect should be given to the offer and ordered indemnity costs and enhanced interest on both damages and costs.

Significance of the case

Whilst Part 36 is widely used in pure damages claims, it has been little used in revenue, public law and test cases. This decision opens the door to litigators conducting these cases to secure indemnity costs and enhanced interest with a well judged offer.

To find out about the availability of members of the Hailsham Chambers Costs Group, please contact the clerking team T: 020 7643 5000.