PART 36 & ISSUE BASED ORDERS
the Court of Appeal overturned the first instance decision and held that where a claimant matched or beat its own Part 36 offer the claimant should get costs on a 100% basis, subject to detailed assessment as to the detail, and the court should not make an issue based order.
This decision of the Court of Appeal is so clearly written and well set out that I can quote many of the relevant paragraphs without further comment.
It is a most welcome decision which has gone a long way to redress the balance between the treatment of defendants’ Part 36 offers and claimants’ Part 36 offers.
Here the claimant had made a Part 36 offer to settle liability on the basis that she received 65% of the damages that would accrue on a 100% basis and that offer was rejected and the matter went to trial where the claimant obtained a judgment that was clearly more advantageous to her than the proposal contained in her Part 36 offer.
Paragraph 3, 4, 6 and 7 of the judgment read:-
“3. The claim resulted from the Claimant’s birth, in the course of which she suffered a Brachial Plexus Injury as a result of shoulder dystocia. She claimed that her injury was the result of the Defendant’s negligence. The Claimant’s allegations of negligence fell into two main parts:
(a) That, during the labour of the Claimant’s mother the need for a Caesarean section was indicated on 4 occasions, but, negligently, no Caesarean section was performed and instead the Defendant negligently decided that the birth should be allowed to proceed to a vaginal delivery (the first allegation).
(b) That the vaginal delivery itself was negligently managed because the midwives undertaking it failed to adopt recognised procedures to deal with the shoulder dystocia that the claimant suffered in the course of the vaginal delivery (the second allegation).
- The Judge upheld the first allegation, but rejected the second allegation. Having succeeded in establishing that her injury was caused by the Defendant’s negligence, the Claimant was entitled to full recovery of damages for her injury and loss…
- The judgment was clearly more advantageous to the Claimant than the proposal contained in her Part 36 offer. When judgment was handed down, her counsel contended that the consequences of what was then Part 36.14(3) applied and that she should have all her costs on an indemnity basis from the expiry of the relevant period plus interest thereon at the enhanced “Part 36 rate” plus the enhancements specified in Part 36.14(3)(a) and (d).
- The Defendant contended that the normal consequences of Part 36.14(3) should be disapplied because, by reference to Part 36.14(4), in the circumstances it would be unjust to apply them. It argued that Part 36 did not prevent the court from making an issues-based or proportionate costs order to reflect the fact that the Claimant failed in respect of the second allegation, which was a discrete and independent allegation. The Claimant should have her costs with the Part 36 enhancements in respect of her costs referable to the first allegation but she should not be awarded costs for the unsuccessful prosecution of the second allegation, much less with any Part 36 enhancements.”
The original judge had held that:-
“a) Part 36 does not prevent the Court from making an issues-based or proportionate costs order. In other words, the Court has a discretion to make such an order, notwithstanding that the Claimant was a successful claimant.
- b) In the circumstances of this case, it was just to make an issues-based proportionate costs order, under which the Claimant would not recover her costs of the second allegation.
- The order made by the Judge was that the Claimant should recover her damages to be assessed with the 10 per cent addition required by CPR 36.14(3)(d), plus her costs excluding those referable to the second allegation. The Judge therefore excluded from her recovery the fees of her midwifery expert (whose evidence was confined to the second allegation) and 25 per cent of her solicitors’ time costs, being his assessment of the solicitors’ costs referable to the second allegation. The Claimant’s costs, other than the excluded 25 per cent of her solicitors’ time costs, incurred after 22 October 2014 were to be assessed on an indemnity basis pursuant to CPR 36.14(3)(d), and the Defendant was ordered to pay interest on those costs incurred after 22 October 2014.
The issues on this appeal
- Before us, both parties recognised that there might be different principles applicable to costs incurred before the effective date. Both parties accepted that the Claimant’s entitlement to costs before the effective date was to be determined in accordance with the CPR Part 44. In relation to those costs, the Claimant contended that this was not a case in which there was any justification for depriving the successful Claimant of any of her costs. The second allegation had not been made or pursued unreasonably or irresponsibly. Both allegations concerned a single event, namely her birth and its management. It was common, particularly in a relatively complex personal injuries case, for a claimant to succeed on some allegations of negligence and to fail on others, and the mere fact of her failing on a sensibly pursued allegation of negligence did not justify her being deprived of part of her costs…
- The issues in relation to the Claimant’s costs incurred after the effective date are more complex. The Claimant submitted:
- a) On the true construction of Part 36, the discretion of the Court under Part 36.14(3) (now 36.17(4)) is restricted to the enhancements to which a successful claimant is normally entitled in respect of damages, costs and interest. For example, the Court may decide that the successful claimant should not recover costs on an indemnity basis, and could restrict her to the standard basis. It would follow that the Court does not have power under Part 36 to deprive a party of part of its costs on the basis that it failed to establish part of its claim. In other words, on its true construction, Part 36 excludes the normal discretion of the Court to make an issues-based or proportionate costs order.
- b) Alternatively, a successful Claimant can only be deprived of her costs if it is shown that it would be unjust for her to recover all her costs.
- c) The Judge erred in law in deciding that he could and should deprive the Claimant of her costs attributable to the second allegation.
- The Defendant contends:
- a) The judge was entitled, in the exercise of his discretion under Part 44, to deprive the Claimant of her costs incurred prior to the effective date that relate to the second allegation.
- b) In relation to the Claimant’s costs incurred after the effective date, on the true construction of Part 36, the costs referred to in 36.14(3)(b) are the costs that are determined on the application of the discretion under Part 44.2. It is only to those costs that the right to their assessment on the indemnity basis applies. It follows that the judge was entitled to restrict the Claimant’s recovery to her costs relating to the first allegation, and to have only those costs assessed on the indemnity basis.
- c) In any event, the Judge found that it would be unjust for the Claimant to recover her costs of the second allegation; he was entitled so to find; and accordingly, in the circumstances of this case, he was entitled to make the issues-based or proportionate costs order that he made.”
The trial judge worked on the basis that in the absence of a Part 36 offer he would have made a proportionate costs order and that he did not accept that such an order should not be made simply because there had been a Part 36 offer.
The Court of Appeal disagreed.
In relation to the pre-Part 36 offer costs the Court of Appeal found that the judge should not properly have deprived the claimant of any part of her costs and this was due to the facts of the matter and involved the court’s discretion under CPR 44, rather than any Part 36 issues.
CPR 44.2 provides:-
“(4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including –
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and
(c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.
(5) The conduct of the parties includes –
(c) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;”
Paragraph 27 & 28 of the judgment reads:-
“27. It is not unusual for a claimant to succeed on some, but not all, allegations, particularly in a personal injury case such as the present. In HLB Kidsons v Lloyds Underwriters 2007 EWHC 2699 (Comm), Gloster J, as she then was, said:
“11. There is no automatic rule requiring reduction of a successful party’s costs if he loses on one or more issues. In any litigation, especially complex litigation such as the present case, any winning party is likely to fail on one or more issues in the case. As Simon Brown LJ said in Budgen v Andrew Gardner Partnership  EWCA Civ 1125 at paragraph 35: ‘the court can properly have regard to the fact that in almost every case even the winner is likely to fail on some issues.’ Likewise in Travellers’ Casualty  EWHC 2885 (Comm), Clarke J said at paragraph 12:
‘If the successful Claimant has lost out on a number of issues it may be inappropriate to make separate orders for costs in respect of issues upon which he has failed, unless the points were unreasonably taken. It is a fortunate litigant who wins on every point.'”
- In Fox v Foundation Piling  EWCA Civ 790  6 Costs LR 961, Jackson LJ said, in a judgment with which the other members of the Court agreed:
“48. In a personal injury action the fact that the claimant has won on some issues and lost on other issues along the way is not normally a reason for depriving the claimant of part of his costs: see Goodwin v Bennett UK Limited  EWCA Civ 1658. For example, the claimant may succeed on some of the pleaded particulars of negligence, but not on others. Indeed the fact that the claimant has deliberately exaggerated his claim may in certain instances not be a good reason for depriving him of part of his costs: see Morgan v UPS  EWCA Civ 1476. …””
Consequently the Court of Appeal decided that there was nothing in this case to take it out of the ordinary and thus justify the claimant of being deprived of part of her costs in relation to the pre Part 36 work.
The Court of Appeal then considered the separate issue of the consequences of a claimant matching or beating its own Part 36 offer but failing on one or more of the issues.
The Court of Appeal found that a successful claimant is entitled to all of her costs on an indemnity basis in such circumstances, unless it will be unjust for her to be awarded those costs.
The Court of Appeal distinguished the case of Kastor Navigation Co Ltd v Axa Global Risks (UK) Ltd  EWCA Civ 277 on the basis that the provisions of CPR 36 and CPR 44 were materially different when that case was decided than they are now.
Then the court specifically had to take into account under CPR 44 the costs consequences of a Part 36 offer – the old CPR 44(4)(c).
The new Part 44, set out above, specifically excludes the court from considering any offer to which the costs consequences of Part 36 apply when it is exercising its CPR 44 jurisdiction.
Part 36 was also different at the time of Kastor as there was no reference to “all the circumstances of the case”, which there is now.
Thus cases under the old law are no longer applicable and here the Court of Appeal referred to the decision of the Court of Appeal in Shovelar v Lane  EWCA Civ 802  1 WLR 637where the court said:-
“These differences in my judgment require this Court to consider the meaning and effect of Part 36.14 untrammelled by the decision in Kastor. My view as to the meaning of Part 36.14 is supported by the substantial line of authority to the effect that Part 36 is now a self-contained code, see, e.g., Ward LJ in Shovelar v Lane  EWCA Civ 802  1 WLR 637 at paragraph 52:
“52. … Part 36 is a separate, self-contained code. It must be applied as such. If the offer is one to which the costs consequences under Part 36 apply, then it cannot be taken into account under Part 44 because, although CPR 44.3(4)(c) requires the court to have regard to “any payment into court or admissible offer to settle”, those words are qualified by the words which follow namely ‘which is not an offer to which costs consequences under Part 36 apply’. Part 36 trumps Part 44.””
Paragraph 37, 38 and 39 of the judgment reads as follows:-
“37. In deciding what costs order to make under 36.14, the Court does not first exercise its discretion under Part 44. Its only discretion is that conferred by Part 36 itself. The alternative construction requires the Court first to exercise its discretion under Part 44, on the basis of all the circumstances of the case, and then to exercise its discretion under Part 36, again having regard to all the circumstances of the case. This makes no sense.
- It follows from the above, and in particular that Part 36 is a self-contained code, that the discretion under 36.14 relates not only to the basis of assessment of costs, but also to the determination of what costs are to be assessed. I agree with the Judge that Part 36 does not preclude the making of an issue-based or proportionate costs order. However, a successful claimant is to be deprived of all or part of her costs only if the court considers that would be unjust for her to be awarded all or that part of her costs. That decision falls to be made having regard to “all the circumstances of the case”. In exercising its discretion, the Court must take into account that the unsuccessful defendant could have avoided the costs of the trial if it had accepted the claimant’s Part 36 offer, as it could and should have done. The principles were aptly summarised by Briggs J (as he then was) in Smith v Trafford Housing Trust  EWHC 3320 (Ch):
“13. … For present purposes, the principles which I derive from the authorities are as follows:
- a) The question is not whether it was reasonable for the claimant to refuse the offer. Rather, the question is whether, having regard to all the circumstances and looking at the matter as it affects both parties, an order that the claimant should pay the costs would be unjust: see Matthews v Metal Improvements Co. Inc  EWCA Civ 215, per Stanley Burnton J (sitting as an additional judge of the Court of Appeal) at paragraph 32.
- b) Each case will turn on its own circumstances, but the court should be trying to assess “who in reality is the unsuccessful party and who has been responsible for the fact that costs have been incurred which should not have been.” : see Factortame v Secretary of State  EWCA Civ 22, per Walker LJ at paragraph 27.
- c) The court is not constrained by the list of potentially relevant factors in Part 36.14(4) to have regard only to the circumstances of the making of the offer or the provision or otherwise of relevant information in relation to it. There is no limit to the types of circumstances which may, in a particular case, make it unjust that the ordinary consequences set out in Part 36.14 should follow: see Lilleyman v Lilleyman (judgment on costs)  EWHC 1056 (Ch) at paragraph 16.
- d) Nonetheless, the court does not have an unfettered discretion to depart from the ordinary cost consequences set out in Part 36.14. The burden on a claimant who has failed to beat the defendant’s Part 36 offer to show injustice is a formidable obstacle to the obtaining of a different costs order. If that were not so, then the salutary purpose of Part 36, in promoting compromise and the avoidance of unnecessary expenditure of costs and court time, would be undermined.”
- I am clear that, for the reasons I have given in relation to the Claimant’s costs before the effective date, it cannot be said that it would be unjust for her to be awarded all her costs. Furthermore, in making his determination, the Judge did not take into account, as he should have, the fact that the Defendant could have avoided all the costs of the trial by accepting the Claimant’s favourable Part 36 offer. The considerations to which I referred apply even more strongly in relation to her costs after the effective date, when the question is not whether it is just for her to be awarded all her costs, but whether it would be unjust for that award to be made.”
The Court of Appeal also had this to say about Part 36:-
“It is a sad fact that the provisions of Part 36, intended to promote the settlement of litigation, and thus to minimise costs, have themselves been productive of numerous appeals to this Court, and in consequence substantial costs in what is effectively satellite litigation. This is presumably because Part 36 is highly prescriptive (so that even experienced lawyers may fail to make a compliant offer) and the financial consequences of the application of the provisions of Part 36, or the failure to comply with the requirements of Part 36, may be substantial.”