Kerry Underwood

PART 36: THE DIRTY BAKER’S DOZEN: 13 NEW CASES

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The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

There have been no fewer than 12 major decisions on Part 36 this year.

Here they are.

 

1. Error Of Law To Consider How Much Offer Beaten By

In

JLE (a child by her mother and litigation friend, ELH) v Warrington & Halton Hospitals NHS Foundation Trust [2019] EWHC 1582 (QB)

the Queen’s Bench Division of the High Court, overturning a decision of Master McCloud, held that the amount by which a claimant beat its own Part 36 offer is irrelevant in considering whether it was unjust to make the additional 10% uplift on damages under CPR 36.17(4)(d), and to take that matter into account is an error of law.

Here the claimant served a bill of costs for £615,751 and then made a Part 36 offer to accept £425,000 and on assessment beat her offer by £7,000.

The Master awarded the sums provided for in CPR 36.17(4)(a)-(c) but held that it would be unjust to award the additional amount, that is the uplift on damages or, in this case, costs, under CPR 36.17(4)(d).

It was that decision which was overturned here by the High Court.

The High Court upheld the Master’s finding that, when considering injustice, the court may find it unjust to award some of the CPR 36.17(4)(a) – (d) bonuses, but not others.

In relation to the uplift the High Court said, in very clear terms, that it was not open to judges to take into account the amount by which a Part 36 offer had been beaten as this risked reintroducing the policy in

Carver v BAA Plc [2008] EWCA Civ 412,

which had been expressly reversed by Parliament.

Taking into account the large size of the 10% uplift relative to the margin by which the offer was beaten was an error of law. This additional amount was meant to include a penal element when a claimant had made an offer which it matched or beat, and looking at it as a bonus was an error of law.

The lack of disclosure in costs proceedings was irrelevant, and to consider the same was an error of law. Any pre-issue or pre-disclosure Part 36 offer in substantive proceedings would involve the same lack of disclosure.

The High Court also said, obiter, that the decision of Master Friston, not under appeal here, in

White & Anor v Wincott Galliford Ltd [2019] EWHC B6 (Costs) (28 May 2019)

where he said there was a power to award a lower percentage than the 10% prescribed by CPR 36.17(4)(d) was wrong, and that the clear language of CPR 36.17(4) makes it clear that the 10% uplift in damages is all or nothing.

That  finding, and a similar finding in

Bataillion v Shone [2015] EWHC 3177 (QB)

are wrong.

Here the High Court adopted in full the reasoning set out in my blog

SUCCESSFUL PART 36 CLAIMANT DENIED UPLIFT – A MAD DECISION

in relation to the fact that the 10% uplift must be all or nothing, the court here adopted the reasoning in my blog

UNJUST TO AWARD DAMAGES UPLIFT WHERE OFFER DEALT ONLY WITH HOURLY RATES ON ASSESSMENT

This follows the Court of Appeal, in the case of

Calonne Construction Ltd v Dawnus Southern Ltd [2019] EWCA Civ 754 (03 May 2019)

adopting the reasoning in my blog –

PART 36: WHEN IS A CLAIM NOT A CLAIM?

All of these decisions, and plenty more, are dealt with in my blog

PART 36: THE DIRTY BAKER’S DOZEN: 13 NEW CASES

 

The relevant parts of CPR 36.17 read as follows:

 

“Costs consequences following judgment

36.17 –

(1) … this rule applies where upon judgment being entered –

(a) …

(b) judgment against the [paying party] is at least as advantageous to the [receiving party] as the proposals contained in a [receiving party’s] Part 36 offer.

….

(2) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.

(4) … where paragraph (1)(b) applies, the court must, unless it considers it unjust to do so, order that the claimant is entitled to –

(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;

(c) interest on those costs at a rate not exceeding 10% above base rate; and

(d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is –

(i) the sum awarded to the claimant by the court; or

(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs –

Amount awarded by the court Prescribed percentage

Up to £500,000 10% of the amount awarded

Above £500,000 10% of the first £5000,000 and (subject to the limit of £75,000) 5% of any amount above that figure.

(5) In considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4), the court must take into account all the circumstances of the case including –

(a) the terms of any Part 36 offer;

(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

(c) the information available to the parties at the time when the Part 36 offer was made;

(d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and

(e) whether the offer was a genuine attempt to settle the proceedings.

(6) Where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest must not exceed 10% above base rate…”

 

2. Offer Including Terms As To Costs Is Not A Valid Part 36 Offer

In

Knight & Anor v Knight & Ors (Costs) [2019] EWHC 1545 (Ch) (17 June 2019)

the Chancery Division of the High Court held that a purported Part 36 offer which attempted to limit costs was not a valid Part 36 offer.

The court set out the terms of the offer in paragraph 3 of its judgment:

The offer

3. The letter of 27 July 2017 is headed “Part 36 Offer: Without Prejudice Save As to Costs”. The substance of the letter reads as follows:

“Following Monday’s failed mediation (in respect of which privilege is not waived) we are instructed to make the following offer.

 The offer is made pursuant to CPR Part 36. As such, if it is not accepted within the relevant period (see below) but is (without having been withdrawn) later accepted then your client will be liable to our clients’ costs. If Administrators succeed in obtaining a greater sum at trial then your clients will be liable to our clients costs on the indemnity basis and with interest thereon at a rate not exceeding 10% above base rate together with the additional sum set out in CPR 36.17(4)(d).

 The offer is to pay, from the net proceeds of sale of Close Court, the sum of £35,000. This sum is inclusive of your clients’ costs, which we understand to be under £20,000. The offer also excludes any payment by your client of our clients’ costs, which as you also know are around £30,000.

 The remainder of the net proceeds will be paid to our client as the administrators of Steven Knight’s estate.

 Pursuant to CPR Part 36:

  • The relevant period means a period of not less than 21 days from the date of this offer.
  • The offer is made in respect of the whole claim over the net proceeds of Close Court

This offer will remain open until it is expressly withdrawn but the court’s permission will be required to accept it where any of 36.11(3) applies.””

The defendants’ solicitors responded to that letter, also marked “Without Prejudice Save As to Costs” saying that the offer “does not make sense in accordance with Part 36, as it refers to the sum of £35,000 being inclusive of our clients’ costs…”

This exchange took place before proceedings were issued and therefore before the form of the future proceedings, if any, was known, and before it was known who would be the claimant and who would be the defendant.

For example, the claimant could have been a stakeholder under CPR Part 86, brought by the conveyancing solicitors in whose client account the funds were still sitting or, as in fact it turned out to be, a claim brought by one set of claimants to the fund against the other and in those circumstances who was the claimant and who was defendant depended upon who initiated the claim.

At trial the judge decided that the net sale proceeds of £204,000 belonged beneficially to the claimant, who had thus clearly beaten its own offer and the issue now concerned the costs consequences of that set of facts.

The defendants argued that the offer was not a valid Part 36 offer, as it contained terms as to costs.

The defendants relied on the decisions of the Court of Appeal in

 

Mitchell v James [2004] 1 WLR 158,

and

French v Groupama Insurance Co Ltd [2011] 4 Costs LO 547, [2012] CP Rep 2 .

 

In Mitchell the claimants offered to settle proceedings on the basis that each party bear its own costs and the Court of Appeal held that that could not be capable of being a Part 36 offer.

In the French case the defendant relied on offers made before proceedings were issued to cover the entirety of the claimant’s claims, “inclusive of interest and costs”.

The court there also held that such an offer, inclusive of costs, could not be a Part 36 offer.

The claimants held that notwithstanding these authorities a person making a Part 36 offer may still include terms in the offer which limit payment of its own costs by the paying party.

The claimant relied on the decision of the High Court in

Proctor & Gamble Co v Svenska Celluslosa AB SCA [2013] 1 WLR 1464 .

In that case the claimant made a Part 36 offer including the terms that the claimant would be liable for the defendants’ costs up to the date of acceptance and the judge held that it was open to a claimant making a Part 36 offer to agree to forsake its entitlement to costs on acceptance of the offer and instead to pay the defendant its costs, and therefore the claimant’s offer was complied with Part 36.

Here, the High Court held that even if Proctor & Gamble applied on the facts, the court could not follow it as it contradicted the Court of Appeal authority in Mitchell and French and indeed the claimant’s offer here was “ materially indistinguishable” to that in French.

In the Proctor & Gamble case the judge considered the decision of the Court of Appeal in

F & C Alternative Investments (Holdings) Ltd v Barthelemy (No 3) [2013] 1 WLR 548 .

The F&C case involved an offer to settle which had been deliberately and expressly stated to be “outside the terms of Part 36”.

Nevertheless, the successful party sought to apply Part 36 by analogy to get the consequences that flow from a Part 36 offer, and Part 36 itself says that the court must take into account any non-Part 36 offer.

In F & C the Court of Appeal held that there was no reason or justification for extending Part 36 beyond its express ambit and said:

“[63] … in my view it is not permissible wholly to discount a number of failures to comply with the requirements of CPR Part 36 as the merest technicality. Perhaps there can be de minimis errors or obvious slips which mislead no one: but the general rule, in my opinion, is that for an offer to be a Part 36 offer it must strictly comply with the requirements.”

The court when on to say here

“It is, however, to be noted that Mitchell v James was not cited to the Court of Appeal in F & C Alternative Investments nor to Hildyard J in Proctor & Gamble. On the other hand, French v Groupama was briefly discussed, albeit in a different connection, by Davis LJ (at [65]) in the Court of Appeal in F & C Alternative Investments (but was not cited to Hildyard J in Proctor & Gamble).”

In Proctor & Gamble the court said:

“47. In my view, the issue in the F & C case was really whether an offer accepted not to be within Part 36 could be given, by analogy, the same consequences as would have followed if it had been compliant and intended to be so. Here, the issue is whether CPR 36.2(2), and thus the gateway to CPR 36.10 and 36.14, is to be so strictly construed that it requires (by rule 36.2(2)(c)) the offer made to provide for the defendant to be liable for the claimant’s costs even if the claimant expresses his offer to be a Part 36 offer, but as part of that offer, agrees to forsake that entitlement and instead pay the defendant his costs. Put another way, I do not accept that it is impossible for a claimant to comply with Part 36 unless he requires to be paid his costs and such payment to be made within a period of not less than 21 days.

48. As it seems to me, such a strict construction would tend to undermine a central objective of Part 36, identified by Davis LJ himself as being to encourage claimants to make sensible offers and provide an inducement to defendants to accept them lest otherwise they be exposed to the consequences provided. That objective would be advanced, not undermined, by reading CPR36.2(2)(c) as requiring a claimant who seeks his costs to specify a period of not less than 21 days within which the defendant will be liable to pay them, but not as mandating that the claimant must seek costs and make payment of them a condition of his offer.

49. I do not myself see why such a purposive approach to construction should not be available in the context of Part 36, as it is in the context of statutes and contracts and other instruments (subject, of course, to well-known limitations). Nor do I see that such an approach is precluded by the judgment of Davis LJ in F & C: this is not a matter of applying Part 36 by analogy; and the strict compliance required is of the statutory provision properly, and, if appropriate, purposively, construed.”

Here the court said that it understood the court in Proctor & Gamble to be saying that it is still possible to comply with Part 36 by including in the offer a terms as to costs, provided that that term reduced the burden on the paying party that would otherwise be imposed as a consequence of accepting the Part 36 offer, rather than increasing it.

In other words if the person making the offer was giving a concession to the paying party, then that did not invalidate the Part 36 offer.

The court here held that that was an incorrect statement of the law and was inconsistent with the decisions of the Court of Appeal in both the  Mitchell and French cases and “Accordingly, I hold that this offer is not a Part 36 offer, and therefore does not have the costs consequences of such an offer.”

Here, obiter, the court rejected the defendant’s argument that the claimant’s offer was not compliant with Part 36 in any event, because when made, the format of the future proceedings was unknown and it was uncertain whether the party making the offer would be the claimant or defendant.

The court said that once proceedings were issued, then whether a party was the claimant or the defendant would affect the consequences flowing from the offer, as Part 36 provided for different consequences depending on whether the person making the offer was the claimant or the defendant.

The court when on to say, obiter, that had Part 36 applied, then the claimants would have got the costs consequences under CPR 36 as the judgment which the claimants obtained was more advantageous to the claimants than the proposals contained in their offer.

However, the sum of £204,000 being the net proceeds of the sale of the property held by the conveyancing solicitors, was not a “sum of money awarded” in CPR 36.17(4)(a) nor a “sum awarded to the claimant by the court” as per CPR 36.17(4)(d).

Rather, what the court had ordered was that the ownership of an asset belonged to the claimant and this was based on trustee – beneficiary relationship and not a debtor – creditor one.

Consequently, had Part 36 applied, enhanced interest under CPR 36.17(4)(a) would not have been awarded and the additional amount under CPR 36.17(4)(d) would have been calculated by reference to the costs awarded to the claimant, and not by the value of the property of £204,000.

That followed from the terms of CPR 36.17(4)(d) which states in part:

“… an amount which is

(i) the sum awarded to the claimant by the court; or

(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs…”

Thus, here, the court found that there was no “monetary award”.

The court also rejected the claimants’ argument that the defendants’ failure to accept a non-Part 36, but reasonable, offer should mean that the claimants should get indemnity costs as though they had made a valid Part 36 offer.

“31. …A mere failure to accept a reasonable offer is not enough. That happens every day of the week, with both parties acting reasonably and in accordance with the advice that they are receiving from their professional advisers. So if the matter is to be taken “out of the norm” there must be something more, something which prompts the court to visit the paying party with a special mark of condemnation. I see nothing of that kind here. In my judgment it is appropriate to order the defendants to pay the claimant’s costs on the standard basis.”

Comment

This decision, correct in every respect in my view, is another illustration of the complexity of Part 36.

It also reinforces the point that part is making and what they think of Part 36 offers should use the standard form N242A and never depart from it.

I see a huge number of apparently Part 36 offers made in emails, which are simply not compliant with Part 36.

When it comes to Part 36, reinventing the wheel is a very dangerous thing to do.

 

3. Part 36 Covers Subsequent Claims: Hertel Distinguished

In

Calonne Construction Ltd v Dawnus Southern Ltd [2019] EWCA Civ 754

the Court of Appeal upheld the validity of a defendant’s Part 36 offer relating to an unpleaded counterclaim and which provided for interest at 8% a year after the expiry of the relevant period for accepting the Part 36 offer.

Here, the defendant in proceedings made an early Part 36 offer taking into account a counterclaim which it said it had, but which had not been pleaded at that stage.

The offer also made a specific claim for interest at 8% a year.

The offer read:

 

WITHOUT PREJUDICE SAVE AS TO COSTS

OFFER MADE PURSUANT TO CPR PART 36

As you are aware, we are in the process of preparing our client’s defence and counterclaim which will be filed on 3rd March 2017. . .

. . . We are therefore, authorised by our client to make your client, the following offer to settle under Part 36 (“the Offer”).

This Offer is intended to have the consequences set out in Part 36 of the Civil Procedure Rules. In particular, your client will be liable for our client’s costs up to the date of notice of acceptance which must be in writing (“Notice of Acceptance”), in accordance with CPR 36.11, if the offer is accepted within 21 days (“the Relevant Period”).

This offer will remain open for a period of 21 days from the date of receipt of this letter.

Terms of the Offer

Our client is willing to settle the whole of your client’s claim contained within the claim number HT2016000331, together with the counterclaim which our client will shortly be issuing within the same proceedings:

1. You pay to our client the sum of £100,000 (“the Settlement Sum”) payable within 14 days of service of the Notice of Acceptance.

2. The Settlement Sum does not include costs and, as mentioned above, your client will be liable to pay our client’s costs on the standard basis, to be assessed if not agreed, up to the date of service of Notice of Acceptance if this Offer is accepted within the Relevant Period.

3. The Settlement Sum is inclusive of interest until the relevant period has expired. Thereafter, interest at a rate of 8% per annum will be added.

. . .”

The defendant subsequently served its defence and counterclaim.

The claimant failed at trial to match the defendant’s Part 36 offer and the claimant also lost part of its claim, but the defendant failed in some of its allegations.

Consequently the trial judge ordered the claimant to pay 75% of all of the costs of the defendant, on the standard basis up to expiry of the relevant period, and on the indemnity basis thereafter.

The trial judge rejected the claimant’s contention that the Part 36 offer was invalid as it included an as yet unpleaded counterclaim. The Court of Appeal upheld that ruling.

Given the breadth and reach of Part 36, the claimant’s contention was, on the face of it, hopeless.

However the claimant’s argument was supported by the fairly obviously wrong decision in

Hertel & Anor v Saunders & Anor [2018] EWCA Civ 1831

which I deal with in detail in my blog – PART 36: WHEN IS A CLAIM NOT A CLAIM?

Here the trial judge said that he was bound by, or must pay attention to, the Court of Appeal decision in  AF v BG [2009] EWCA Civ 757 which had not been cited in the Hertel case.

In AF v BG the Court of Appeal held that it did not matter that a counterclaim had not yet been pleaded as Part 36 specifically sanctions an offer before the commencement of proceedings.

“So the fact that the counterclaim had not been formulated or pleaded does not of itself matter.”

Although the Court of Appeal here distinguished Hertel, it is safe to say that Hertel is no longer to be regarded as good law.

In any event it related to the old CPR 36.10(2) which is no longer in the Civil Procedure Rules, and the replacement similar provision must now be interpreted as here in the Calonne case.

Comment

In my blog – PART 36: WHEN IS A CLAIM NOT A CLAIM? I described the Hertel decision as “a strange decision to put it mildly.”

I am glad that the Court of Appeal now agrees.

Interest

The Court of Appeal also held that the inclusion of a term as to interest after the end of the relevant period for accepting the Part 36 offer did not render it invalid.

Here the interest rate was 8%.

However, the Court of Appeal said that it would still be a valid offer if the rate was 25%, or 200%.

An offeror in those circumstances may find that the judgment was not more advantages than the offer and thus lose the Part 36 benefits.

Furthermore the offeree could make its own Part 36 offer in the same terms, without the offending rates of interest.

“It seems to me therefore, that there is no reason whether of policy or otherwise which renders an offer invalid for the purposes of Part 36 if it includes provisions as to interest after the expiration of the Relevant Period. After all, as Flaux LJ pointed out in the course of argument, there is nothing wrong with a party making a Part 36 offer expressed as a specified sum which includes interest during the Relevant Period calculated on the basis of a particularly high rate. He just has to take the consequences when it comes to be determined whether the offer has been “beaten”.”

 

4. Unjust for Consequences to Be Triggered

In

Invista Textiles (UK) Ltd & Anor v Botes & Ors [2019] EWHC 1086 (Ch)

the Chancery Division of the High Court held that it was unjust to apply the costs consequences of Part 36 in circumstances where the claimant should not get all of the pre-Part 36 costs.

The case concerned the production of documents, and other matters, and the claimant was held to have lost on most matters and the Trial Judge ordered the claimants to pay the defendants 71% of costs to be assessed.

Nevertheless the claimants had beaten their own Part 36 offer.

Had the defendants accepted the offer, then they would have been liable for all of the claimants’ costs up to that point, as acceptance of a Part 36 offer is all or nothing as far as costs are concerned.

If it was otherwise, no certainty would be achieved and Part 36 would become largely pointless.

“41. Looking at it another way, if I stand at June 2018 and ask what would a court have ordered in terms of costs if the outcome of the case had been the same as the terms of that offer, would the costs order have been the defendants paying all or at least the majority of the claimants’ costs in those circumstances? The answer is a clear no. That demonstrates why this is very different from a low financial offer in a case purely about a sum of money. In my judgment, this is another factor to take into account.

42. Now, Invista says what the defendants should have done was come back and negotiate such as by offering a drop-hand on costs (that is no order as to costs). Now, after the Part 36 offer was made, as I have said, the defendants did come back and say that the relief was acceptable but not the costs and the parties did exchange further offers. The main point made repeatedly by the claimants is that the claimants offered to drop hands on costs, ie each party would bear its own, and the claimants criticise the defendants for not accepting it. In my judgment, there is no substance to this criticism. The refusal by the defendants to accept that they should shoulder the burden of all their costs of all these proceedings was legitimate in the circumstances and has been vindicated by the judgment.

43. Pulling all this together, I recognise that the hurdle is a formidable one. Nevertheless I find it would be unjust to enforce any of the consequences on the defendants. That is looking at all the circumstances. However, in particular, in my judgment, in the context in which it was made and given its terms, the Part 36 offer itself was not a genuine offer to settle. In fact, if anything, I think the offer has proved to be a barrier to settlement of this dispute because since the offer was made and not accepted and then the admissions were made, the claimants seem to have been approaching this case as if they were entirely protected as to costs.”

The judge, effectively reviewing his own decision due to errors of fact in relation to the first decision, upheld his original finding that the claimant do pay 71% of the defendants’ costs to be assessed.

There is no new law here and CPR 36.17(4) provides that the court must order the additional Part 36 benefits unless it considers it unjust to do so.

 

5. Unjust to Award Damages Uplift Where Offer Dealt Only With Hourly Rates On Assessment

In

White & Anor v Wincott Galliford Ltd [2019] EWHC B6 (Costs) (28 May 2019)

the Senior Courts Costs Office was considering the situation where a receiving party in provisional assessment costs proceedings purported to make a Part 36 offer, simply on the hourly rates, which the court subsequently allowed.

The claimants argued that they had beaten their Part 36 offer and consequently the amount of the the hourly rate, and therefore the entire profit costs, should attract the 10% damages uplift.

Here matters were resolved by way of provisional assessment and in accordance with CPR 47.15(5) the costs of the assessment cannot exceed £1,500 plus VAT and court fees, and that applies even where the receiving party has beaten its own Part 36 offer.

This follows from the case of

Lowin v W Portsmouth & Co [2017] EWCA Civ 2172 ,

where the Court of Appeal distinguished its own reasoning in the case of

Broadhurst & Anor v Tan & Anor [2016] EWCA Civ 94 .

The Lowin case dealt only with the amount of costs and did not deal with the issue of the 10% uplift on damages under CPR 36.17(4)(d).

Essentially the paying party said that the offer related only to the hourly rates and not the bill of costs in total, and that could not be within the spirit or purpose of Part 36.

The receiving party said that Part 36.2(3) clearly states that Part 36 offer may be made “in respect of the whole, or part of, or any issue that arises…”.

The receiving party drew an analogy with a party in substantive proceedings making a Part 36 offer in relation to a single head of loss, rather than the whole claim.

Here the Master, one might think somewhat surprisingly, held that this was a valid Part 36 offer and then applied the test of justness under CPR 36.17(4) which provides:

“(4) Subject to paragraph (7), where paragraph (1)(b) applies, the court must, unless it considers it unjust to do so, …”.

The Master found that it was unjust.

The reasons are far from convincing, to put it mildly.

The Master said that although Part 36 was intended to be used to allow a party to gain tactical advantage, “the court must guard against it being used for the purposes of mere gamesmanship.”

I, for one, cannot see any meaningful difference between “tactical advantage” and “mere gamesmanship”.

The Master also said that the court should take into account its own resources and effectively said that if a Part 36 offer would not save the court time, then it would be unjust to allow the 10% damages uplift.

I have not seen that in the Act, Civil Procedure Rules or case reports.

The Master also said, consistent with his previous view, that he had the power, not exercised here, to allow a partial uplift on damages, and not a straight “all or nothing” 10%.

As he did not do so here, that is obiter, but again is at odds with the clear wording of CPR 36.17, which as I have pointed out before, uses the term “not exceeding” in CPR 36.17(4)(a) and (c), relating to interest, but does not contain those words in CPR 36.17(4)(d) in relation to the 10% uplift.

The ultimate decision is correct.

If a party was able to get the Part 36 consequences simply by beating the hourly rate, or an item of work, then as pointed out by the paying party here a receiving party could receive a 10% uplift on everything by, for example, simply beating a time claimed of 24 minutes for a tiny piece of work.

In another scenario the receiving party could put forward an hourly rate, and match or beat it, and then get the full uplift on an enormous bill of costs.

It would be the equivalent of having a costs budget which said:

“We are going to charge £200 an hour, but we are not going to tell you how much work we will do. Please agree the budget.”

In substantive proceedings it is the equivalent of making an offer “In relation to loss of earnings” without stating the amount, or “In relation to lots of painkillers costing £1 a packet, but I don’t know how many packets I will buy, or have bought.”

Although this was not a Solicitors Act 1974 assessment, that Act arguably does not allow a challenge to the hourly rate, but concentrates on the amount of work done, whether it was properly and necessarily done, and by whom it was done.

My view here is that the true position was this was not an offer under Part 36 of the Civil Procedure Rules but was a good old fashioned Calderbank offer.

 

6. Late Acceptance of Part 36 Offer Not Exceptional Circumstances In Fixed Costs Case

In

Parsa v Smith and Another Case Nr C84YX807, unreported

the Queen’s Bench Division of the High Court upheld a decision of a Circuit Judge that late acceptance of a claimant’s Part 36 offer, just one week before trial, in a fixed costs case did not amount to “exceptional circumstances” under CPR 45.29J justifying an escape from fixed costs.

The Court of Appeal’s decision in

Hislop v Perde [2018] EWCA Civ 1726

that a claimant was not entitled to indemnity costs on a defendant’s late acceptance of a Part 36 offer in fixed costs cases did not consider the exceptional circumstances provision, as it was not argued in that case.

Here, the High Court also held that the claimant’s application to escape fixed costs was not an “interim application” and therefore did escape fixed costs, meaning that the successful defendant got £1,712.10 for that application.

Comment

Why not just pass a law saying injured people should never sue?

Oh, sorry, this Scrag End Parliament – it does not deserve the term Rump – has done just that in the Civil Liability Act.

See my blog – ESCAPING FIXED COSTS: THREE NEW CASES

 

7. Interest When Claimant Matches Own Part 36 Offer

In

AssetCo Plc v Grant Thornton UK LLP [2019] EWHC 592 (Comm) (22 February 2019)

the Business and Property Court of England and Wales Commercial Court, part of the Queen’s Bench Division of the High Court, considered the consequences in relation to interest when a claimant matches or beats its own Part 36 offer at trial.

Here the claimant at trial obtained judgment for over £22 million, having made two Part 36 offers, one for £10 million and one for £17.5 million, both of which were clearly beaten.

The judgment reviews the authorities and the Commercial Court Guide.

On the facts here the court awarded an interest rate of 5% above LIBOR (The London Inter-bank Offered Rate), with 2% above LIBOR being the compensatory rate, and the additional 3% being enhanced interest pursuant to CPR 36.17(4)(a).

The court held that it was not appropriate here to award enhanced interest on costs, which were already on the indemnity basis.

 

8. Additional Amount Does Not Attract Interest

In

FZO v Adams & Anor [2019] EWHC 1286 (QB) (23 May 2019)

the Queen’s Bench Division of the High Court held that interest is not payable on the 10% damages uplift prescribed by CPR 36.17(4)(d) when a claimant matches or beats its own offer at trial.

Although this case involved the maximum uplift of £75,000, the interest issue was not decided on that point, that is that the addition of interest would have caused the maximum to be exceeded.

Consequently if the uplift is say, £50,000, no interest is payable, even though the total would not exceed the maximum of £75,000.

CPR 36.17(4)(a) provides for interest to be paid “on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting at the relevant date”.

The claimant here submitted that that was widely drawn and included the additional payment as well as the basic judgment sum.

If it was intended that interest should be excluded from the payment, then the rule would say so and this is consistent with CPR 36 which is intended to encourage offers to settle by claimants.

The defendants argued that the additional amount is not a “sum awarded” as it does not feature in the court’s judgment and that the words “ additional” and “amount” clearly show that this is a further financial sanction to  be paid by the unsuccessful defendant in addition to the enhanced interest on the damages, costs on the indemnity basis and enhanced interest on costs to which the claimant is entitled.

To award enhanced interest on this sum will be to impose a sanction on a sanction, and to do that the rule would have to be drafted to make it clear.

The High Court accepted the defendant’s interpretation and noting that where interest is payable consequent to any other paragraph of CPR 36.17(4) on any amount, it is specifically stated.

 

9. Claimant Cannot Accept Part 36 Offer Once Claim Struck Out

In

Devoy-Williams v Hugh Cartwright and Amin [2018] EWHC 2815 (Ch) 5 October 2018

the Chancery Division of the High Court held that once a claim had been struck out the claimant could not accept a Part 36 offer made by the defendant.

The High Court also said that the existence and potential acceptance of a Part 36 offer should not be a factor influencing the decision as to whether the court should grant relief from sanctions:

“I agree with the judge that the Part 36 offer could not be some form of a trump card. As the judge said at paragraph [74], the claim was struck out and it was not for the judge to grant relief so that the Part 36 offer could be accepted, thereby thwarting the purpose and effect of an Unless Order that had been breached.”

This was a professional negligence action against solicitors and an Unless Order was made against the claimants requiring disclosure by 21 October 2016 and in default of that disclosure the claim would be struck out.

The defendant made a Part 36 offer on 10 October 2016 and the claimants sought to accept it on 1 November 2016, that is 11 days after the deadline for failure to comply with the Unless Order.

The court held that the action was no longer extant and therefore it was not possible for the Part 36 offer to be accepted.

This follows the decision in

 Joyce v West Bus Coach Services Limited [2012] EWHC 404

 

10. No Power to Order Payment on Account After Part 36 Offer has been accepted

In

Finnegan v Frank Spiers (t/a Frank Spiers Licensed Conveyancers) [2018] EWHC 3064 (Ch) (27 June 2018)

the Chancery Division of the High Court held that the court has no power to order a payment on account of costs where a party has accepted a Part 36 offer.

The claimant accepted the defendant’s Part 36 offer and issued an application for an interim payment on account of costs.

The District Judge held that there was no power to make such an order and the Chancery Division upheld that decision.

By CPR 44.9(1) acceptance of a Part 36 offer deems that a standard basis costs order has been made.

CPR 44.2(8) provides that where the court has ordered a party to pay costs, it may order an amount to be paid on account before the costs are assessed.

Here the court held “that the place to find the court’s ability to make a payment on account order after acceptance of a Part 36 offer is in Part 36 itself. It is absent from there. There is no reason in my judgment, to read rule 44.2(8) to make a payment on account applicable when a Part 36 offer is accepted”. (Paragraph 30)

The court distinguished the case of

Barnsley v Noble [2012] EWHC 3822

where the court held that it had power to order a payment on account following discontinuance.

This was because the rule on discontinuance preserved the court’s discretion as CPR 38.6 provides that a claimant who discontinues is liable for costs “unless the court orders otherwise”.

There is no such discretion in Part 36.

CPR 44.9(1) reads:

“(1) Subject to paragraph (2), where a right to costs arises under –

(a) rule 3.7 or 3.7A1 (defendant’s right to costs where claim is struck out for non-payment of fees);

(a1) rule 3.7B (sanctions for dishonouring cheque);

(b) rule 36.13(1) or (2) (claimant’s entitlement to costs where a Part 36 offer is accepted); or

(c) rule 38.6 (defendant’s right to costs where claimant discontinues),

a costs order will be deemed to have been made on the standard basis.”

 

11. Successful Part 36 Claimant Denied Uplift – A Mad Decision

This mad decision was overturned by the High Court on Monday 24 June 2019.

Here  is the High Court’s judgment overturning the decision. That decision is JLE (a child by her mother and litigation friend, ELH) v Warrington & Halton Hospitals NHS Foundation Trust [2019] EWHC 1582 (QB).

In

JLE (a child by her mother and litigation friend, ELH) v Warrington & Halton Hospitals NHS Foundation Trust [2018] EWHC B18 (Costs)

a High Court Master held that the Part 36 bonuses should be considered separately, so that it may be just for the claimant to get some of the advantages, but unjust to get others.

This was an assessment of the claimant’s costs in a clinical negligence case, and thus the effective party was the claimant’s solicitor in the costs proceedings.

The claimant’s bill totalled £615,751.51 and the claimant made a Part 36 offer of £425,000, including interest, which offer was not accepted.

The Master assessed the costs at £421,089.16, but with interest this came to £431,813.05, that is £6,813.05 more than the claimant’s offer on a submitted bill of £615,000, that is the offer was beaten by around 1% of the value of the bill.

It was accepted that the fact that it was only the interest that meant that the claimant beat its own offer was irrelevant.

The defendant contended that the issue of whether it was unjust to award the additional 10% – around £43,000 – should be considered separately to the other Part 36 bonuses and the Master agreed.

The Master held that it was appropriate to disallow the 10% uplift under CPR 36.17(4)(d) as it was disproportionate to the margin by which the offer was beaten.

This is in spite of the clear definition of “more advantageous” in CPR 36.17(2) as “better in money terms by any amount, however small”.

CPR 36.17(4) provides that where a claimant matches or beats its own Part 36 offer, unless it considers it unjust, it must order the defendant to pay:

  • interest on the sum awarded;
  • costs on the indemnity basis from expiry of the relevant period;
  • interest on those cost;
  • an additional amount of 10% of the first £500,000 awarded and 5% of any amount above that, subject to a maximum of £75,000.

 

Comment

An absurd anti-claimant decision, not the first by this Master, who was responsible for the Mitchell relief from sanctions fiasco.

It is simply inconceivable that the Master, or any other judge, would have applied the principle the other way around.

Thus a defendant makes a Part 36 offer of £50,000, and the trial judge awards £50,000, so the claimant has failed to beat the defendant’s Part 36 offer.

Imagine a judge saying that as it was so close it would be disproportionate to disallow the claimant’s costs from expiry of the offer and disproportionate to award the defendant its costs from expiry.

The sums in issue there will generally be far greater than 10% of the damages, so why is that not disproportionate?

Furthermore the paying party here had its remedy – had it made a Part 36 offer of say £450,000, then the claimant would have failed to beat it and would have been penalized in costs.

It should be noted that this was a costs assessment – there is no question of the defendant not being liable, as may occur in a substantive case, the issue was simply how much the defendant had to pay.

The Master lists that the case is considered, but absent from them is the key case of

Carver v BAA Plc [2008] EWCA Civ 412

where the Court of Appeal held that the claimant, who beat the defendant’s Part 36 offer by just £51, had not really won the case on Part 36 as beating a Part 36 offer by such a small amount was not deemed to be more advantageous on the facts given the trauma etc. of going to court.

I was highly critical of that decision, and said that solicitors should ensure that their clients gave evidence to say how much they enjoyed going to court, and it was not traumatic at all and indeed the whole experience of giving evidence made it more advantageous than settling.

My irony, as ever, was lost on some, but not Parliament which intervened and statutorily overturned the Court of Appeal’s decision in Carver and introduced the test set out above, that for the result to be more advantageous all it requires is for it to be better in money terms, by any amount, however small.

Thus this decision follows a Court of Appeal decision, which was not cited to the court, and which has been overturned by Parliament.

This is not a situation where the courts need to interpret the will of Parliament, but rather Parliament has told the courts that they must not interpret Part 36 in the way that the court did in Carver and in the way that this Master has.

This judgment is hopelessly wrong and, like some other Part 36 judgments of the judiciary, threatens to undermine the whole Part 36 regime.

It is worse than that. Parliament went further and CPR 36.17(5) sets out five factors which the court must take into account in considering whether it would be unjust to make the orders referred to in 36.17(4).

Those circumstances are:

(a) the terms of any Part 36 offer;

(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

(c) the information available to the parties at the time when the Part 36 offer was made;

(d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated;

(e) whether the offer was a genuine attempt to settle proceedings.

None of these applied here. True it is that the court must take into account all the circumstances including those matters, which does not prevent the court from considering other matters.

However the Civil Procedure Rules are riddled with references to proportionality, and had Parliament, or the Civil Procedure Rules Committee, wished proportionality to be a factor in determining whether it was unjust to give the bonus, then Parliament would have said so.

At CPR 36.17(4)(d)(ii) the rules set out the percentage uplift that must be awarded. These figures are mandatory and not a maximum.

Contrast the wording of CPR 36.17(4)(a) and (c) where the words “not exceeding 10%” are used, which clearly gives the court a discretion to award a lower percentage.

That is not the case with CPR 36.17(4)(d)(ii), where a flat percentage is given, with no discretion for the court to award less.

The very fact that as far as costs are concerned a successful Part 36 gets indemnity costs – see CPR 36.17(4)(b), where proportionality cannot apply, demonstrates the absurdity of introducing proportionality into the Part 36 regime, and in any event the courts have, time and again, stated that Part 36 is a self-contained scheme not subject to the ordinary law.

The uplift on damages is a key part of the incentive on claimants to make Part 36 offers, and this was introduced by primary legislation, that is section 55 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, and not by secondary legislation or rule changes, and the rules set out above implemented an Act of Parliament, and it was not simply a question of Parliament approving changes to the Civil Procedure Rules by way of a statutory instrument.

In February 2019 the government published its Post Implementation Review of Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and at chapter 6 discusses changes to Part 36 offers to settle.

The opening paragraphs of the review read:

Part 36 of the Civil Procedure Rules (CPR) was introduced to encourage early settlement through a ‘carrot and stick’ approach to ensure all parties have an interest in agreeing to early settlement.

 

Section 55 of the LASPO Act made relatively minor statutory changes including provision for recovery of an additional sum by a claimant where a defendant fails to beat the claimant’s offer. This was accompanied with a rule change to reverse the effect of Carver v BAA to clarify that ‘most advantageous’ meant by any amount, no matter how small.”

 

The review then goes out to set out, at paragraph 126, that many lawyers for claimants took the view that the 10% enhancement is not sufficiently high to make a meaningful difference or to be a decisive factor determining whether to settle and that the additional costs of a trial could exceed this enhancement, limiting the impact of any uplift.

Thus some respondents to the review suggested that the uplift should be increased to 20% and that the uplift cap of £75,000 should be raised.

This decision is close to being a contempt of Parliament, save that it appears that all of the parties, their lawyers and the judge were unaware of the legislative history in this matter.

 

12. Validity of Offers Excluding Interest

In

Horne v Prescot (No.1) Ltd [2019] EWHC 1322 (QB) (24 May 2019)

the Queen’s Bench Division of the High Court held that a Part 36 offer which excluded interest on costs was a valid offer.

Here, the claimant offered to accept £82,000 “exclusive of interest” and also stated that the offer did not include the costs of assessment.

The claimant was awarded £91,807.06, excluding the costs of assessment itself, on assessment and thus beat its offer, but the defendant submitted that an “exclusive of interest” offer could not be a valid Part 36 offer.

At first instance, the Master held that it was valid and here the High Court upheld that decision, holding that interest on costs is fundamentally different from interest on damages.

A bill of costs does not include interest as interest is ordinarily payable from the date of judgment until payment of the costs, under the Judgments Act 1838, without the need to claim it in detailed assessment proceedings.

Consequently, the offer was rightly described as relating to the whole of the claim in the detailed assessment proceedings and there was no severable part of the claim concerning interest.

Practice Direction 47.19 states that a settlement offer, whether made under Part 36 or otherwise, should specify whether or not it is intended to be inclusive of, among other things, interest and so it was sensible for the solicitors here to specify that the offer excluded interest and doing so did not invalidate the offer.

The court recognised the dangers in going “off script” when making an offer which the offeror wants to be a Part 36 offer, but there was no case law to the effect that including additional words which did not conflict with the mandatory requirements of a Part 36 offer invalidated it.

In any event CPR 36.5(4) did not use the word “must” and therefore was not mandatory.

The decision effectively overrides that in

 Ngassa v The Home Office & Anor [2018] EWHC B21 (30 November 2018)

where the Master held that such an offer, in an identical scenario, was not a valid Part 36 offer.

The Court of Appeal will be considering the same issue in November 2019 in the case of King v City of London Corporation.

 

13. Withdrawn Part 36 Offer Leads to No Order for Costs

In

Britned Development Ltd v ABB AB & Anor [2018] EWHC 3142 (Ch) (14 November 2018)

the Chancery Division of the High Court made no order for costs in a matter where the claimant had been awarded damages but was unsuccessful in much of its claim, which would of itself have led to a 40% reduction in costs.

However, the defendant had made a Part 36 offer which the claimant failed to beat, but the offer had been withdrawn prior to judgment and so the usual automatic Part 36 consequences did not apply, that is the defendant did not get its costs from the date of expiry of the offer.

However, such an offer is a factor to be taken into account in the assessment of costs under CPR 44.

In no circumstances the court found that it would be unjust for the defendant to pay any of the claimant’s costs and so it made no order for costs.

 

14. Withdrawal Of Original Offer

This scenario is the real facts of an ongoing case.

In a personal injury claim the defendant made a Part 36 offer of £75,000 in April 2018.

In January 2019 the defendant made a revised Part 36 offer of £25,000 and was granted permission to serve an amended defence pleading fundamental dishonesty.

The revision to the Part 36 offer was made by amending the original form N242A, crossing out the figure of £75,000 and inserting the figure of £25,000 and crossing out the previous date of April 2018 and redating the offer 7 January 2019.

The provision allowing 21 days for acceptance remained as in the original Part 36 offer and this revised offer of £25,000 was accepted within 21 days.

The claimant argues that costs are payable up to the date of acceptance in January 2019, on the basis that the claimant is entitled to rely on the clear wording of the revised Part 36 offer and the fact that it was accepted within 21 days.

Had the defendant not wished to pay costs up to the date of acceptance, then the defendant should have made Calderbank offer to that effect.

That was the effect of the decision in

Ballard v Sussex Partnership NHS Foundation Trust [2018] EWHC 370 (QB).

The defendant argues that that case is not relevant because it relates to a withdrawn offer, rather than a revised offer and refers to the case of Burrett v Mencap Limited 14 May 2014,  where an offer was varied, rather than withdrawn, although in that case the variation was deliberately silent as to the time limit for acceptance and so when accepted the costs consequences ran from the original offer, rather than the revised one.

Burrett v Mencap Limited was in any event decided under the Civil Procedure Rules in force in 2014 and in April 2015, CPR Part 36 was extensively revised and new CPR 36.9 and 36.17 filled the gap identified in Burrett, which was in any event a first instance decision of a District Judge.

What Part 36 says, in difficult language, is that if the offer is revised by improving it, then the offeree, that is the claimant in this case, has 21 days from that revised offer to accept it.

That makes sense. Otherwise a defendant could make a ridiculously low offer of say £2,000 at the outset of the case, knowing full well that it will never be accepted, but subsequently make a perfectly acceptable offer of say £100,000 years later, but with the benefit of the offer being treated as being made at the beginning, with the defendant getting all of its costs from the date of expiry of the unacceptably low offer.

However, Part 36 is silent as to what happens the other way around, that is when an offer is revised downwards and then accepted.

It may be that this was never envisaged, as obviously the starting point would be that if a claimant is not prepared to accept, as here, an offer of £75,000, then why should it accept an offer of £25,000?

That would suggest that the clock does indeed run from the time of the first offer, and again there is logic in that.

After all, if an offer is revised downwards from £75,000 to £25,000, then all the claimant has to do to avoid the Part 36 consequences is to beat that offer of £25,000, whereas before revision the claimant would have had to beat the offer of £75,000.

Thus although the offer is much less attractive on the face of it in a normal case, the risks to the claimant are very much lower.

If the original offer is not withdrawn by the new offer, then the old offer remains capable of acceptance, which on the face of it is absurd, but the courts have consistently held that Part 36 is a self-contained code which is not subject to the usual rules of contract.

For example, as a matter of contract, a counter-offer amounts to a rejection of the original offer, but that is not the case with Part 36.

Thus if a claimant makes a Part 36 offer of, say, £30,000, and a defendant counter-offers at £20,000, that is not a rejection of the claimant’s Part 36 offer, which remains open for acceptance by the defendant, in contrast with the position in contract at common law.

Either the second offer must operate as a withdrawal of the initial offer, or the initial offer must still be open for acceptance.

It must indeed be one or the other, and the defendant’s contention that neither applies, must be wrong.

Could the claimant in these circumstances accept the original offer and argue that he is in entitled to £75,000?

That may encourage the defendant to agree that the true position is that that original offer has been withdrawn, which should then make it a simple matter of an acceptance of the subsequent offer of £25,000 in the usual way, with the usual costs consequences following, as though the original offer had never been made, and of course that is the effect of a withdrawn offer.

What CPR 36.17(7) actually says is:

“(7)

Paragraphs (3) and (4) do not apply to a Part 36 offer—

(a) which has been withdrawn;

(b) which has been changed so that its terms are less advantageous to the offeree where the offeree  has beaten the less advantageous offer;

(c) made less than 21 days before trial, unless the court has abridged the relevant period.”

(8)

Paragraph (3) does not apply to a soft tissue injury claim to which rule 36.21 applies.

(Rule 44.2 requires the court to consider an offer to settle that does not have the costs consequences set out in this Section in deciding what order to make about costs.)”

Thus the costs consequences do not apply to a Part 36 offer which has been withdrawn.

Obviously, that is an issue in this scenario but the defendants are saying that the offer has been revised and not withdrawn.

CPR 17(7)(b) provides that the costs consequences do not apply to a Part 36 offer:

which has been changed so that its terms are less advantageous to the offeree where the offeree has beaten the less advantageous offer;”

What Part 36.17(7)(b) deal with is the position where the claimant beats that less advantageous offer, and so in this case that would involve achieving more than £25,000.

The rest of 36.17(7) is not relevant here.

There is a further problem with CPR 36.17(7) in that it clearly envisages, as a different concept, an offer which has been withdrawn – CPR 36.17(7)(a) – and an offer which has been changed so that its terms are less advantageous to the offeree… – CPR 36.17(7)(b).

If the effect of any downwards revised offer is to withdraw the original offer, then (a) appears to be otiose, as the circumstances in (b) would constitute the withdrawal of the original offer in any event.

Thus the claimant should accept the original offer.

That would of course be a late acceptance meaning that the client would not get costs from the date of expiry of the original offer, and would have to pay the defendant’s costs from the expiry of the original offer to date.

However, given that the difference between the two offers is £50,000, it is likely that both the client and the solicitors would be very much better off accepting that original offer.

Comment

Best just to toss a coin on all Part 36 matters.

Saves court time.

 

 

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Written by kerryunderwood

June 14, 2019 at 8:00 am

Posted in Uncategorized

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