Kerry Underwood

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SECURITY FOR COSTS

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This piece, in slightly different form, first appeared on the Practical Law Dispute Resolution Blog.

ATE Insurance; Shareholder Funding

There has been a number of recent cases in relation to security for costs.

In Lewis Thermal Ltd v Cleveland Cable Company Ltd [2018] EWHC 2654 (TCC) (15 August 2018)

the Technology and Construction Court, part of the High Court, ordered a dormant claimant company to provide security for the defendant’s costs in proceedings for breach of contract and fraudulent misrepresentation.

The case shows the difficulty of relying on After-the-Event insurance as security for costs and also is an example of the court taking into account the possibility of shareholder funding when deciding whether to order security against an impecunious company.

Here the claimant had taken an assignment of the claim from an electrical cabling installer shortly before the installer went into liquidation and the defendant had allegedly supplied defective cabling to the installer damaging the installer’s reputation and causing loss of business valued by the claimant at £8 million.

The claimant sought to rely on its ATE policy and the court accepted that it could, in principle, answer a security application – see

 

Premier Motor Auctions Ltd v PwC [2017] EWCA Civ 1872;  and

 

Harlequin Property (SVG) Ltd v Wilkins Kennedy [2015] EWHC 1122 (TCC).

 

However ATE insurance was not adequate security where, for example, there was a risk of the claimant’s insolvency and no guarantee from the insurer to the defendant, and an exclusion of the Contracts (Rights of Third Parties) Act 1999 – see Harlequin above.

Neither was ATE insurance adequate security when there was a risk of the insurer avoiding the policy –

see Catalyst Managerial Services v Libya Africa Investment Portfolio [2017] EWHC 1236 (Comm).

Here the claimant’s ATE policy did not give the defendant direct rights against the insurer and it excluded the Contracts (Rights of Third Parties) Act 1999 and also contained other exclusions.

The court held that these were real and not fanciful risks and there was reason to believe that the claimant would be unable, either itself or through its ATE insurance, to pay the defendant’s costs if ordered to do so.

The court also took into account the fact the claimant’s shareholders, who had apparently already agreed to fund disbursements in the action, had funds available for security.

Subsequently the court varied the security order and allowed security to be provided by a deed of indemnity from the claimant’s After-the-Event insurers for the full amount of the defendant’s budgeted costs.

 

Security for Costs on Indemnity Basis

In Danilina v Chernukhin and others [2018] EWHC 2503 (Comm)

the Commercial Court ordered the claimant to pay further security to three defendants being 75% of incurred and expected costs, as there was a reasonable possibility of indemnity costs being ordered if the claimant lost, accepting the defendants’ argument that if the claimant lost at trial, it was highly likely that she would be ordered to pay indemnity costs, on the basis that she knowingly gave false evidence, as, on the facts, there was no room for mistaken recollection.

In the absence of a possible indemnity costs order, security was generally ordered by reference to 60 to 70% of incurred and expected costs.

This did not involve considering the merits of the claimant’s claims, it assumed she lost them.

The court held that if this happened, it was likely to be because the claimant was dishonest.

The first defendant was also involved in an arbitration with a third party which raised the same issue as one of the claimant’s claims.

The court held that the apportionment of the defendants’ future costs 65% to the claim and 35% to the arbitration was a reasonable possibility, so could be used for the purpose of the security order.

The claimant was unable to establish that her claim would be stifled if she was ordered to pay the level of security sought.

The third party had already provided funds to the claimant and made it clear that he wished her to pursue and win the proceedings.

The claimant’s statement that the third party had not agreed to provide further security was not “full, frank, clear and unequivocal evidence” that he was not willing or able to provide the security sought.

Although the claimant was being asked to provide security at a late stage, two months before trial, this did not justify declining to make the order, particularly as there was no evidence that providing the security would be burdensome to the third party.

 

Additional Security for Costs

In Mayr v CMS Cameron McKenna Nabarro Olswang LLP [2018] EWHC 3093 (Comm)

the Commercial Court, part of the High Court, dealt with the principles to be applied when a party makes a second application for security for costs, that is an application for additional security.

This was a claim for professional negligence and in November 2017 the parties agreed that the claimant should provide security for costs in instalments and the defendant then made an application for additional security of £1.45 million.

The court pointed out that case law shows that a party cannot seek additional security purely because the original amount sought was now inadequate; in other words they could not have a second bite at the cherry.

However if there had been a material change of circumstances, then a party could seek additional security.

Here the claimants conceded that there had been a change in circumstances, but stated that it did not warrant the level of additional security being sought.

The court said that if there was doubt about the reasonableness of the figures then that doubt should be resolved in favour of the defendant as the prejudice to the defendant of risking being unable to recover its costs outweighed the prejudice to the claimant.

On the facts, the court made an order for further security in the sum of £1.3 million.

The court also said that on an application for security for costs it should adopt a broad-brush approach and not “descend into the level of detail which will be examined on a detailed assessment… ”

“The question is, what amount is it just to order to protect the defendant from a costs order which the claimant is unable to pay? It is a two stage test and to introduce a limit confining the increase in security to only those items which arise from a change in circumstances is not warranted.”

The overall purpose of giving security for costs is to protect the defendant and that purposes can only be achieved if the court considers the overall figures on the basis of the up to date estimate before the court.” 

 

Do Not Delay

In Accident Exchange Ltd and another v McLean and others [2018] EWHC 1533 (Comm) (12 June 2018)

the Commercial Court  granted the application for security for costs ,but significantly reduced the amount ordered in respect of incurred costs due to the solicitors’ delay in making the application.

The decision highlights the importance of defendants taking proactive steps to monitor the claimants’ financial position to ensure that any anticipated improvement in that position which has caused the defendant to hold off from seeking security has, in fact, come to fruition.

The claimants’ case on delay originated from events in October 2016, when the claimants’ then solicitors had stated in correspondence that the claimant had completed, subject to shareholder approval, a refinancing which would strengthen the claimant’s financial position.

Consequently, the solicitors decided not to pursue security at that time.

However, the refinancing was not approved, and the solicitors did not make further enquiries until early 2018.

The claimant contended that there was culpable delay between around November 2016 and January 2018 because:

 

  • a prudent solicitor would have immediately asked for details of when shareholder approval was to be given.
  • the solicitor should have kept the matter under review, for example by inspecting the claimant’s accounts in March 2017, which would have revealed that approval had not been obtained.

 

The court noted that this was a major piece of litigation, involving very substantial costs (the solicitors’ total costs to the end of trial were estimated at £19 million).

Consequently, one would have expected the solicitors to pursue the matter and, had they done so, it was very likely that the lack of shareholder approval would have emerged.

Even if the claimant had suggested that the security application should await completion of refinancing negotiations, having regard to the date for trial, it would probably have been made earlier than it was.

On quantum, the judge noted that the solicitors sought security for 80% of their costs.

He referred to Stokors SA v IG Markets Ltd [2012] EWCA Civ 1706, in which the Court of Appeal supported the view that around 60% was appropriate.

Having regard to this and to the solicitors’ delay, he ordered “60 per cent of 60 per cent” of the incurred costs.

In relation to costs to be incurred, he ordered 60% of the costs claimed.

 

Claimant Did Not Become Defendant By Opposing Discharge Of Receivership

In JSC VTB Bank v Skurikhin and others [2018] EWHC 3072 (Comm) (13 November 2018)

the Commercial Court, part of the High Court, rejected the claimant’s argument that, by resisting an application to discharge a receivership, it had effectively become the defendant, and thus could seek security for costs of that application.

Here receivers have been appointed by way of equitable execution over interests in a limited liability partnership and the claimant opposed the application to discharge that receivership.

It was the claimant who had secured this appointment with a view to recovering assets from the defendant who was the principal defendant in the main litigation.

Thus the claimant was now defending an application against it and argued that, therefore, in respect of that discharge application it was effectively a defendant within the meaning of CPR 25.12(1).

The claimant argued that although this was an interim application it raised issues between the parties that were in substance independent of the main action.

The court rejected the application stating that the claimant had instigated the receivership application in the first place and that the defendant, although the applicant in this application, had not chosen to become a party to the proceedings in the first place.

The application to discharge was a defensive measure by the defendant and had no independent life of its own.

The defendant was not asserting any positive claim against the claimant.

 

 

Comment

The ability to obtain security for costs is a powerful weapon in litigation, as shown by the unsuccessful attempt by the claimant in this case to put itself in the position of being a defendant.

This case reviews a number of the authorities concerning a security for costs.

Although there have been a number of recent cases, as this piece shows, it is still an underused tool by civil litigators.

 

 

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Written by kerryunderwood

December 4, 2018 at 6:28 am

Posted in Uncategorized

DATA PROTECTION AND LEGAL PROFESSIONAL PRIVILEGE AND THE SOLICITORS ACT 1974

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Given the number of enquiries I get about this subject, I thought it would be useful to post this blog on this subject.

 

In relation to the Data Protection Act 1998 Schedule 7, paragraph 10 provides that if personal data consists of information in respect of which a claim to legal professional privilege can be maintained in legal proceedings, they are exempt from the subject information provisions.

 

That provision largely reflected Section 31(2) of the Data Protection Act 1984 which was the previous governing legislation.

 

The Data Protection Act 1998 repealed and replaced the Data Protection Act 1984 and the Data Protection Act 1998 has itself been repealed and replaced by the Data Protection Act 2018.

 

Thel text of Schedule 7 paragraph 10 to the Data Protection Act 1998 read:

 

 

10. Personal data are exempt from the subject information provisions if the data consists of information in respect of which a claim to legal professional privilege or, in Scotland, to confidentiality as between client and professional legal adviser, could be maintained in legal proceedings.”

 

 

Section 31(2) of the Data Protection Act 1984 read:

 

 

“(2) Personal data are exempt from the subject access provisions if the data consist of information in respect of which a claim to legal professional privilege (or, in Scotland, to confidentiality as between client and professional legal adviser) could be maintained in legal proceedings”

 

 

The Data Protection Act 1984 applies in relation to data up to March 2000 and the Data Protection Act 1998 applies from March 2000 until 24 May 2018 and the Data Protection Act 2018 applies from 25 May 2018 onwards.

 

The issue of legal professional privilege is dealt with in paragraph 19 of Schedule 2 to the Act and reads:

 

 

“19. The listed GDPR provisions do not apply to personal data that consists of—

 

(a) information in respect of which a claim to legal professional privilege or, in Scotland, confidentiality of communications, could be maintained in legal proceedings, or

 

(b) information in respect of which a duty of confidentiality is owed by a professional legal adviser to a client of the adviser.”

 

 

Applications by former clients of solicitors are governed by the Solicitors Act 1974, not the Data Protection Acts.

 

It is true that under the doctrine of implied repeal, in so far as there is an inconsistency between two Acts of Parliament, the latter is deemed to have repealed the earlier.

 

Clearly all of the Data Protection Acts post-date the Solicitors Act 1974.

 

However, in my view, given the provisions that I have quoted above, there is no inconsistency between the Solicitors Act 1974 and the various Data Protection Acts and the Solicitors Act 1974 remains good law.

 

Section 68 of the Solicitors Act 1974 reads:

 

 

“(1) The jurisdiction of the High Court to make orders for the delivery by a solicitor of a bill of costs, and for the delivery up of, or otherwise in relation to, any documents in his possession, custody or power, is hereby declared to extend to cases in which no business has been done by him in the High Court.

 

(2) The county court and the family court each have the same jurisdiction as the High Court to make orders making such provision as is mentioned in subsection (1) in cases where the bill of costs or the documents relate wholly or partly to contentious business done by the solicitor in the county court or (as the case may be) the family court.

 

(3) In this section and in sections 69 to 71 “solicitor” includes the executors, administrators and assignees of a solicitor.”

 

 

This issue was recently considered by the Queen’s Bench Division of the High Court, on appeal from the Senior Courts Costs Office, in the case of

 

 

Hanley v JC & A Solicitors and Green v SGI Legal LLP [2018] EWHC 2592(QB).

 

 

In that case the Queen’s Bench Division, on appeal from the Senior Courts Costs Office, held that the court had no power to order a solicitor to make and supply to her or his client, or former client, copies of documents which are the property of the solicitor, even if the client/former client was prepared to pay reasonable costs for that tasks.

 

The court held that it neither had any inherent jurisdiction in its capacity as a court supervising officers of the court, nor under section 68 of the Solicitors Act 1974.

 

Thus the High Court upheld the decisions of the Senior Courts Costs Office in each of these cases and overruled the decisions in

 

Swain v JC & A Ltd [2018] EWHC B3 (Costs) ; and

 

The Mortgage Business PLC and others v Taggart [2014] NICh 14 –

 

a decision of the High Court in Northern Ireland.

 

These cases are parts of a body of cases involving low value personal injury claims funded by Conditional Fee Agreements, and which have attracted significant judicial attention.

Here, in each case, the clients/former clients retained the solicitors in relation to the recovery of compensation for injuries sustained in a road traffic accident and the retainer was a Conditional Fee Agreement entered into after recoverability and limiting the solicitors’ recovery of their success fee to the statutory maximum of 25% of the relevant damages recovered.

Upon settlement of each claim that total percentage, and the After-the-Event premium in addition, was deducted.

In each case the clients instructed fresh solicitors for the initial purpose of obtaining advice on whether to exercise their right to a detailed assessment of the solicitors’ fees pursuant to section 70 of the Solicitors Act 1974 which allows the High Court to make an order for assessment of the solicitor’s bill by the court.

Although the specific facts of the request for documents varies, in the Hanley case JC & A offered to supply copies of documents belonging to them for a fee of £644, based on 4 hours’ work at £161 an hour, and the former clients refused to pay that sum.

 

In the other case the solicitors refused to supply any documents belonging to themselves.

The case sets out the authorities in detail, both in relation to the Solicitors Act 1974 and the court’s inherent jurisdiction over solicitors in their capacity as officers of the court.

The court held that it had no jurisdiction to make orders under the inherent jurisdiction and/or section 68 of the Solicitors Act 1974 in respect of documents which are the property of the solicitors.

It said that, as a matter of principle, an order for delivery up or otherwise in relation to property belonging to another must have an explicit legal basis.

The powers in section 68 are derived from the inherent jurisdiction of the court, and not from the Solicitors Act itself.

The section simply extends the reach of the jurisdiction to cases in which no business has been done in the High Court.

It reflects the provisions of successive statutes governing solicitors.

Thus the scope of the jurisdiction is to be identified from case law, rather than interpretation of the statute itself.

Here, the High Court found that case law gave no authority for the proposition that the court has a discretion under its inherent jurisdiction to order up delivery of, or make other orders in respect of documents, which belong to the solicitor.

If the document and its contents are the property of the solicitor, which the solicitor is entitled to retain, then there is no basis for circumvention of that proprietary right by some other form of order.

The court referred, with approval, to the publication by the Law Society – “Who owns the file?”

These critical requirements of ownership cannot be overcome by reference to section 68, or the overall purpose of Part III of the Solicitors Act 1974, nor by analogy with the pre-disclosure provisions of CPR 31.6, nor with the court’s powers on a section 70 application, nor with the rationale of the required ingredients of a Statute Bill or the requirements of Practice Direction 46, paragraph 6.4.

The inherent jurisdiction of the court does not provide a form of pre-action disclosure of documents belonging to the solicitor.

In so far as the Law Society’s letter of 28 June 2018 says otherwise, then it is wrong, as are the decisions in Swain and Taggart.

 

This decision was made after the coming in to force of the Data Protection Act 2018, itself implementing the highly controversial and very well publicised General Data Protection Regulations, so there is no possibility at all that the court was unaware of its existence; the court took the same view as me, that is that the Solicitors Act 1974, and not the various Data Protection Acts, is the relevant legislation.

 

 

Underwoods Solicitors are the solicitors for the Joint Administrators in The Cambridge Analytica case.

Written by kerryunderwood

November 27, 2018 at 6:48 am

Posted in Uncategorized

NO GENERAL RIGHT TO CHARGE BEFORE END OF CASE

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In Gill v Heer Manak Solicitors [2018] EWHC 2881 (QB) (30 October 2018)

the Queen’s Bench Division of the High Court held that a firm of solicitors which ceased trading and terminated a client’s retainer without reasonable notice was not entitled after that termination to recover any costs for work done prior to the termination.

The defendant firm of solicitors acted for the claimant client in litigation.

Four months before the trial date it ceased trading as it was unable to obtain professional indemnity insurance.

It informed the client of this and, without consent, transferred the file to another firm of solicitors.

The retainer enabled the firm to terminate its on “reasonable notice” and to charge fees even though the work, the entire obligation, had not been completed.

The Master at first instance held that in the circumstances no notice was “reasonable notice” finding that it was not commercially sensible for a firm to give advance warning of a risk that it might close down due to an inability to get insurance.

Over three years after it had ceased trading the firm made a claim against the claimant/client for costs.

On appeal the High Court held that the Master had erred in making assumptions about the firm’s predicament in the absence of factual evidence, emphasizing the need to consider the client’s perspective and to balance the interests of both sides in order to consider the objective test of reasonableness.

The client had been left without cover during a holiday period,  just days after a tight timetable had been imposed at a Case Management Conference.

The High Court questioned whether the replacement firm had the necessary expertise and doubted that the firm had authority to transfer the file.

 

The High Court also set out the law in relation to solicitors’ retainers:

 

“13. A solicitor’s retainer to conduct litigation is an example of what, although known as an “entire contract”, is better described as involving an “entire obligation”: see Vlamaki v Sookias and Sookias [2015] EWHC 3334 (QB)[2015] 6 Costs LO 827 at paragraph 10. The “entire obligation” is, in effect, a condition precedent which must be satisfied before remuneration can be claimed: a solicitor can generally only claim remuneration when all work has been completed, or when there is a natural break. That, however, is subject to a common law exception and to any agreement to the contrary.

   

Here, the relevant part of the retainer stated:

 

“[29] We may decide to stop acting for you only with good reason, for example, if you do not pay an interim bill or comply with our request for a payment on account. We must give you reasonable notice that we will stop acting for you.

[30] If you or we decide that we will no longer act for you, you will pay our charges on an hourly basis and expenses.”

 

The example of failure to pay an interim bill, or comply with a request for a payment on account, is the common law exception referred to in paragraph 13 of the judgment.

Any notice must be reasonable. There may be occasions when no notice is reasonable, for example because of the death or bankruptcy of a solicitor.

 

Comment

This is a fact specific case where the solicitors produce no evidence.

However, it is a useful reminder that litigation contracts, whether or not under a Conditional Fee Agreement, are entire contracts and there is no general right to charge anything before the end of the case, unless that is contractually provided for.

 

Written by kerryunderwood

November 26, 2018 at 6:31 am

Posted in Uncategorized

INDEMNITY COSTS ON DISCONTINUANCE

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In Hosking and another v Apax Partners LLP and others [2018] EWHC 2732 (Ch) (18 October 2018) 

the Chancery Division of the High Court awarded indemnity costs against claimants who, suddenly and without explanation, discontinued their case four days into a six week trial.

The claimant liquidators had pursued “high-risk litigation aggressively and very expensively” “after failure of one sort or another in multiple jurisdictions, without demonstrable support in the contemporaneous documentary evidence; that the shape of the proceedings abroad, and the publicity the claims seemed to have been calculated to attract committed the liquidators to an inappropriate form of action.”

The court found that the claimants had intentionally used the court as an anvil for settlement, not for adjudication and that was close to an abuse.

They had shoe-horned their complaints, including allegations of dishonesty, fraud and serious commercial impropriety into a claim under section 423 of the Insolvency Act 1986.

The usual factors to be considered in relation to indemnity costs apply on discontinuance, and include:

  • serious unwarranted allegations;
  • grossly exaggerated claims;
  • speculative pursuit of litigation;
  • courting of publicity designed to force a settlement.

 

The court recognised that applying these factors on discontinuance, when the evidence had not been heard, makes it more difficult to assess the reasonableness of the parties’ conduct, but said the court should not shy away from ordering indemnity costs on discontinuance where appropriate.

The fact that the Civil Procedure Rules provide for payment of standard costs on discontinuance does not make the indemnity costs hurdle higher in such cases.

The emphasis is on whether the paying party’s conduct or the circumstances of the case take it out of the norm.

Although adjudication of the merits of the case is not the court’s job on discontinuance, the court may still assess whether a claim may have been pursued for reasons other than merit, and to infer from an unexplained discontinuance that it was, and always has been, weak.

Written by kerryunderwood

November 23, 2018 at 6:46 am

Posted in Uncategorized

ENTITLEMENT TO ISSUE FOR COSTS ONLY

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In Ayton v RSM Bentley Jennison and Ors [2018] EWHC 2851 (QB)

the Queen’s Bench Division of the High Court ordered a defendant to pay costs where terms of settlement of damages had been agreed before proceedings had been issued, but where the defendant had refused to pay costs.

The claimant sent the defendant a Professional Negligence Pre-Action Protocol letter seeking £100,000 damages plus interest and costs.

The defendant sent the claimant a cheque for the full amount of damages and interest, but refused to pay costs, stating that there was no obligation to do so pre-issue and no mechanism for the claimant to claim costs when the defendant had paid the full amount due.

The claimant returned the cheque and issued proceedings for £100,000 plus £1,500 consequential loss and expense, and £30,000 in relation to a car upgrade.

The defendant pleaded tender before claim and paid £103,576 into court and defended the action and pleaded that it had no liability to pay costs.

At trial the claimant was awarded £119,578.22, including interest. The car upgrade claim was dismissed.

The claimant was awarded 70% of its costs up to the Case Management Conference and was ordered to pay 80% of the defendant’s costs thereafter.

The defendant had ignored a number of Part 36 offers, but the court held that it would be unjust to apply the normal consequences of the defendant’s failure to beat the claimant’s offers as the claimant had pursued the car claim to trial at disproportionate expense and that amounted to an abuse of process.

The High Court allowed the claimant’s appeal, stating that the Pre-Action Protocol places the onus to avoid proceedings on both parties.

It must have been obvious to the defendant that an investigation into serious allegations against a reputable professional firm would incur significant costs and the defendant had acted unfairly in refusing to pay any of the claimant’s pre-action costs.

The only option for a claimant where a pre-action offer is made to pay damages, but not costs, is to issue.

The High Court made interim costs order of £430,000.

The High Court held that it was legitimate and reasonable to issue proceedings purely to recover costs:

“Most parties who capitulate will bow to the inevitable and offer to pay the other side’s reasonable costs.” (Paragraph 46).

 

“The only option  left to a claimant in circumstances where a pre-action offer is made to pay damages  but  there  is  a  persistent  refusal  to  cover  legal  costs  is  to  issue  proceedings.” (Paragraph 48).

 

“It was wrong that a claim had had to be issued at all. It would not  have  had  to  have  been  if  the  defendants  had  made  an  offer  to  settle  the  claimant’s reasonable costs at the same time as (effectively) conceding his claim.” (Paragraph 55).

 

Comment

This is a difficult area. The starting point is of course that pre-action no costs are payable, and that is why pre-issue work is non-contentious.

However, the moment proceedings are issued, the successful party can recover pre-issue costs in the same way as post-issue costs, and that is why, upon issue of proceedings, pre-issue work retrospectively becomes contentious.

Thus where, as here, the defendant refuses to pay costs, then the claimant can issue, and upon issuing it becomes entitled to its pre-issue costs.

The issue will then be whether or not issuing proceedings was reasonable.

Personal injury lawyers will be well aware of this; it is standard practice outside the protocol procedure to create a contractual entitlement for costs if a matter is settled or pre-issued, and defendants virtually always agree, knowing that in the absence of agreement, the claimant can issue and will then be entitled to pre-issue costs.

As in many other areas, general civil litigation lawyers are often woefully ignorant of general costs principles.

Here, the unsuccessful defendant, who was fairly obviously bound to lose on this point, was represented by Clyde and Co, who specifically stated that they had Leading Counsel’s opinion stating that there was no liability for costs in these circumstances.

The claimant was represented by Mr Ben Williams QC, who does know the law on costs.

Written by kerryunderwood

November 21, 2018 at 6:30 am

Posted in Uncategorized

PART 36: THREE NEW DECISIONS

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No Interim Costs Payment

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.”

 

 

Part 36 Offer Only Covers the Claim When Made, Not the Claim When Accepted

In Bentley Design Consultants Ltd v Sansom [2018] EWHC 2238 (TCC) (29 August 2018)

the Technology and Construction Court, part of the Queen’s Bench Division of the High Court, held that a Part 36 offer made by a claimant could not be held to cover matters that the claimant added to the action after the Part 36 offer was made.

This was a professional negligence action in relation to a survey carried out on two properties, but when proceedings were issued they only related to one plot.

On 23 April 2015 the claimant made what was accepted to be a valid Part 36 offer in relation to that claim and it referred to the claim number, and it was common ground that at that stage it was an offer to settle the claim in respect of the first plot only as the only claim that had been made was in relation to that plot.

The offer was not accepted and later the Particulars of Claim were amended to plead a case in relation to Plot 2, which then formed part of the same claim, with the same claim number.

In November 2016 the defendant then purported to accept the Part 36 offer that had been made in April 2015 and the dispute was whether that acceptance covered both plots, or only the first plot, which was the only dispute in existence when the Part 36 offer was made.

The Circuit Judge held that the acceptance only covered the first plot, and here, on appeal, the High Court upheld that decision.

 

Comment

This decision is wrong. If a Part 36 offer is made in relation to the whole of a claim, and is not withdrawn, and is then accepted, the whole of the claim at that stage must be compromised.

Otherwise, for example, where a defendant decided to accept the offer because it looked as though the claimant’s damages might be higher – perhaps because of a longer than expected period of recovery in the personal injury case – then this logic would mean that the acceptance only covered the claim as formulated at the time of the offer.

Here, the claimant’s remedy was simple – it could have withdrawn the Part 36 offer once it added another claim by amending the Particulars of Claim.

On the logic of this decision, any amendment to any pleading at any stage means that any pre-amendment Part 36 offer can only be for part of the case.

 

Accepted Part 36 Offer Can Be Communicated To Judge, Even Though Case Continues

In Sir Cliff Richard v BBC and Chief Constable of South Yorkshire Police [2018] EWHC 2504 (Ch) (March 2018)

the Chancery Division of the High Court held that a Part 36 offer can be communicated to the trial judge where the Part 36 offer has been accepted, even if the case has not concluded.

CPR 36.16 provides that the existence and terms of a Part 36 offer must not be communicated to the trial judge until the case has been decided.

In a claim brought by Sir Cliff Richard against the BBC and the South Yorkshire Police, the two defendants had served contribution notices on each other under the Civil Liability (Contribution) Act 1978.

South Yorkshire Police subsequently made a Part 36 offer and settled with Sir Cliff.

The terms of that settlement were disclosed to the BBC.

At the pre-trial review, the BBC maintained that the terms of the settlement, particularly the settlement sum, would be material at trial.

South Yorkshire Police gave several reasons why the information should be withheld from the judge at trial, including the restrictions in CPR 36.16.

Noting that CPR 36.16 exists so that parties can make offers to each other without the risk that those offers will be held against them in the proceedings, the court found that, once there is a binding settlement agreement, those considerations fall away.

There is no longer a Part 36 offer but a binding agreement, and CPR 36.16 does not apply to that situation.

Although South Yorkshire Police was still a party to the contribution proceedings, the Part 36 offer had not been made in those proceedings but rather to settle Sir Cliff’s claim against South Yorkshire Police.

The court therefore rejected the argument that CPR 36.16 provided a basis for not referring to the settlement terms at trial.

The court nevertheless had a discretion to refuse disclosure, depending on the relevance of the information and the prejudice caused by its disclosure.

In that regard the prejudice would have to be very heavy to outweigh a case of relevance, especially a strong one.

Ultimately these matters would have to be dealt with at trial, once South Yorkshire Police had clarified in an amended contribution notice, how it could pursue its contribution claim against the BBC without reference to the settlement sum.

 

Written by kerryunderwood

November 20, 2018 at 6:28 am

Posted in Uncategorized

LIQUIDATION: INDIVIDUALS BEHIND LIMITED COMPANY: INDUCING BREACH OF CONTRACT AND UNLAWFUL MEANS CONSPIRACY

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In Palmer Birch (A Partnership) v Lloyd [2018] EWHC 2316 (TCC)

the Technology and Construction Court  upheld economic tort  claims by a building contractor against two individuals who directed the affairs of the limited company with which the building contractor had contracted under a JCT contract.

 

The judge found that:

 

  • The first defendant and the second defendant had committed unlawful means conspiracy by colluding to bring about the limited company’s liquidation so that it could escape the contract and avoid having to pay the building contractor for the work done.
  • The first defendant, who was the limited company’s sole funder, though not a director, had induced the limited company’s breach of contract.

 

The contract concerned the renovation of a house in which the limited company had a leasehold interest and where the freehold was held by a company beneficially owned by the first defendant, whose English residence it was.

The first defendant was non-UK domiciled and had deliberately not become a director of the limited company so as to distance himself from the limited company’s affairs and by interposing the limited company between himself and the property, he benefitted financially.

However, he behaved throughout as the effective client under the contract, and the key decision-maker.

The first defendant’s decision to divert his funding away from the limited company persuaded the judge that he had crossed the line from “merely preventing” the contract to inducing its breach.

The first defendant had treated the works as a “pay as you go” arrangement, not a contractual commitment and the second defendant was denied the protection of the corporate veil regarding the conspiracy element.

He had acted neither constitutionally nor in good faith.

Written by kerryunderwood

October 15, 2018 at 7:24 am

Posted in Uncategorized

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