COSTS AFTER A PART 36 OFFER AFFECTED BY THE CHANGE IN THE DISCOUNT RATE: CONDUCT OF DEFENCE ALONE SUFFICIENT TO JUSTIFY INDEMNITY COSTS

I have written several times about the judgment of Thirlwall LJ in Marsh -v- MOJ*. I have been provided with a copy of a note of the judgment on costs given on the 31st July 2017. I am grateful to barrister Andrew Roy for making his very detailed note  available to me. (Andrew has an article on this judgment on the 12 KBW website together with a full note of his judgment which has been agreed between the parties).

THE CASE

The claimant succeeded in a claim for damages for personal injury for just over £286,000.  There were a number of issues in relation to costs. The claimant had made an early Part 36 offer that had been beaten. However the judge held that it had been beaten only because of the change in the discount rate.

  • The judge held that the Part 36 consequences should not apply from that date.
  • However the consequences did apply from the date of a later offer. The claimant obtained additional interests from that date and additional damages.
  • Indemnity costs were ordered based on the date of service of an amended defence. That defence amounted to a “significant misjudgment” and the defendant’s conduct of the matter thereafter was sufficient to attract indemnity costs.

SHOULD THE CLAIMANT RECOVER ALL OF HIS COSTS?

The judge considered whether the claimant should recover all the costs.

  1. “Whether the Claimant should recover his costs of the action in full or only a proportion.
The usual rule is that costs follow the event. Mr Holloway argues for a 30% reduction because the Claimant did not succeed in establishing a number of allegations. He set down everything in writing on which he says the Claimant failed. In my judgment most of the issues raised by the Claimant were at least arguable save for the allegation that it was the Defendant’s negligence that the search occurred in the manner in which it did. I indicated as early as the PTR that this was unlikely to succeed and so it proved once  I had heard the evidence and considered the submissions on the law.
That having been said I have also found, and will not repeat, that the allegation at 11(i) was also hopeless and should not have been brought.
I then look at the result of the pleading at paragraph 11 more generally. In most respects the Defendant has failed in its positive claim. It also ultimately failed in respect of the claim for negligence. As the authorities will require, I have stepped back and looked at this case in the round. I have had the opportunity of rereading the judgment and I consider that on any fair reading of the judgment the Claimant was successful. Accordingly I am satisfied that the Claimant should have the whole of the costs of the trial without any reduction.”

INDEMNITY COSTS

  1. “Should the Claimant recover costs on the indemnity basis whether as a result of the provisions of part 36 or the Defendant’s conduct?
I have already set out the conduct of the litigation generally and the dates of the part 36 offers.
I invite the shorthand writer please to incorporate into the judgment now the provisions of part 36.17(1)(b) and (3).
I shall deal first with the first part 36 offer. Mr Holloway began his submissions by reference to the nature of this litigation and the fact it is out of the ordinary. I reject that argument. It is of no avail on the part 36 issue.
The question that I have to decide is whether or not the various consequences of paragraph 1(b) should follow and whether it is unjust that they should. Really at the heart of Mr Holloway’s submission is this: but for the change in the discount rate in March of this year, the Claimant would not have exceeded the offer of £223,500 made on 20 March 2014. He relies on the decision in particular of Leggatt J in Novus Aviation Ltd vs Alubaf Arab International Bank [2016] EWHC 1937 (Comm).
In that case, the judge concluded that it would be unjust for the consequences of part 36 to flow when the reason that the sum had been exceeded was because of a dramatic fall in sterling just after the EU referendum on 23 June 2016. That had the effect of significantly reducing the dollar value of the part 36 offer. The judge went on to say that if judgment had been entered at any time the claimant would not have beaten his offer. In those circumstances it would be unjust to order indemnity costs.
In his reply to that submission, Mr Roy says that is not the case here. £286,572.87 was at all times worth more than £180,000 and £223,500. That is true but the reality is that had the matter reached trial earlier or indeed had it reached judgment at any stage before March 2017, the damages would have been less than the amount of the part 36 offer.
Mr Roy submits that in reality the position is no different from that which occurs when medical evidence changes in a way that cannot be foreseen and in particular, computation of life expectancy as a result of scientific research. These are vicissitudes of litigation and they don’t make it unjust for part 36 consequences to flow.
However, it seems to me that a change to the discount rate is different in kind. True it is, as Mr Roy points out, that since 2012 it has been known that the Lord Chancellor has been reviewing the discount rate but considering the whole context of this case it would not be just for the usual consequences to flow from the offer in 2014.
However, that is not the end of the matter. The later offer in October 2016 was clearly a genuine attempt to avoid the trial. I should add that I am quite satisfied that the original part 36 offer was a genuine attempt to settle the case and certainly was a minimum to open negotiations in which the Defendant was apparently not interested. The offer in October 2016 again certainly had the same character. It was I think not even referred to by the Defendant but it was certainly rebuffed.
Between the two dates was the amendment of the defence in July 2016. I do not wish to labour the point but in my judgment this was a significant misjudgment by the Defendant, for the reasons which are known to them and may involve some notion of public policy, but as of that date it seems to me that the conduct of the defence was such that from that date indemnity costs are payable.
Whatever the position in respect of the part 36 offer in 2014, there is frankly no answer to the part 36 offer made in 2016. On any view, there is no injustice for the consequences of the part 36 offer to flow. The Claimant has done better than the second offer by a very significant margin irrespective of the change in the discount rate. There is no arguable injustice in my view.
Accordingly, I shall order that the Defendant should pay to the Claimant additional sums pursuant to CPR 36 as follows:
  • Additional interest from 8 November 2016 (date of expiry of the second offer) at 8.5% on general damages and on past losses at 10%.
  • I also make the order that the additional award be made in the sum of 10% of the damages as proscribed by part 36 i.e. £28,657.29.”

 

 

COSTS OF THE ABUSE OF PROCESS ARGUMENT

“I turn then to the question of the costs of the abuse of process argument.
Adopting the same approach as I took in relation to the main judgment, I have reviewed my decision in relation to the abuse of process argument. I remind myself that I did not think it unreasonable that the application was made given the state of the evidence in the period just before trial and the dismissive approach taken by the Defendant to the Claimant’s legitimate concerns which were expressed in clear terms at the PTR. I have now reminded myself that I had said at the PTR that I expected a response to what had been said by Mr Hurley to the Claimant’s solicitors. It was not until I directed it that the substantive response was given. It came sooner than it would otherwise have been required by the rules but I wanted clarity before the trial started.
The Defendant complains that the Defendant’s preparation for trial was disrupted by this application. I fear that was the inevitable result of the way in which the litigation had been conducted up to that point.
The heart went out of the application once Mr Hurley had given his evidence, was cross- examined and re-examined. To pursue it to the very end, which was understandable in one way, was somewhat wasteful of time and resources, both legal and judicial albeit that it was at the very end of the trial.
Standing back, as I did earlier in this judgment, it is quite clear that in the end the Defendant was successful and the Defendant may have its costs of defending the abuse of process argument on the standard basis to be assessed if not agreed.”

PAYMENT ON ACCOUNT OF COSTS

“The starting point is CPR 44.2(8).
The issues are for me:
  1. Is there a good reason not to order the MOJ to pay a reasonable sum on account of costs;
  2. If no, what is a reasonable sum?
I ordered that the Defendant will pay the Claimant’s costs subject to a detailed assessment and there will, I have no doubt, be significant argument about the final sum which is payable. That is not a good reason not to order a reasonable sum on account. Mr Holloway did not raise any argument in principle against it. His submissions were directed to the overall level of costs which he says are far too high (that in the end will be a matter for the judge in the end who determines the costs) but he also says that the sum should be calculated on the base costs without uplift or insurance premium.
So far as the uplift is concerned, I don’t accept that argument. There is no evidence of any technical issue or defect in the CFA and the overwhelming likelihood is that the Claimant will get 100% on the uplift. The case could scarcely have been harder fought.
A further submission is made that the Claimant’s team was much larger than that of the Defendant. The question of the adequacy of resources on either side is a matter for the costs judge. In particular, he will be considering the size of the Claimant’s team relative to the size of exercise and the trial. I say nothing more about it.
I look at the costs bills on both sides. As is often the case, the costs are enormous when compared with the sum recovered. I note Mr Holloway’s submission towards the end of his oral submissions last week that although the costs estimate upon which the Claimant relies (namely the Defendant’s without prejudice estimate with the Listing Questionnaire) were £734,615 (which Mr Roy submits stripped of uplift and so on is in fact more than the Claimant’s own costs), Mr Holloway said that in the event it was likely that the costs were likely to be £550,000. That is surprising given the sum already incurred by mid 2015 and the fact that costs to date on the document were £530,286 but I accept that there may have been some problem or errors in the billing process, perhaps something to do with timing and I say nothing more about that. It would not be fair in any event to do a direct comparison between the costs incurred on each side.
However, doing the best that I can on a somewhat rough and ready basis I would accept that I cannot see there is any likelihood that the ultimate costs bill will be less than
£900,000. So accordingly I must take a reasonable proportion of that which I take to be£600,000 and I order that the Defendant pay this to the Claimant on account of costs by the date in the order i.e. 28 August 2017.”

 

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