THE COSTS CONSEQUENCES OF PART 36 OFFERS: DO THEY ALWAYS APPLY? THE CASES IN DETAIL

October 27, 2013 · by · in Civil Procedure, Costs, Part 36

The costs consequences when a claimant fails to beat a Part 36 from the defendant are well known and long established.   The advantages for a claimant who now beats their own offer were examined in a previous post.  Here we look at the rules and recent cases relating to Part 36 and costs.

 The rule

The rule itself is quite clear:

“Costs consequences following judgment

 36.14

(1) Subject to rule 36.14A, this rule applies where upon judgment being entered –

 (a) a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer; or

(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer. 

(1A) 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.

 (2) Subject to paragraph (6), where rule 36.14(1)(a) applies, the court will, unless it considers it unjust to do so, order that the defendant is entitled to –

(a) costs from the date on which the relevant period expired; and

(b) interest on those costs.

 (3) Subject to paragraph (6), where rule 36.14(1)(b) applies, the court will, 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 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) an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is –

(i) where the claim is or includes a money claim, the sum awarded to the claimant by the court; or

(ii) where the claim is only a non-monetary claim, the sum awarded to the claimant by the court in respect of costs –“

 

“Unjust”: the criteria to be considered

 Guidance as to what is meant by “unjust is given in CPR 36. 14 (4).

(4) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3) above, the court will 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; and

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

THE BURDEN OF PROOF

 The important point to note is that these costs consequences apply unless the court “considers it unjust to do so.”  The presumption is that the consequences apply. It is for the paying party to persuade the court that they do not.

Cases where the court has considered CPR 36.14(4)

 This issue was considered in the judgment of Lady Justice Black in SG –v- Hewitt [2012]  EWCA Civ 1053 The claimant was a child. A Part 36 offer had been made when the prognosis was uncertain.  The offer was accepted at a later date.

Black L.J. considered whether any standard rules could be set down:

 “29 I do not think it wise to attempt to prescribe or restrict in the abstract the circumstances in which the court may reach the conclusion that it is unjust to make the normal order. Rule 36.14(4) requires that, in considering whether it is unjust to make the normal order, the court must take into account all the circumstances of the case. The four factors specifically identified as relevant cast quite a wide net on their own but they are not the only matters that fall for consideration and anything else which is relevant must be considered as well. Costs decisions are particularly sensitive to the facts of the individual case.”

 There were, however, factors that had to be considered:

1.         The status of the claimant

 In particular the fact that the claimant was a child or patient could be important.

2.         The reasonableness of the claimant

 All parties were held to have acted reasonably. The defendant in making an early Part 36 offer; the claimant in waiting for a definite prognosis before accepting it. 

3.         The contingencies of litigation

 It was not a simple answer to the issue to state that failing to beat a Part 36 offer was one of the “contingencies of litigation”.

4.         Each case is fact specific

 Black LJ made it clear that every case was fact specific.

“The defendant rightly invited us to be careful in reaching our decision that we did not condemn the courts to intensive investigations in every Part 36 case as to how the parties should have approached an offer; I would be equally resistant to encouraging a time-consuming practice of citing authorities on costs for the purpose of persuading courts to follow decisions on the facts as if they were precedents. This too has the capacity to lead to intensive investigations designed to demonstrate similarities and differences between the two sets of facts. I would therefore hope that a firm distinction is made between, on the one hand, principle and guidance which can valuably be transported from one case to another and, on the other, consideration of the individual facts which cannot.”

A DECISION ON THE FACTS

On the facts that that case the Court of Appeal overruled the decision at first instance that the claimant should pay the defendant’s costs following the Part 36 offer and ordered that the claimant should have its costs throughout.   Many of the costs incurred after the offer were incurred in order that the claimant could assess whether the offer was reasonable, and this was necessary in order that the claimant could obtain approval from the court.  However the fact that approval was needed is not always a determinative factor.

Further Black LJ reiterated the fact that each case is fact specific:

“73 Some words of caution: as I have already said, costs decisions are particularly fact sensitive. The view I have formed of this case, albeit a clear one, is an amalgam of all of its features. It is unlikely that they would be replicated precisely in another case. The various factors interact with each other and just as Stanley Burnton J identified in Matthews that a particular change in the circumstances there may have led to a different result, so differences between the facts of this case and the facts of other cases may mean that the result in the other case should differ from the result in this one.”

DEPRIVING DEFENDANT OF PART 36 COSTS BECAUSE OF UNREASONABLE REFUSAL TO MEDIATE

 The facts of  PGF II SA –v- OMES Company I Limited [2013] EWCA CIV 1288 were looked at in a recent post on this blog, http://civillitigationbrief.wordpress.com/2013/10/23/mediate-or-else-the-costs-consequences-of-refusing-to-mediate/.

The Court of Appeal upheld a decision not to order that the claimant pay the defendant’s costs after a Part 36 offer which was accepted late on the grounds that the defendant had, unreasonably, refused to enter into mediation.

Claimant was not awarded costs

 The Court of Appeal also refused the claimant’s appeal that they should be awarded their costs because of the refusal to mediate. The Court held that the courts had that power however it had to be reserved for exceptional cases.

“While in principle the court must have that power, it seems to me that a sanction that draconian should be reserved for only the most serious and flagrant failures to engage with ADR, for example where the court had taken it upon itself to encourage the parties to do so, and its encouragement had been ignored. In the present case the court did not address the issue at all. I therefore have no hesitation in rejecting Mr. Seitler’s submission that the judge did not go far enough in penalising the defendant’s refusal to engage with ADR.”

Disallowance of the whole of the successful defendant’s costs

 Lord Justice Briggs held that he would have concluded that a part of the successful defendant’s costs should have been disallowed rather than the whole of them.  However the discretion belonged to the first instance judge. Depriving the defendant of the whole of the costs was within the range of proper responses to the “seriously unreasonable conduct which the judge identified.”

NOT GIVING A SUCCESSFUL CLAIMANT ADDITIONAL DAMAGES: THE DECISION IN FELTHAM –v- FREER BOUSKELL[2013]  EWHC 3086 (Ch)

Feltham was a case where the defendant failed to beat the claimant’s Part 36 offer which had been made 26 days before trial.  Charles Hollander QC allowed the claimant the additional interest provisions and indemnity costs but did not make the additional order for damages (which would have been an additional £75,000 in that case).   In relation to the timing of the offer he stated:

“13. I have taken into account also the very much last minute when this offer was made.

Given that the jurisdiction to make an order only arises when the 21 day period for the offer has expired before the trial and when the Claimant beats the offer, it must follow that (4)(b) envisages that the court may take into account whether the offer was made a long or a short period before the commencement of the trial. Where enhanced interest is in issue under CPR 36.14(4)(c ), the length of time since the offer is reflected in the amount of interest awarded (i.e. because the period of time is very short here). But where the lump sum is in issue, the rule has in mind an “all or nothing” order and contemplates that expiry of the 21 day period only a very short period of time before the trial, as here, may be a factor in rendering making the payment order unjust. The fact that the claimant only just beat what was recovered makes no difference in my judgment”

The facts of that case

There were several factors relating to the particular facts of the case which enjoined against awarding the lump sum.  A major argument in the case was not pleaded; some disclosure had arrived late.

Pro quid pro

The judgment also made it clear that the decision not to award the £75,000 had an impact on the judge’s decision as to costs.

 18. Had I not decided that it was unjust under r36.14(4) to refuse an order for £75,000, I would have made a deduction from the claimant’s costs to take into account these matters. However having reached a view in respect of the £75,000, for the reasons set out above, and taken into account in that regard (i) and (ii) it would in my judgment be unfair to the claimant to penalise her a second time in respect of the first two matters., Matters (iii) and (iv) would not on their own have been sufficient to deprive the claimant of costs. Thus having in mind very much my previous decision in respect of the £75,000, I do not make any reduction for the plaintiff’s costs and I order the claimant should recover all her costs. For the avoidance of doubt, if I had not declined to order payment of the £75000 lump sum, I would have ordered that the Claimant should receive less than the full amount of her costs.”

RECIPIENTS OF PART 36 OFFERS SHOULD NOT GET COMPLACENT

The danger in examining cases where the Part 36 consequences have not applied is that it could give the impression that the consequences can be readily avoided. In the vast majority of cases the consequences will be applied.

It is important that other cases are read to counter any impression that the consequences of Part 36 can easily be avoided.

Matthews –v- Metal Improvements Co Ltd [2007] EWCA Civ 215

The Court of Appeal allowed an appeal by the defendant where a judge had declined to impose the usual penalties where a claimant was given permission to accept an offer out of time.

“33 Moreover, the Deputy District Judge’s approach is based on a misunderstanding of the function of a Part 36 payment or offer. The Defendant may make a conservative payment in the hope that it will tempt the claimant to accept a conservative estimate of the value of his claim. He may make a generous Part 36 payment because he is reluctant to incur the risks and costs of going to trial, and hopes thereby to avoid them. The Defendant may quite properly make a low payment in the hope that events or evidence will favour him: for example, that his expert will advise favourably in due course; that a prognosis of the claimant’s injuries which are the subject of his claim will prove over-pessimistic; that cross-examination of the claimant or his witnesses may be successful; or that the trial judge will quantify general or special damages modestly. Conversely, there is nothing unreasonable in a competent claimant rejecting a Part 36 payment in the hope that at trial the judge will take a generous view of his damages. The risks that the parties run are costs risks, in the case of the defendant that he will have to pay all of the claimant’s costs, notwithstanding his payment, and in the case of the claimant that he will have to pay the defendant’s costs from the last date when he could have accepted the payment. In other words, the function of a Part 36 payment is to place the Claimant on that costs risk if, as a result of the contingencies of litigation, he fails to beat the payment.

34 In my judgment, the Deputy District Judge did not identify any fact that rendered it unjust to make the usual order. There was nothing to justify depriving the Defendant of the protection against costs conferred by their Part 36 payment. Furthermore, she wrongly identified the question whether it was unjust to make the usual order with the question whether the Claimant’s advisors had acted reasonably. It follows that she made her costs order on an incorrect basis and this Court is free to substitute its own decision.”

The decision on costs in Raggett

 Also read the judgment of Swift L.J. in Raggett –v- The Governors of Preston Catholic College [2012] EWHC 3641 (QB) where she rejected the claimant’s argument that the provisions of Part 36 should not apply.

“10 In this case, the claimant was at all material times an adult with full capacity. Psychiatric evidence had been prepared in advance of the limitation and liability hearing and the differing positions of the adult psychiatrists, Dr Shapero and Professor Maden, on the issue of causation had been clearly defined by the time that the trial took place. They both gave evidence at the limitation and liability hearing in accordance with their Reports. Their views at that time were not materially different from those expressed at the quantum hearing three years later.

11 The claimant had given evidence at the limitation and liability hearing and, whilst I had accepted his evidence about the abuse, I had also made clear that, at the quantum hearing, issues about his reliability in relation to other matters would arise. This was inevitable in view of the evidence that had been given about his submission of false medical evidence to the Law Society in order to avoid re-sitting all his final examinations. Moreover, I alluded in my judgment to the difficulties that he would face, more than 35 years after the occurrence of the sexual abuse, in proving the necessary causal link between the abuse and his behaviour in adulthood. Those difficulties should have been evident to him and his advisers. By the time of the limitation and liability trial, the claimant’s advisers already had a good deal of information about the claimant’s various periods of employment with different solicitors’ firms and the claimant himself had in his possession the appraisal and other documentation from those firms which cast considerable doubt on his assertions that his failure to attain partnership status at those firms had been solely attributable to a psychiatric condition caused by the abuse.

12 In short, by the time the Part 36 offer was made, the claimant and his advisers had ample information on which to make an assessment of the risks associated with the litigation. It must have been clear to them that, if the defendants’ medical evidence were accepted, the damages would be very modest and well below the defendants’ Part 36 offer of £350,000. On the other hand, if the claimant’s medical evidence were accepted in its entirety, the damages would amount to several million pounds.”

13 The facts of this case are very far from those in SG and, in my judgment, ere can be no injustice in requiring the claimant to pay the defendants’ costs from the date of the expiration of the time for accepting the Part 36 offer.”

 

SUMMARY

1. The court has discretion in relation to the costs consequences when a party is to beat a Part 36 offer or accepts an offer outside the 21 day period.

2. The court should normally apply the consequences set out in the rule unless it is “unjust” to do so.

3. Further guidance is provided in CPR 36.14(4).

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