PART 36 AND INTERIM PAYMENTS: SOMETHING TO BE WARY ABOUT : COURT OF APPEAL DECISION

The case of Gamal v Synergy Lifestyle Ltd [2018] EWCA Civ 210 is one that needs to be read with great care.  A defendant who made a voluntary interim payment after making a Part 36 offer. The effect of this was to reduce the offer by the amount of the payment.  This meant that, when the matter reached trial, the offer was found to be beaten. The interim payment had the effect, in law, of reducing the claimant’s Part 36 offer by the amount of the payment.  The key point here is that a party who makes a payment after making a Part 36 offer should know that the making of the Part 36 offer correspondingly lower.  This could have a major impact on the costs order that is eventually made.

“… an unconditional payment on account of the sums claimed in the proceedings, made after the date of a Part 36 offer, results in the amount of the Part 36 offer being correspondingly reduced unless the payer makes it clear to the other party, at any time prior to judgment or acceptance of the Part 36 offer, that it is not to be so treated.”

THE CASE

The claimant in an action sought £151,000 due under an invoice for work done on the defendant’s home.

The invoice was, in fact, fraudulent, concocted in conjunction with the defendant to obtain payment from trustees.

At trial the judge went through the heads of claim with care and awarded £30,242.42 which, with VAT, amounted to a gross sum of £36,389.30.

The judge then took into account the sums that the defendant had paid on account. The final balance due after the initial calculation was £19,788.97.

A Part 36 offer had been made on the 24th August 2015 whereby the claimant offered £15,000 in full and final settlement.

The defendant paid the claimant a further £10,000 on account on the 8th February 2016.

At trial the judge found that the claimant had done better than the defendant’s offer.

The judge ordered that the defendant pay 25% of the claimant’s costs.

The balance due was later revised downwards to £14,275.59.  The order for costs, however, was not varied.

The defendant appealed against that order, arguing that the provision of CPR 36 meant she should not have been ordered to pay any costs, and should have recovered her costs after the Part 36 offer was made.

The Court of Appeal found that the payment of £10,000 on account had the effect of reducing the Part 36 offer by £10,000. The claimant had, therefore, beaten the claimant’s offer.

THE DEFENDANT’S OFFER

1. 1. on 24 August 2015, the appellant’s solicitors had made a Part 36 offer which stated, inter alia:

“Our client’s position is that the value of the works undertaken and the balance payable is the sum of £15,000. They offer this sum in full and final settlement of your client’s claim, along with costs to date…

This offer is intended to have the consequences of Part 36 of the CPR, as amended. If the offer is accepted within 21 days of your receipt of this letter, we consider that this brings the matter to a close, and our client will pay to your client your client’s cost(s) to the date of such agreement…If you do not agree to the proposed settlement, your clients will be liable for our client’s costs in accordance with CPR Rule 36.10 [presumably intended to be a reference to Rule 36.17]. For the avoidance of doubt this offer relates to the whole of the Claimant’s claim.”

THE JUDGE’S DECISION

The judge initially concluded that the claimant had beaten the defendant’s offer.

1. Because the judge had concluded that judgment should be entered for £19,788.97, he also concluded that the respondent had beaten the Part 36 offer, hence his order that the appellant pay the respondent’s costs, although because of the fraudulent, exaggerated claim and various other aspects of the respondent’s conduct of which he disapproved, he only awarded the respondent 25% of its costs. In the post judgment on costs, it was accepted by the appellant’s then counsel that the Part 36 offer equated to a gross figure of £32,000 less the £16,600 already paid. The judge reflected this in his judgment on costs where he said that the respondent had obtained judgment for a gross sum of £36,300 odd when the most offered was £32,000 gross, so the respondent had obtained more than the Part 36 offer.

However after a revision of the figures the eventual sum due was £14,275.49.   The defendant appealed arguing that a different costs order should have been made, given that its offer had not been beaten.

THE DECISION IN THE COURT OF APPEAL

The issue on appeal related to the payment of the £10,000 after the Part 36 offer was made.

THE PRESUMPTION OF LAW

The defendant had made a voluntary payment after the offer had been made. The question was whether later payment had any effect on the Part 36 offer.  The Court of Appeal held it did. The Part 36 offer was deemed to be reduced by the amount of the voluntary payment.  This meant that the claimant had beaten the defendant’s offer.

The Court considered the decision in Macleish v Littlestone [2016] EWCA Civ 127; [2016] 1 WLR 3289, and the observations in the white book about subsequent payments after a Part 36 offer had been made.

“In Littlestone, the Court of Appeal held that a later payment was made “on account” of both the claim generally and the Pt 36 offer (despite it not being an “interim payment”) such that it was no longer open to the offeree to obtain payment of the offer without giving credit for the payment. Given these decisions, where an offeror makes a subsequent payment, it would be prudent for them to make clear whether such payment is (1) made on account of the claim and offer (as in Littlestone), (2) intended to be a voluntary interim payment, or (3) is made in addition to the offer such that it makes the offer more attractive. If the offeror fails to clarify the position, the offeree should consider seeking clarification. While the request may be out of time under the r.36.8 machinery, the court is unlikely to be sympathetic to an offeror who fails to clarify their intentions in response to such enquiry and who seeks to profit from any uncertainty created.”

THE JUDGMENT IN THE CURRENT CASE

1. 1. In my judgment, Mr Thompson QC is correct that the critical aspect of the reasoning of Briggs LJ in Macleish is not the fact of the admission of liability but that the admissions payment made was a payment on account of the claim, reducing the defendants’ liability for the claim as a whole. This is clear from [24] of his judgment, where he contrasts that sort of payment on account of a claim with an interim payment on account under Part 25 (where the Court can if appropriate order repayment of the interim payment: see Part 25.8(2)(a)) or a voluntary payment without prejudice to the payer’s case (which again will obviously be repayable if the payer defeats the claim).

   2. Furthermore, that Briggs LJ intended his analysis to be applicable to any payment on account of a claim is clear from his criticism of Moore-Bick LJ’s analysis in LG Blower at [35] of his judgment. If, as Mr Morrell suggested, it was the admission which was critical in Macleish rather than the nature of the payment as a payment on account, it is difficult to see why Briggs LJ doubted Moore-Bick LJ’s obiter statement and supported the approach of the district judge in that case, since LG Blower was not a case of an admission of liability in a pleading followed by an “admissions payment” but simply an out and out payment of part of a claim, in effect a payment on account of the claim as a whole.

   3. Therefore, I consider that the reasoning in Macleish is equally applicable to any payment on account of a claim as it is to an “admissions payment”. The second payment of £10,000 in this case was not simply some unattributed payment but, as was common ground and as the judge found, a payment for the works and thus on account of the works or on account of the claim. I agree with Mr Thompson QC that, where such a payment is made, there is a presumption of law that it is also on account of the earlier Part 36 offer as Briggs LJ found at [23]. The contrary conclusion would lead to the absurd results he identified in that paragraph.

   4. It seems to me that if the paying party wishes to prevent the presumption from operating, it is incumbent on that party either to state expressly at the time the payment is made that it is not intended also to reduce the amount of the earlier Part 36 offer or to provide clarification to that effect promptly after the payment was made. The appellant did neither in the present case and accordingly, what Mr Thompson QC described as the default position applies, that there is a presumption that the £10,000 payment reduces both the liability in respect of the claim and the amount of the Part 36 offer.

   5. This conclusion does not lead to uncertainty which is inimical to the purpose of Part 36 as Mr Morrell suggested. If the paying party wishes to avoid the operation of the presumption on the basis that a payment is a voluntary interim payment or not intended to reduce the amount of an earlier Part 36 offer, it should say so. If it does not do so and a payment on account of the claim is made without any such qualification, then parties will know where they stand. The analysis in [23] and [24] of Briggs LJ’s judgment in Macleish will apply and the presumption will operate.

   6. Furthermore, I do not consider that the application of Briggs LJ’s analysis to all payments on account of a claim (where the paying party does not provide some form of qualification as identified in the previous paragraph) has the effect of cutting across the Part 36 regime. Given that the presumption operated as a matter of law, there was no need for the defendant to serve a notice of change in the terms of the Part 36 offer pursuant to CPR 36.9(2). In other words, an unconditional payment on account of the sums claimed in the proceedings, made after the date of a Part 36 offer, results in the amount of the Part 36 offer being correspondingly reduced unless the payer makes it clear to the other party, at any time prior to judgment or acceptance of the Part 36 offer, that it is not to be so treated.

Conclusion

1. For these reasons, I consider that, on a proper analysis, the judgment obtained by the respondent (even after the judge’s adjustment pursuant to his order of 30 November 2016) was more advantageous than the Part 36 offer. Accordingly, the judge’s order in respect of costs cannot be faulted and the appeal must be dismissed.