CLAIMANT BEATS ITS OWN PART 36 OFFER ON COSTS: DOESN’T GET ADDITIONAL 10%: “UNJUST” CONSIDERED

December 28, 2018 · by · in Assessment of Costs, Costs, Part 36

NB THIS DECISION WAS OVERTURNED ON APPEAL, SEE THE POST CLAIMANT SUCCESSFUL IN APPEAL IN RECOVERING ADDITIONAL 10% IN DAMAGES WHEN OWN OFFER WAS BEATEN: THE ADDITIONAL AWARD SHOULD NOT BE CATEGORISED AS A “BONUS”

A claimant who beats their own offer on costs in an assessment is entitled to  ask for a 10% increase. In  JLE v Warrington & Halton Hospitals NHS Foundation Trust (costs – offers – assessment of bills) [2018] EWCA Civ 2849 the claimant did not get this.  The Master held that each element of the benefits given to a claimant who beats their own offer should be considered separately.  Although the claimant was entitled to some of the advantages, on the facts of this case it was “unjust” to award an additional 10% on costs.

” I hold that the court should apply the test of ‘injustice’ separately for each part of rule 36.17(4) as well as in the round, as was the approach in Ayton , and that where one is considering the 10% ‘bonus’ under sub-rule (4)(d) it is appropriate to disallow that sum if in all the circumstances the level of bonus is clearly disproportionate relative to the margin by which the offer was beaten, especially where a bill has been significantly reduced on assessment and where the margin by which the offer is beaten is small. “

 

THE CASE

This was an assessment of  the claimant’s costs in a clinical negligence case.

THE ASSESSMENT

The claimant’s bill of costs totalled £615,751.51

  • The claimant made a Part 36 offer to settle of £425,000 (inclusive of interest).
  • The assessed costs totalled £421,089.16, with interest the total amounted to £431,813.05.

THE CLAIMANT FORGOT TO ASK FOR THE ADDITIONAL 10%

The claimant had beaten its own offer by £7,000 on a bill drafted at £615,000.

” At the conclusion of the detailed assessment hearing, I was required to determine the costs consequences of the success of the claimant in beating its own offer. Counsel for the paying party (I am taking this account from Defendant’s argument, since I have no indication it is disputed: I have no specific recollection given the time which has elapsed since the assessment) asked whether the claimant was asking for “the additional 10%” ie the consequence at subparagraph (d) of the Rule because it appeared that (a) (b) and (c) had been asked for but not consequence (d). I was not invited to make such an order and following the hearing, a draft minute of Order was agreed between the parties which provided for the consequences at subparagraph (a), (b) and (c) of the Rule, but not the consequence at (d).”

THE CLAIMANT WAKES UP…

Before the agreed order was drawn up the claimant realised the omission and asked the court to order the additional 10% in costs.

THE ISSUE: WAS IT “UNJUST” TO AWARD THE ADDITIONAL 10% IN COSTS

The defendant contended that the issue of whether it was “unjust” to award the additional 10% had to be considered separately to the other aspects of the claimant beating its own offer. The Master held that each of the elements of the advantages a claimant gained was “severable”.  The question was whether, on the facts of this case, the court should award the additional 10% in costs.

“Exercise of discretion
  1.  I must therefore consider whether, given the arguments which were presented to me by both sides in the event that I held that r.36.17(4)(d) did apply on a severable basis, it would be unjust to order that the additional sum of 10% provided for by rule 36.17(4)(d) must be paid in this case. The claimant pointed to the fact that rule 36.5(4) treats a Part 36 offer as being inclusive of interest until either the date of the period specified by rule 36.(1)(c) or 21 days after the date the offer was made. Thus it was said I should not be influenced on the ‘injustice’ point by the fact that it was the award of interest on the bill as assessed which had pushed the sum assessed above the level of the Part 36 offer. That was foreseen by the rules. I accept that.
  2.  The factors to be considered by the court in relation to the question whether it is unjust to order that the consequences of (part of) Part 36.17(4) apply are, in addition to all the circumstances of the case, set out in rule 36.17(5). I consider them next.
  3.  As to the terms of the offer, the point above as to inclusion of interest is an effective term of the offer but it seems to be to be essentially a neutral point on its own. The offer was clear and the fact it included interest is simply a consequence of the rules, and the total inclusive of interest was beaten.
  4.  I do not think that in most cases the extent to which an offer has been beaten is a very material factor since the rules provide a clear definition of ‘more advantageous’. In this case the offer was beaten by just short of £7,000 which is ‘more advantageous’ but it is nonetheless a very small percentage of a bill which had been greatly reduced. Given that the court is – as I have found to be the case – empowered to apply the ‘injustice’ test on the basis of each cost consequence separately then in my mind considerations such as proportionality of the cost penalty must be applied separately for each of the sub-rules in 3.17(4).
  5.  I thus do have to consider whether the large sum by way of penalty (10% of a bill assessed at over £400,000) compared with the very small percentage margin by which the offer was beaten, in an assessment where the bill was significantly reduced on assessment, would amount to a disproportionate windfall leading to injustice rather than just a windfall for the recipient which is consistent with the objective of the rules.
  6.  Equally I should bear in mind that if the court does not adopt a high bar for the exercise of its discretion (and here I refer to the description of the ‘injustice’ test as being a formidable hurdle in, eg, Ayton ), the purpose of the cost penalty rules could be weakened or defeated.
  7.  In my judgment it is only where the cost penalty created by the 10% rule would be clearly disproportionate that one would incline to exercise the discretion to waive it. But, that said, if the court was unduly unwilling to exercise its discretion on facts such as these – for example requiring something akin to ‘exceptional circumstances’ then a party in the position of the Defendant might be discouraged from taking the risk of legitimately going as far as assessment at all, despite having various meritorious objections to the Bill as drawn and which have (in this case) been shown in many instances to be correct.
  8.  In terms of the stage of proceedings when the offer was made, I do not consider that the fact the offer was made (fairly close to the detailed assessment hearing) is of assistance materially to the Defendant. I could for example foresee a situation where an offer is made very early on at a stage before a party cannot reasonably know whether to accept or not, and that perhaps sometimes it might be unjust to give full force to the costs consequences if the paying party acted reasonably at the time in not accepting it. But in this instance it was an offer fairly close to final hearing and hence at a time when sufficient information was known for either party to take advice as to whether to accept.
  9.  Relatedly, turning to the information available to the parties when the offer was made, much the same points can be made: the offer was made at a time when sufficient information was known for the recipient to take an informed view as to acceptance. Indeed the Defendant made its own offers which fell somewhat short (by about £37,000 inclusive of interest on the bill). I do not accept that the pre-assessment skirmishing over some aspects of the bill and legal aid certificate referred to by the Defendant alter the position materially. Nonetheless where a bill is reduced by a large figure, and it appears to be known to both sides that a large reduction is on the cards as it was here, the ‘pitching’ of an offer becomes a more and more uncertain exercise and the merits or demerits of acceptance or rejection become far harder to judge.
  1.  No conduct points appear to arise in this case against the Claimant and none were taken by the Defendants. The Claimant points out that of relevance may be that the Defendant refused to make improved offers when invited to do so and pressed the Claimant to request a detailed assessment hearing or risk facing a penalty under rule 47.14.
  1.  Clearly the offer by the Claimant was a genuine attempt to settle (this is factor 36.17(5)(e)).
  1.  The Defendant argued that it would be grossly unjust to order the additional 10% in this case and that it would be a significant windfall (given the size of the assessed bill, especially relative to the extent by which the offer was beaten). I take on board and accept the point made by the Claimant that Part 36’s additional sum provisions are not intended to be compensatory: they are intended to be an incentive to settle and will be ineffective if they do not operate, so that the fact that the penalty appears more generous than a purely compensatory approach would warrant is not of great assistance. See McPhilemy v The Times Newspapers Ltd (No. 2) [2001] EWCA Civ 933 which was cited to me and also OMV Petrom SA v Glencore International AG [2012] EWHC 3320 (Ch). On the other hand, the rules do provide a discretion according to the ‘unjust’ test, by which the consequences can be disapplied so it cannot have been the rule-makers’ intention that a consideration of disapplying the consequences provided for in the rules is a process meant to disregard situations where a large non-compensatory penalty has arisen.
  1.  I have borne in mind that the 10% was not requested at the time of the assessment hearing, by mistake, but it would be disproportionate for me to say that a simple slip such as that by itself would make allowing the Claimant to recover the additional sum would be unjust.
Conclusion
  1.  Taken together in my mind the most significant factors are (1) the very small margin by which the offer was beaten relative to the much greater size of the bill (2) the fact that where a bill is reduced (and seems to have been expected to be reduced) significantly, it will on the whole generally be very difficult for a party to know precisely or even approximately to within a few percent, where to pitch an offer such that even a competent costs lawyer would operate close to chance level as to whether an offer is likely to be ‘over’ or ‘under’ at the end of the hearing, and (3) the large size of the 10% ‘bonus’ award relative to the margin by which the offer was beaten.
  1.  In all the circumstances in my judgment the ‘bonus’ of 10% in this case would be a clearly disproportionate sum and it would be unjust to award it. That is also the case when one looks at the overall effect in the round of what would be the cumulative penalties in sub-rules (a)-(c) added to (d).
  1.  In terms of the costs of the second hearing at which the points on r.36.17(4)(d) were argued, I am minded to order the Claimant to pay those in any event on the basis that the argument was accidentally not pursued when it could have been at the end of the first hearing, especially given that as it has turned out I am also with the Defendant on the interpretation of the rule, if not on the eventual outcome. I shall not finally decide that until I have heard back from the parties on the issue of costs and consequential orders.
 
Summary
  1.  To summarise my judgment: consistent with examples cited to me from both appeal courts and courts of coordinate jurisdiction with myself, I hold that the court should apply the test of ‘injustice’ separately for each part of rule 36.17(4) as well as in the round, as was the approach in Ayton , and that where one is considering the 10% ‘bonus’ under sub-rule (4)(d) it is appropriate to disallow that sum if in all the circumstances the level of bonus is clearly disproportionate relative to the margin by which the offer was beaten, especially where a bill has been significantly reduced on assessment and where the margin by which the offer is beaten is small. There may well of course be other circumstances where one would disapply the sub rule but on the facts of this case I have concluded that this is a case where the award of the 10% figure would be disproportionate.”
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