PART 36 OFFER ON HOURLY RATE WAS VALID: HOWEVER INJUSTICE TEST MEANT CLAIMANT WOULD NOT RECOVER AN ADDITIONAL AMOUNT: MERE GAMESMANSHIP SHOULD BE AVOIDED

In White & Anor v Wincott Galliford Ltd [2019] EWHC B6 (Costs) Deputy Master Friston considered the effect of a Part 36 offer on the hourly rates to be applied on an assessment of costs.  It was held that the offer in relation to the hourly rate alone was a valid Part 36 offer. However to grant the claimant an additional amount (of 10% of costs) was inappropriate because of the injustice that would arise.  The observation in the judgment in relation to gamesmanship and the tactical use of Part 36 are also important.

“The court provides a valuable service by carrying out provisional assessments, yet it does so with only limited and stretched resources; parties ought to recognise this and cooperate with each other in order to minimise the burden that they place upon the court.”

THE CASE

On an assessment of costs the claimant made a Part 36 solely in relation to hourly rates.  The court allowed those rates. The claimant’s solicitors  contended that they were entitled to an additional amount and that the entire amount of their profit costs should be uplifted by 10 percent.

THE MASTER’S OBSERVATIONS

The  DeputyMaster had some reservations about compliance with the indemnity principle.

    1. I should add that there is a further factor that may have a bearing on the costs of the provisional assessment, namely, the fact that I was not impressed by the Claimants’ conduct in relation to proving compliance with the indemnity principle. In this regard, I made the following points in my order of 29 May 2018 (which, I stress, were only provisional):
‘1. The retainer documentation is immaculate and handsomely presented; it has clearly been drafted with the assistance of persons who are not only well able to draft such documentation, but who are experts in the field. In view of this, it ought to have been disclosed without hesitation. I am at a loss to understand why this was not done.
‘2. My mind is open on the point and I make no ruling in this regard, but if the Claimants become entitled to the costs of the assessment, I am likely to reduce those costs by 25 per cent to take account of their refusal to accede to the Defendant’s entirely proper and reasonable request for [voluntary] disclosure.’

 

THE CLAIMANT’S OFFER WAS A PART 36 OFFER

It was held that the offer, just in relation to one issue in the assessment, was a valid Part 36 offer.

35. In my judgment, the Offer met all the requirements of it being a Part 36 offer; I also take the view that it was in respect of an ‘issue that arises’ (within the meaning of CPR, r 36.5(1)(d)). As such, the Offer was a Part 36 offer.
36. This then invites the question of whether it has been ‘beaten’. I note that PD 47, para 19 gives the following guidance:
’19 Where an offer to settle is made, whether under Part 36 or otherwise, it should specify whether or not it is intended to be inclusive of the cost of preparation of the bill, interest and VAT. Unless the offer states otherwise it will be treated as being inclusive of these.’
37. I take the view that this guidance is of little relevance on the facts of this matter. Firstly, the Offer was not ‘an offer to settle’; it was merely and offer in respect of ‘an issue that arises’. And secondly, it was—in my judgment—obvious that the offer was not intended to be inclusive of any of the monies referred to in PD 47, para 19. It would have been otiose for this to have been expressly stated.
38. For all these reasons, I believe that the Offer was a Part 36 offer and that it has been ‘beaten’. This then invites the question of whether the Claimants are entitled to any of the benefits of having made the Offer, and in particular, whether the Claimants are entitled to an ‘additional amount’ within the meaning of CPR, r 36.17(4)(d). In this regard, I apply the principles as set out in paragraphs 19 to 34 above.

INJUSTICE TO THE DEFENDANT (PAYING PARTY)

The Master set out the case law relating to the “injustice” test. The claimant had made a valid Part 36 offer. It was for the defendant to establish that it would be unjust to make an award.

    1. Where a receiving party has beaten his or her offer, then unless the court considers that it would be unjust to make such an award, he or she will be entitled to the benefits of Part 36 (see CPR, r 36.17(4)). This test—namely, whether it would be unjust to make an award—is often referred to as the ‘injustice test’.
    2. I summarise my understanding of the law relating to the injustice test in detailed assessment proceedings in the following way (and in doing so, I refer to authorities concerning Part 36 offers made in other types of proceedings):
i) The burden is on the party seeking to rely on injustice: I note that both Andrew Baker J and Warby J have explained that the burden is on the party who seeks to persuade the court that an award would be unjust (see Tiuta Plc v Rawlinson & Hunter (a firm) [2016] EWHC 3480 (QB), at [14] and Optical Express v Associated Newspapers (Costs) [2017] EWHC 2707 (QB), at [11] respectively). For the reasons set out immediately below, that burden is a heavy one.
ii) ‘Formidable obstacle’: Briggs J has said that ‘the burden … to show injustice is a formidable obstacle’ (see Smith v Trafford Housing Trust [2012] EWHC 3320, at [13(d)]. This was cited with approval by Gross LJ in Briggs v CEF Holdings Ltd [2017] EWCA Civ 2363, at [20]) and was also adopted by Eder J (see Ted Baker plc v AXA Insurance UK plc [2014] EWHC 4178 (Comm), at [16], [17] and [23]).
iii) Specific factors to be taken into account: CPR, r 36.17(5) gives specific guidance as to the factors that the court ought to take into account. Those factors are:
a) the terms of any Part 36 offer;
b) the stage in the proceedings at which any Part 36 offer was made, including, in particular, how long before the assessment started the offer was made;
c) the information available to the parties at the time when the Part 36 offer was made;
d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and
e) whether the offer was a genuine attempt to settle the proceedings.
I pause here to note that that these factors relate either to the terms and content of the offer in question, or to the circumstances in which it was made and considered. They make no mention of the factors extraneous to the offer.
iv) The requirement to look at the terms of the offer: In a similar vein, I note that in Cashman v Mid Essex Hospital Services NHS Trust [2015] EWHC 1312 (QB) at [24] Slade J has explained that when applying the injustice test, it is the terms of the offer that are relevant, not the level of the costs claimed or the amount disallowed on assessment.
v) Harshness of results: Eady J has explained that while a judge may consider the effect of CPR Part 36 to be harsh, that fact would not be a reason for denying the offeror the benefits of having made the offer (Downing v Peterborough & Stamford Hospitals NHS Foundation Trust [2014] EWHC Civ 4216 (QB), at [61] et seqper Eady J).
vi) The need to take into account all the relevant factors: Black LJ has said that the ‘factors specifically identified [in CPR, r 36.17(5)] as relevant cast quite a wide net on their own but they are not the only matters that fall for consideration and [that] anything else which is relevant must be considered as well’ (see SG v Hewitt [2012] EWCA Civ 1053, at [29]). Indeed, Vos C has explained that the court is required to take into account all of the relevant circumstances: see OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195, at [25].
vii) Disaggregation: I note that both Vos C and Slade J have explained that the factors that the court may take into account will not necessarily be the same for each of the benefits under CPR 36.17(4): see OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195, at [25] and Cashman at [19]. Indeed, Sir Colin Mackay has explained that the injustice test is to be (or at least may be) applied individually to each of those benefits rather than globally; this means that it is open to the court to allow the offeror the advantage of as many or as few of those benefits as would be appropriate on the facts of the case in hand: see RXDX v Northampton Borough Council [2015] EWHC 2938 (QB) at [8] and [9].
    1. In summary, when applying the injustice test in a detailed assessment in which a party has ‘beaten’ a Part 36 offer, the following principles will apply: the court must recognise that the offeree must shift a ‘formidable obstacle’ in order to satisfy the injustice test; the court should take into account all the relevant circumstances, but its principal focus should be on the terms and content of the offer (and the circumstances in it was made and considered) rather than the outcome of the assessment; and, where appropriate, when applying the injustice test to each of the benefits in CPR, r 36.17(4), the court may take into account factors specific to each of those benefits.
The nature of the ‘additional amount’
    1. Given the nature of the Offer, I must form a view as to whether the court has jurisdiction to allow only a part of the benefit under CPR, r 36.17(4)(d), namely, the ‘additional amount’. Put otherwise, I must decide whether the court is able to make an award that is not the full ‘additional amount’ if the injustice test has been met.
    2. CPR, r 36.17 reads as follows:
(4) Subject to paragraph (7), where paragraph (1)(b) applies, the court must, 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 (including any recoverable pre-action 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) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is—

(i) the sum awarded to the claimant by the court; or

(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs—

Amount awarded by the court Prescribed percentage

Up to £500,000 10% of the amount awarded

Above £500,000 10% of the first £500,000 and (subject to the limit of £75,000) 5% of any amount above that figure.

    1. There can be no doubt that the court has a degree of discretion in relation the benefits under CPR, r 36.17(a) and (c), this being because the rules expressly provide for this (see the reference to ‘on the whole or part’ sub-rule (a) and ‘not exceeding’ in sub-rule (c)). Sub-rule (d), on the other hand, contains no such references. Indeed, it is couched in seemingly mandatory terms and refers to ‘the prescribed percentage’ (my emphasis). This invites the question of whether the ‘additional amount’ is an all-or-nothing affair.
    2. I have to confess that I have found this to be a difficult point. I have been assisted by the careful analysis of a similar issue by Master McCloud in JLE v Warrington & Halton Hospitals NHS Foundation Trust [2018] EWHC B18 (Costs). I have taken into account all of the authorities referred to in Master McCloud’s judgment, but I note that Master McCloud appears not to have been referred to Cashman (this being I case a deal with at paragraph 27 below).
    3. The authors of Cook on Costs 2019 have this to say on the topic (at [20.18]):
‘[T]he “additional amount” is an all or nothing sum, but … the court must not refuse to order it simply because it believes that some of the “additional amount” is merited, but not all of it. The claimant is either entitled to the additional amount or not, and if he is, it has to be the full amount.’
    1. This appears not to be the authors expressing their own views, but to be their interpretation of Slade J’s judgment in Cashman. In particular, it is—I believe—their interpretation of the following paragraph (namely, [25]):
‘The making of an order of the level required by CPR 36.14(3)(d) was decided as a matter of policy as explained in the Jackson Report. Under the previous regime it was considered that a Claimant was insufficiently rewarded and the Defendant insufficiently penalised when the Claimant has made an adequate Pt 36 offer. In my judgment the Master fell into the temptation referred to by Sir David Eady in para 61 of Downing of making an exception by not making an award under CPR 36.14(3)(d) not because he considered the making of such an award unjust but because he thought it unjust to make an award of the required amount, 10% of the assessed costs. The Master considered it would not have been unjust to award an additional amount based on the difference between the Pt 36 offer and the sum of costs allowed on assessment. However this is not the regime specified in CPR 36.14(3)(d).’
    1. My reading of this paragraph (and of Cashman as a whole) is that Slade J found that it would not be appropriate to reduce or adjust the ‘additional amount’ on the grounds that the prescribed percentage and method appears overly generous to the receiving party. This is consistent with the principle referred in paragraph 20.v) above. In my view, Slade J’s comments say little about whether the court is able to allow a reduced ‘additional amount’ for other reasons (such as the nature of the offer).
    2. I note that in Thinc Group Ltd v Jeremy Kingdom [2013] EWCA Civ 1306, Macur LJ had this to say (at [22]):
‘There is no merit in [counsel’s] argument that the judge should have regarded the terms of CPR 36.14 (2) and (3) [the then equivalents of CPR, rr 36.17(3) and (4)] to mean that he must consider that his discretion as to costs at this stage was fettered by a bi-polar evaluation of “unjust” to mean that the successful party receives their costs on an indemnity basis or not and thereby fell into error by apportioning costs in percentage terms and on an indemnity basis for the relevant period. The phrase “unless it considers it unjust to do so” in CPR 36.14 (2) and (3) bear the obvious interpretation of “unless and to the extent of”.’
  1. I take the view that Macur LJ’s comments are binding upon me in the sense that I must read the phrase ‘unless it considers it unjust to do so’ in CPR, r 36.17(4) as bearing the interpretation of ‘unless and to the extent of’. I bear in mind that Macur LJ was dealing with a benefit that was not the modern-day ‘additional amount’; indeed, the-then iteration of the Part 36 did not provide for any ‘additional amount’ at all. That may be so, but the CPR are delegated legislation, and Parliament is ordinarily presumed to legislate in the knowledge of, and having regard to, relevant judicial decisions (see, for example, Lachaux v Independent Print Ltd [2015] EWHC 2242 (QB)). Put otherwise, previous judicial authority forms part of the background context against which any new legislation is made (see Barras v Aberdeen Steam Trawling and Fishing Co Ltd [1933] AC 402 at 411).
  2. I am not able to discern anything in the present iteration of CPR Part 36 to suggest that Macur LJ’s interpretation is any less obvious. In view of the above, I take the view that correct interpretation of the words ‘unless it considers it unjust to do so’ continues to be that it bears the interpretation of ‘unless and to the extent of’.
  3. In view of the above, I conclude that the court does have the power to allow only a part of the ‘additional amount’, but that it may not do so simply because it regards the prescribed amount to be excessive. One only has to state that conclusion to realise that, in practice, the latter principle will tend to diminish (if not negate) the former. There may be circumstances, however, where the nature of the offer itself or the circumstances in which it was made would make it unjust to award the full amount; where this is so, it would (in theory at least) be open to the court to make a partial award.
  4. That may be so, but I very much bear in mind the policy referred to by Slade J in Cashman (see paragraph 27 above). If I am correct in saying that the court has the power to allow partial awards, I take the view that that power should be exercised in a way that enhances rather than detracts from the effectiveness of the offer in question. Put another way, if—by reason of the nature of the offer or the circumstances in which it was made or considered—the court believes it would be unjust to award the ‘additional amount’ in full, it would be open to the court to consider making a lesser award. It would not, however, be appropriate to reduce the ‘additional amount’ simply because it appears to be overly generous to the receiving party.
  5. On the unusual facts of this case (where the only benefit that that Claimants seek is the ‘additional amount’), I take the view that if I conclude that the injustice test has been met, I ought to consider whether I should allow a lesser amount. This is because the Claimants would otherwise necessarily be deprived of the entirety of the benefit of having made the Offer.

THE MASTER APPLIED THE TEST IN THIS CASE

The Deputy Master was clear that the defendant had satisfied the “injustice test” on the facts of this case.

    1. I find that the Defendant has easily shifted the ‘formidable obstacle’ of proving injustice in this case. This is for the following reasons:
i) Firstly, whilst I recognise that Part 36 is—by its very nature—adjectival law that is intended to be used in such a way as to allow an offeror to garner tactical advantage, the court must guard against it being used for the purposes of mere gamesmanship. An offer in respect of ‘an issue that arises’ may well allow an offeror to obtain certain benefits (such as an award of costs in respect on that issue on the indemnity basis), but those benefits could not, in my view, be allowed to propagate so as to extend well beyond the issue that is the subject of the offer. The suggestion that a paying party ought to pay an ‘additional amount’ on the whole of a receiving party’s profit costs merely because he or she did not accept an offer in respect of only one component of those costs (namely, the hourly rates) is, in my view, unreal. It would be unjust to do what the Claimants ask.
ii) Secondly, the court has to take into account its own resources. I cannot for one moment believe that offers of this type would genuinely encourage settlements; it is far more likely that they would lead to unprepossessing and time-consuming disputes about what effect they ought to have. Detailed assessments (and provisional assessments in particular) would become unwieldy if the court were routinely to allow parties to rely on offers such as the Offer.
iii) Thirdly, if the Offer had been accepted, it would have had almost no bearing on the way in which the parties dealt with the matter. Given the fact that the Offer was made after Points of Dispute and Replies had been drafted, the only effect that acceptance would have had would have been to cause the court to record the agreed hourly rates rather than to adjudicate upon them; in the context of a provisional assessment, this would have saved almost no court time at all, nor would it have prevented the parties from incurring costs of any significant amount.
  1. Having reached this conclusion, I need to consider whether I should allow an ‘additional amount’ that is only part of the full award (this being for the reasons referred to in paragraphs 20.vii) and 22 to 34 above). I have no hesitation in saying that even if I am right in saying that the court has a jurisdiction to make a partial award, I should decline to do so, this being for the reasons set out in paragraph 39 above.
  2. I would like to add, for the sake of completeness, that I have taken into account the fact that the hourly rates were one of the more contentious issues in this case. This was not a case, however, in which that was the only issue between the parties (or even the only significant issue). As such, I do not believe that that is a factor that carries much weight.
  3. For all these reasons, I reject the Claimants’ claim for an ‘additional amount’.

THE COSTS OF THE ASSESSMENT IN GENERAL

    1. On reflection, I believe that the Claimants are right to say that it would be wrong to visit a not insubstantial costs penalty on them for having declined to give voluntary disclosure of their conditional fee agreement. This is because this was a provisional assessment, and whilst the Claimants’ decision meant that the court had to spend—or, some would say, waste—time adjudicating on an issue that ought never to have been contentious, it was, for all practical purposes, costs neutral from the perspective of the parties. This is because on the facts of this case the costs associated with that issue are likely to have been very modest.
    2. I remain critical of the Claimants, however. I am unpersuaded by the notion that the conditional fee agreement contained ‘commercially sensitive information’; it contained nothing of the sort.
    3. The court provides a valuable service by carrying out provisional assessments, yet it does so with only limited and stretched resources; parties ought to recognise this and cooperate with each other in order to minimise the burden that they place upon the court. I remain of the view that the Claimants have failed to do so in this case.

Conclusion

  1. In view of the above, I allow costs of £1,500 (plus VAT and the court fee of £743). I decline to award the Claimants any additional amount pursuant to CPR, r 36.17(4)(d).