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”

June 24, 2019 · by · in Appeals, Assessment of Costs, Costs, Part 36

In  JLE v Warrington & Halton Hospitals NHS Trust Foundation Trust [2019] EWHC 1582 (QB) Mr Justice Stewart overturned an order of the Master who declined to award the claimant an additional 10% in costs when they had beat their own Part 36 offer on assessment.

“The additional award should not be characterised as a “bonus”. It is not meant to be compensatory. As the Jackson Report said, there is a penal element when the Claimant has made an adequate offer.”

THE CASE

The claimant beat its own Part 36 offer on an assessment of . The Master decided it was “unjust” for the claimant to receive the additional 10% in costs.  The Master’s judgment was considered in detail in an earlier post.

THE JUDGMENT

The judge decided that the Master had erred in principle, in disallowing the additional 10%.

THE FACT THAT THERE WAS A  DIFFICULTY IN QUANTIFICATION AND A SIGNIFICANT REDUCTION IN THE BILL NOT GOOD GROUNDS FOR DISALLOWING THE 10%

The judge rejected the finding that the fact that there was a significant reduction in the bill was grounds for refusing the additional 10%.

    1. The Master said [40] that the reason for the exercise of her discretion on this ground was the difficulty in a party knowing precisely or even approximately where to pitch an offer. Mr Marven, who appeared for the Defendant in Cashman, there made a number of submissions in similar vein. Unsurprisingly he did not reassert those submissions in the present case. The effect of those submissions was that costs are to be treated differently from damages for the purposes of Part 36 rule, as the reasonableness of a costs offer is more difficult for a Defendant to assess than an offer to settle a damages claim. He said there is disclosure in a claim for damages which enables a Defendant to make an informed assessment of an offer to settle a damages claim. There is no such disclosure in cost proceedings. What is expected is a realistic claim. See Cashman at [11] and [17].
    2. The concession made by Miss Lambert (as she then was) and adopted by the Court is, I believe, correct. There may possibly be circumstances where a high bill much reduced on assessment is a valid reason for refusing to make an additional award. Slade J gave an example. Nevertheless, it must always be remembered from Smith that the burden on the claimant to show injustice is a formidable obstacle to the obtaining of a different order.
    3. Further, I disagree with the submissions made by Mr Marven in the Cashman case. The lack of a system of disclosure should not be a matter which distinguishes costs cases from damages cases. If it had been, this could have been written into the rules. Instead the costs rules mirror precisely the rules for judgments in damages (and other) judgments.
    4. On many occasions Part 36 Offers in damages cases are made prior to any significant disclosure, or at least before the value of the case can be accurately assessed. The system encourages parties to “take a view” depending on experience and such information as they have, so as to encourage settlement as soon as practicable. A damages case where the normal rule was departed from was SG. There a child of six years sustained a brain injury in an accident in 2003. Medical and other experts felt unable to predict the prognosis until the claimant matured. In 2009 the Defendant made a pre-action Part 36 offer in the sum of £500,000. This offer was ultimately accepted in 2011. In those circumstances the court held that it was unjust to visit adverse costs consequences on the Claimant. Detailed reasons were given, specific to the facts of the case. One of the factors was that the Claimant was lacking essential information. That brought into play (what is now) Rule 36.17(5)(c). That and other reasons are set out more fully at [68]-[72], [77] and [93]-[94]. However, even in those circumstances, the Court of Appeal felt it appropriate to give “some words of caution” at [73] as to the particularly fact sensitive nature of the decision. The tenor of SG, coupled with the comments of Briggs J in Smith, decided a few months later, runs directly contrary to it being an injustice that it is difficult for a paying party to respond to a Part 36 offer in detailed assessment proceedings, merely because the bill has been substantially reduced. Again, to permit this would cause a real risk of burgeoning satellite litigation.
    5. Rule 36.17(5)(c) requires the court to take into account “the information available to the parties at the time when the Part 36 offer was made”. What the Master said about this was [35]:
“..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 £7000 inclusive of interest on the bill)….”
She then continued:
“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 were, 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. In my judgment the Master erred in principle in essentially deciding that some difficulty in assessing an offer because the bill was reduced by some 30% could be a reason to find it unjust to make the additional award. Further, although in principle the four awards under 36.17(4) can be separated in terms of whether it is unjust to make an award, I do not accept that in these circumstances it is open to the court to say that it would be unjust to make an award under (d) but not under (a)-(c). The perceived injustice would then be based on the prescribed amount of the award, which is an impermissible basis. I will later in this judgment conclude that the award under (d) has to be “all or nothing”. This is contrary to some decisions (Bataillion, where the point was not argued and White – see below – where it was). The Master seems to have accepted (correctly) that the additional amount was “all or nothing” and (incorrectly) that it was a disproportionate bonus. However that factor, to which I now turn, erroneously, influenced – and was influenced by – the reduction in the size of the bill.
  2. In this respect it is also interesting to note what the Master said at [34], namely: “…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.”
  3. In all the circumstances, on this point, if I had not found that the Master erred in principle, I would have found, for the same reasons, that she had exceeded the very generous ambit of her discretion.
THE ADDITIONAL 10% IS NOT A BONUS
Large size of the 10% “bonus” relative to the margin by which the offer was beaten.
    1. This reason is very similar to the reason given by Master Gordon-Saker in Cashman. As Slade J said, and I agree:
“24. …Whilst all the relevant circumstances are to be considered in deciding whether it would be unjust to make an award under any of the paragraphs of CPR 36.14(3), it was not suggested that there was any particular feature or consequence of the bill of costs other than its size which would render the making of an order under CPR 36.14(3)(d) unjust.
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 Part 36 Offer. In my judgment the Master fell into the temptation referred to by Sir David Eady in paragraph 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…”
    1. The additional award should not be characterised as a “bonus”. It is not meant to be compensatory. As the Jackson Report said, there is a penal element when the Claimant has made an adequate offer. There were detailed policy considerations in the Report giving rise to the assessment of the appropriate additional award. See in particular in this regard, OMV at [32]-[37].
    2. Therefore, in my judgment all three reasons given by the Master were inadmissible reasons for finding it to be unjust to make the additional award. There was nothing unjust about the circumstances of this case. Indeed there was nothing unusual about the circumstances so that the high threshold of proving injustice could be properly regarded as met. That is important because if this case qualifies for withholding the additional award, that would be a green light to similar arguments in many, many other detailed assessments. It would also be a serious disincentive to encouraging good practice and incentivising parties to make and accept appropriate offers – cf OMV at [32].
Other Matters
  1. The Defendant made a number of further submissions based on 36.17(5). There was no Respondent’s Notice, which would have been required. Nevertheless I will deal with them briefly.
  2. Under 36.17(5)(a) it was said that the Claimant only beat the offer because of interest and that this marginally militates against the suggestion that all possible consequences follow. The Master rejected this point at [29]. She said: “..it seems to be essentially a neutral point on its own….the fact that it included interest is simply a consequence of the rules…”. I agree with the Master.
  3. Under 36.17(5)(b) it is said that this offer was made at the 11th hour, expiring on the last working day before the detailed assessment. The Master said at [34]: “….I do not consider that the fact that the offer was made (fairly close to the detailed assessment hearing) is of assistance materially to the Defendant….it was an offer…at a time when sufficient information was known for either party to take advice as to whether to accept”. I agree. The Defendant submitted that it must logically follow from 36.17(5)(b) that the later an offer is made the less weight should be afforded to it when considering whether it is just to visit all the subparagraph (4) consequences on the defendant. I do not accept this. There is a 21 day period for acceptance. That was available in this case. The Master found in this case that it meant that the Defendant had sufficient information. This subparagraph is entirely open in its construction, including the words “in particular how long before the trial started the offer was made”. It is left open to a court to decide whether the stage of proceedings at which the offer is made is such that it is unjust to make the otherwise mandatory orders, subject always to the high hurdle for the paying party to show injustice.
  4. Under 36.17(5)(c) the defendant repeats and argues the point about costs proceedings being different from substantive proceedings because of lack of disclosure. I have already dealt with this argument above and rejected it. It was argued: “Until the detailed assessment commences, it is impossible for the Defendant to have any idea whether the time claimed in the bill is excessive or justified given the quality of attendance notes on the file”. In addition to what I said above, I would say: (i) if this was a valid point it could arise in most if not all detailed assessments; it would suggest that Rule 36.17(4) in general and (4)(b) in particular should be never, or hardly ever, awarded. That must be wrong; (ii) it takes no account of the expectation, and the reality, that experienced practitioners can and do make their own sensible assessment in advance of detailed assessment hearings. There is no evidence that the Part 36 regime is not working satisfactorily in such proceedings. If there was, the way forward would be by seeking a rule change. Indeed, as mentioned above, the Master referred [35] to the fact that the Defendant had made its own offers which fell short by only some £7000.
  5. The Defendant sought to argue conduct points under 36.17(5)(d). Not only was there no Respondent’s Notice on this point, the Master specifically recorded at [36]: “No conduct points appear to arise in this case against the Claimant and none were taken by the Defendant.” The Respondent said the points were put before the Master. In the absence of a Respondent’s notice, it would be wrong to allow this point to be taken in the appeal. In any event, the argument was based on the sequence of offers and counter-offers prior to the material Part 36 offer. On this basis it is submitted that throughout the litigation the Respondent took a far more reasonable approach to negotiation. However, the rule refers specifically to “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.” There is no information relevant to this.
  6. It is accepted that nothing turns on 36.17(5)(e).
  7. As to “all the circumstances of the case”, apart from relying on the points made by the Master, which I have ruled erroneous, the only other factor put forward is that the Defendant is funded by the public purse and has a duty to test claims for costs which appear substantially in excess of what one might expect to pay for the work performed. It is said that this vigilance largely paid off and nearly £200,000 was disallowed from the bill. There is no merit in this since: (a) the fact that the Defendant is funded by the public purse does not put it in any different situation from any other litigant, (b) the vigilance would have paid off even more had the Claimant’s offer been accepted, since another £7000 would have been saved, along with the hearing costs and the consequences which flow under Rule 36.17(4), it not being unjust that any of those consequences do flow.
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