PART 36: ACCEPTANCE, WITHDRAWAL AND PROTECTED PARTIES: HIGH COURT DECISION

In  Wormald v Ahmed [2021] EWHC 973 (QB) Ms Clare Ambrose (sitting as a Deputy High Court Judge) considered the difficult issue of whether a protected party can accept a Part 36 offer and its interaction with the need for court approval.

THE CASE

The claimant was seriously injured in a road traffic accident.  He suffered a brain injury and lacked capacity.  The defendant made an offer in the sum of £2 million.   The claimant’s solicitors served a notice of acceptance following evidence about the claimant’s life expectancy.  The claimant subsequently died.

THE ISSUE BEFORE THE COURT: ACCEPTANCE OF A PART 36 OFFER WHEN THE CLAIMANT WAS A PROTECTED PARTY

The court had to consider the position in relation to acceptance of the Part 36 offer when a claimant was a protected party.

THE JUDGMENT ON THIS ISSUE

Discussion and conclusions

(i) Where a protected party accepts a Part 36 offer is the other party subsequently able to withdraw that offer before approval of the settlement?

1. 1. The civil procedure rules do not provide a clear answer to the issue raised. However, the wording of the rules provide guidance since CPR 36.11 expressly provides that acceptance of Part 36 offers is subject to Part 21.10. This means the binding effect of the offer and its acceptance is expressly made subject to CPR 21.10. CPR 36.13 provides an express “safety valve” so the court can depart from the normal costs consequences where that would be unjust. Under CPR 36.14 proceedings are stayed when an offer is accepted but that does not dictate the further consequences. CPR 36.14 acknowledges that a settlement may require approval under other rules in order to be binding.

1. 1. The wording, purpose and case law on Part 36 suggests a firm intention that the strict terms of Part 36 do not prevail over Part 21 or the overriding objective more generally. This is clear from the fact that although the rules are highly prescriptive (as acknowledged in Gibbon) Part 36 expressly provides that the court has a discretion to depart from the costs consequences prescribed where that would be unjust. The Court of Appeal in Gibbon emphasised that a Part 36 offer was not governed by common law rules of contract but this did not mean that Part 36 was to be applied separately from other rules or the overriding objective. In SG v Hewitt the Court of Appeal recognised that Part 36 provides an express “safety valve” so the court can depart from the normal costs consequences where that would be unjust.

1. 1. As mentioned above, the Claimant questioned whether the court’s approval under CPR 21.10 was necessary, presumably because the protected party has died. While the financial advice normally required by the practice direction would now be redundant I reject the suggestion that the court’s supervision is no longer necessary. The settlement offer was accepted on behalf of a protected person before his death so CPR 21.10 is engaged and remains relevant. The approval may address the protected person’s needs (and liabilities) prior to death and whether a settlement appropriately provides for his dependants. The court’s approval is also intended to ensure that the Defendant is discharged so the court may need to be assured that the compromise has been effectively adopted by a personal representative entitled to act.

1. 1. It was common ground that outside Part 36 offers the requirement for court approval introduces uncertainty as to the effect of a settlement in that it enables both sides to resile from their offer or acceptance. This has a downside and may operate unfavourably to the protected party, most typically in the sense that there is less certainty and it leaves open the possibility that they could lose “a good bargain” and be disadvantaged by having to litigate or accept a lower sum. However, decisions such as Drinkall treat this as an acceptable outcome of the rules and the policy of protecting such parties. Although the protected party may occasionally lose a “good bargain”, it is more important that they are always offered protection by the court from a bad bargain.

1. 1. Drinkall is strong persuasive authority to suggest that even where an offer falls within Part 36 either side may withdraw its offer pending approval because the offer is not binding. This is because Part 36 is about the costs consequences of settlement offers rather than the binding effect of compromises reached on behalf of protected parties (or the protection of those parties). The primary purpose of Part 36 is to lay down fair costs consequences for settlement offers so as to give parties a fair incentive to settle their disputes at a sensible level. Put crudely, a party who makes a sensible offer is likely to be rewarded and one who fails to take it up risks being penalised. Gibbon shows that it is intended to create a clear code with “clarity and certainty” for making and accepting offers, and also their costs consequences. However, certainty is not the overriding purpose. The rules do not override the policy (and consequences) of the rules in CPR 21.10 or the overriding objective more generally. This is seen in CPR 36.13 and CPR 21.10 incorporates a separate safety valve. The Defendant’s arguments as to the importance of CPR 21.10 and its interpretation in allowing either party to resile from a settlement under Part 36 are also supported by Dunhill, Dietz and Revill.

1. 1. A Part 36 offer gives rise to less certainty where protected parties are involved. In SG v Hewitt [2012] EWCA Civ 1053 the Court of Appeal acknowledged that uncertainty in prognosis and the requirement of court approval may justify departure from the normal costs consequences of a Part 36 offer. This is unsurprising since neither the court nor the parties can fairly evaluate the merits of a serious personal injury claim for the purpose of making (or accepting) a Part 36 offer without reliable evidence of the prognosis.

1. 1. The amendments to Part 36 introducing the newly worded CPR 36.9(1) were not designed to depart from the position confirmed in Drinkall and Revill, or adjust the existing safety valves. I accept the Claimant’s submission that Revill does not deal with Part 36. However, it is more consistent with CPR 21.10 having a broad, overriding application and supports the Defendant’s submission that the existing interpretation CPR 21.10 prevails even in the case of a Part 36 offer. The White Book commentary suggests that this position still applies, notwithstanding the new wording of CPR 36.9(1). It was not necessary for CPR 36.9 (or any other part of Part 36) to contain an express proviso for CPR 21.10 (although extra wording would have clarified the position). The changed wording does not justify a departure from the existing authority establishing that a compromise concluded with a protected party under Part 36 is not binding on either side until approved. However, Part 36 does place express restrictions on withdrawal of offers and these should be given effect so far as possible.

1. 1. Neither the Claimant’s construction of Part 36 (i.e. that no withdrawal is allowed at all following acceptance) nor the Defendant’s construction (i.e. that he could withdraw at will) correctly reflected the wording of Part 36, its strong policy in favour of certainty and also the overriding policy under CPR 21.10 of maintaining court supervision of settlements made on behalf of children or protected parties. Both sides recognised that the issue was novel. To make sense of the rules it was not necessary for there to be express provision for withdrawal since the effect of CPR 36.11 and CPR 21.10 is that the settlement is not valid until approved.

1. 1. The rules should be construed to give effect to the express restrictions on withdrawal under CPR 36, together with the express requirements of CPR 21.10, and the broader policies of the overriding objective and the protection of protected parties underlying these rules. Taking all these points into account, I conclude that:

a) A compromise made on behalf of a protected party by acceptance of a Part 36 offer requires the approval of the court under CPR 21.10 (CPR 36.11 & 36.14).

b) Where a protected party accepts a Part 36 offer, the offer and its acceptance are not binding to make a valid settlement until approved by the Court (CPR 21.10).

c) The proceedings are not stayed until the court approves the settlement (CPR 36.14).

d) Until the settlement is approved the other party may resile from its offer by giving notice of withdrawal (Drinkall). The withdrawal serves a purpose in giving notice that the settlement is challenged.

e) However, the notice of withdrawal will not in itself be valid for the purposes of Part 36 (CPR 36.9), in particular in relation to costs consequences.

f) Either party may apply for approval of the settlement (Practice Direction 21). A party resiling from the settlement may raise its position on that application. The court will decide whether the withdrawal is to be given effect or the settlement is to be approved.

g) Further consequences were not explored but that party could probably issue an application to resolve any issue as to how the proceedings continue, including the effectiveness of its withdrawal from the settlement.

(ii) When the court is asked to approve a settlement, on what grounds (if any) can a Part 36 offer be withdrawn and approval of a settlement be refused?

1. 1. The further difficult question arises as to how the court should exercise its discretion when it is asked to approve a settlement under CPR 21.10 or consider the effect of a withdrawal of a Part 36 offer.

1. 1. Where a settlement has been concluded on behalf of a protected party the case law suggests that the court will allow either party to resile from it until it is approved. It was common ground that the protected party could ask the court to refuse approval if the settlement is disadvantageous so they will rarely need to invoke any other ground to resist approval. Dietz suggests that the court can refuse approval where one party has resiled from the agreement, and that an alternative or additional ground may be a defect in the parties’ consent. (The additional grounds may become relevant on costs).

1. 1. The Claimant was correct in contending that the primary considerations under CPR 21.10 remain the protection of the protected party and his dependants (including the proper control of the proceeds), followed by ensuring that the Defendant is properly discharged. However, the overriding objective is also relevant, namely dealing with cases justly. This includes ensuring that the parties are on an equal footing. The question is whether, in all the circumstances, approval of the settlement would be unjust. The assessment is to be made taking account of how matters stand at the date of the approval hearing. The onus of showing that it would be unjust to bind a party to its offer lies on that party. The court’s discretion as to whether to approve the settlement is not governed by Part 36. However, the considerations raised under CPR 36.17 as to whether the normal consequences follow provide some useful guidance in assessing whether it would be unjust to bind a party to its Part 36 offer, even where that may be disadvantageous to the protected party. The decision will be fact sensitive and it may be easier to resile from a non-binding settlement than to ask the court disapply the normal costs consequences of Part 36. On the facts here it is not necessary to decide precisely where the test lies but the court may decline approval of the settlement if it would be unjust for a party to be bound by its offer.

1. 1. Where the protected party has died and has no dependants then the protection of his interests as a vulnerable person becomes less significant, and the need to control the proceeds falls away. As explained above, CPR 21.10 still applies as the settlement was concluded on behalf of the protected person but (probably subject to the interests of minor dependents) the estate’s interests do not require the same protection as that of a protected party. The court is not policing the compromise to see whether it is too generous to the protected party (or his estate) or gives rise to a financial windfall. It would be undesirable to enter into such investigations, not least since any settlement is likely to give rise to some element of financial windfall or shortfall (and reflect other considerations). This is a necessary aspect of a compromise, and part of the inherent contingencies of litigation. It will not in itself be decisive. However, if it is a clear case where the settlement will result in the protected party (or his estate) financially doing significantly better than he would have done at trial then this may go into the balance.

(iii) Should the court grant permission for withdrawal of the Defendant’s offer of 15 October 2014 or approve the settlement in the amount offered?

1. 1. The assessment of whether to grant approval is to be made taking account of how matters stand at the date of the approval hearing. It is relevant that the Claimant’s recoverable losses have crystallised and he has no dependents: the settlement will benefit the estate (save for the Claimant’s outstanding expenses).

1. 1. On the evidence before me I draw the following conclusions:

a) The Claimant’s acceptance of the offer on 18 September 2020 was the direct result of the Claimant’s solicitors being informed between 14 and 17 September 2020 of a significant change in his prognosis, which was now critical.

b) The Claimant’s solicitors immediately knew this would affect the value of the case. It gave rise to urgent consultations with both counsel and Mrs Wormald. Their evidence frankly acknowledged that the cardiac episode was treated differently to previous respiratory infections and it generated an urgent response.

c) The Defendant was not notified of the change in prognosis or the critical nature of the Claimant’s condition until after the offer had been accepted.

1. 1. The significant change in Mr Wormald’s prognosis, or any life-threatening incident such as the cardiac episode in question, may have been foreseeable but it was not expected by either side, and nor was the hasty acceptance of the Part 36 offer. If these events had been expected then the significant level of urgent activity and decision-making on the part of the lawyers and the litigant friend was difficult to understand. There was little clear evidence as to whether the cardiac episode was caused by the injury, but I assume it was causative.

1. 1. The Claimant’s solicitors were placed in a difficult situation in responding to Mr Wormald’s critical situation. Mr Slade’s evidence referred to consideration being given to the risks involved. They have not clearly articulated what risks they feared at the time and their respective impact on Mr Wormald or his future estate. Acceptance of the offer posed risks for Mr Wormald but non-acceptance may have exposed him and his future estate to risks on costs or the loss of the offer. It would be reasonable for the litigation friend to take steps to maximise his recovery and that of his heirs. Mrs Wormald was in an exceptionally difficult situation. I reject any suggestion that her acceptance of the offer was opportunistic. However, the circumstances support the Defendant’s submission that the decision was made under pressure and somewhat hastily. If the Claimant had pulled through then it would have been unjust to hold him to the compromise concluded under Part 36, and he would have easily been able to justify resiling from it.

1. 1. The change in prognosis that led to the acceptance of the offer would not in itself justify departing from the normal rules for a Part 36 offer. Parties rarely have equal knowledge in deciding to conclude a settlement. However, Mr Wormald’s prognosis was critical to any fair assessment of the value of the claim. The disparity between the parties’ respective knowledge, and the Defendant’s lack of opportunity to take advice and respond to the changed prognosis was significant. It meant there was a lack of equal footing on the decision to settle. It is relevant to whether it would now be fair and just to conclude the proceedings on the basis of the Claimant’s acceptance. Further relevant considerations include the fact that the settlement will result in the estate recovering substantially more than the Claimant would have recovered if the actual prognosis had been known, and that the settlement will only benefit the Claimant’s estate, such that the balance is now as between the estate and the Defendant’s insurer.

1. 1. On the evidence and submissions before me, all these considerations show that it would be unjust for the Defendant to be bound by the accepted offer made on 15 October 2014 and for the proceedings to be concluded by the court giving approval of a settlement made under these circumstances. The court would give effect to the Defendant’s withdrawal of its offer and grant permission for this if necessary. The costs consequences of the offer and its withdrawal were not the subject of argument and are left open.

1. The Claimant has not provided the information required under the practice direction for an approval of the settlement, or fully answered the Defendant’s requests for medical records. It may be unfair to decide the issue if there has been an oversight or misunderstanding, especially where the argument before me was mainly directed at the legal questions. Accordingly, I reserve final determination of the question as to whether the settlement offer (or withdrawal of the offer) should be approved in order to give the Claimant’s estate an opportunity to apply to adduce evidence to comply with the requirements of the practice direction and address any appropriate information requests made by the Defendant (with an appropriate opportunity to reply). I will hear the parties on any appropriate directions that would be required for that purpose.