DEFENDANT FAILS TO BEAT CLAIMANT’S PART 36 OFFER: PART 36 CONSEQUENCES HELD NOT TO APPLY: THE CONSEQUENCES OF SERVING EVIDENCE LATE

The judgment of Mr Justice Johnson in Head v The Culver Heating Co Ltd [2021] EWHC 1235 (QB) is one that is of profound interest to those involved in fatal accident litigation. I will be writing about the damages aspect of the case in early course.  However the judge also made a judgment in relation to Part 36. The defendant failed to beat the claimant’s Part 36 offer but the judge held that the normal Part 36 consequences should not apply because the claimant served evidence late and this evidence played a significant part in enabling her to obtain a result better than her offer.

 

“It would be unjust to the Defendant to allow the Claimant to benefit from part 36(4) orders that are only available because she was permitted to rely on evidence which was served late without good reason.”

 

THE CASE

The judge was assessing damages following the death of the claimant’s husband from mesothelioma.   Damages had been assessed  on the basis of a “lost years claim” at an earlier trial, however the Court of Appeal held that damages should be re-assessed. The Claimant had made a part 36 offer that the defendant had failed to beat. The judge was considering whether the normal Part 36 consequences should apply. On the facts of this case he held they should not.

THE JUDGMENT ON THIS ISSUE

 

(10) What, if any, orders should be made under CPR 36.17(4)?
    1. The Claimant made a Part 36 offer on 13 November 2020 to accept £2,249,705.80 as the gross damages award (to include all heads of loss). It is common ground that the Claimant will (in the light of the resolution of points (1)-(4)) recover more than that sum. It is therefore common ground that the outcome of the litigation is more advantageous to the Claimant than if the offer had been accepted.
    1. The Claimant seeks consequential orders under CPR 36.17(4). Leaving aside the effect of CPR 36.17(7) (which has no application here), CPR 36.17(4) states:
“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
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. The Claimant therefore seeks:
(a) interest at the rate of 10% above base rate for the entirety of the period since 21 days after the part 36 offer was made;
(b) costs on the indemnity basis since that date;
(c) interest on costs at the rate of 10% above base rate;
(d) an additional amount of £75,000.
    1. The starting point is that the Claimant is entitled to orders under each of these heads (albeit, in respect of the interest rates at (a) and (c), not necessarily at the rates claimed by the Claimant which are the maximum rates that may be applied rather than tariff rates or starting points).
    1. Orders under CPR 36.17(4) should only be refused where the court considers it “unjust” to make such orders. In considering whether it would be unjust, CPR 36.17(5) requires that the court must take into account all the circumstances of the case, including:

“(a) the terms of any Part 36 offer;

(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial 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.”

Is it unjust to make the orders referred to in CPR 36.17(4)?
    1. The fact that orders under CPR 36.17(4) might result in the Defendant paying (and the Claimant receiving) considerably more than the amount required to compensate for the losses sustained does not render such orders unjust. That consequence is inherent in a scheme which provides a system of sanctions and rewards so as to encourage dispute resolution. It is necessary to recognise that is the intended purpose of the scheme, and to assess in that context whether the making of part 36 orders would be unjust having regard to all the circumstances, including the factors identified in CPR 36.17(5). It is a “formidable obstacle” to show that the imposition of part 36 orders would be unjust – see Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch) per Briggs J at [13(d)].
    1. CPR 36.17(5)(a): The terms of the part 36 offer were that the Defendant should pay a sum of just under £2.25M. Those terms were clear. The Claimant has achieved a more advantageous result. The terms of the offer are not such that it would be unjust to make the orders referred to in CPR 36.17(4).
    1. CPR 36.17(5)(b): The offer was made at a late stage in the proceedings, after the initial assessment of damages and a month before the Court of Appeal hearing. The parties had taken entrenched litigation positions. The approach taken by both parties meant that the prospects for compromise at this late stage were, realistically, limited. Nonetheless, the timing of the offer does not in itself make it unjust to impose part 36 orders. It was made sufficiently in advance of the Court of Appeal hearing (and, more so, sufficiently in advance of the remitted hearing to assess the value of the lost years claim) to enable substantial costs to be saved.
    1. CPR 36.17(5)(c): At the time the offer was made, the parties had set out their respective cases on the value of the claim, disclosure had taken place, witness statements had been exchanged, the parties had the benefit of expert accountancy reports, and permission to appeal had been granted. There was ample information available to enable the claim to be valued. The Defendant did not respond to the part 36 offer by making any request for further information or by indicating that it was not in a position to make a decision on the offer because of any lack of information. Considering the position at the time the offer was made, it cannot be said that it would be unjust to make part 36 orders because of any lack of information available to the Defendant. The issue, however, falls to be separately considered by reference to the information that subsequently became available (as to which see below).
    1. CPR 36.17(5)(d): Each of the parties advances a litany of complaints about the conduct of the other. Subject to the late admission of evidence (as to which see below) I do not consider that these points show that it would be unjust for part 36(4) orders to be made.
    1. CPR 36.17(5)(e): There is no basis for finding that the Claimant’s part 36 offer was anything other than a genuine attempt to settle the proceedings. It represented a very substantial discount from the Claimant’s (overblown) open litigation position and (as events have shown) represented a realistic valuation of the claim.
    1. Other factors: The assessment of whether it would be unjust to make part 36 orders requires account to be taken of all relevant circumstances, not just those identified in CPR 36.17(5). The Defendant relies on the fact that the Claimant introduced very late evidence (see paragraphs 48-55 above). At the time the evidence was introduced, the Defendant argued that it did not make any significant difference to the value of the claim. It was said that there was no good reason for the failure to have provided the evidence much earlier, and well before the hearing before HHJ Melissa Clarke, but the Defendant did not ultimately object to the evidence being introduced (see paragraph 48 above). There is no reason why that constructive approach should deprive the Defendant from now arguing (with the knowledge of how the claim has played out) that it would be unjust to make part 36(4) orders having regard to the impact of the late evidence.
    1. The Claimant relies on the Defendant’s earlier argument that the late evidence did not have an impact on the value of the claim. Her case is that it was entirely consistent with all of the earlier evidence that had been advanced by the Claimant and with the way in which the case had been pleaded, valued by the Claimant’s expert accountant and presented to Judge Clarke. It did not therefore make any material difference, and it would not therefore be unjust to impose part 36(4) orders.
    1. It is not difficult to assess the broad impact of the late evidence. As paragraphs 48 – 56 above show, it resulted in a finding that Mr Head would have reduced his shareholding in the business to reflect the gradual reduction in his involvement. That finding is to the Claimant’s considerable benefit. It means that the value of the claim is assessed on the basis that Mr Head would not have received dividend income from the business beyond that which derived from work he carried out for the business. There would therefore be no element of investment income which might otherwise be offset against lost earning capacity. In the light of the way in which both parties presented their cases, this was capable of making a significant difference. That is no doubt why the Claimant was anxious to adduce additional evidence to establish the point.
    1. The earlier evidence relied on by the Claimant would not, in itself, have resulted in that finding. Nowhere in that earlier evidence is it said in terms that Mr Head would have given up his shareholding in the business. On the contrary, Mr Head’s evidence was that he would have found it difficult to give up his controlling interest. The Claimant is on stronger ground when she says that her case was pleaded, and valued by her accountant, on the assumption that Mr Head’s share in the business would have reduced to reflect his reduced involvement. However, when the Defendant came to decide whether to accept the part 36 offer, it would have been natural to assess whether the evidence supported that offer, as opposed to whether the offer was less than the amount of the pleaded case.
    1. The Defendant presented figures to show that without the fresh evidence the Claimant would not have recovered more than the part 36 offer and so would not have been entitled to part 36 orders. Those figures were disputed by the Claimant. It is not necessary to make a finding as to the precise monetary difference that the new evidence makes. It is sufficient to observe that the Claimant has “beaten” her part 36 offer by a relatively small proportion of the overall value of the claim and so any significant increase in the value of the claim is likely to have made all the difference.
    1. It would have been open to the Defendant to seek to accept the Claimant’s part 36 offer at the time that the late evidence was served. That was at a very late stage, only shortly before the hearing. By then, almost all of the costs of the claim had been incurred. Moreover, the starting point, at the time the Claimant sought to introduce the late evidence, is that it had not been served until shortly before the hearing, and there was no order permitting the Claimant to rely on fresh evidence. If the Defendant had objected to the admission of the evidence then it would have been necessary to determine whether the Claimant should be given permission to rely on the evidence. Although the Claimant was not, strictly, in breach of any directions (because there had been no direction for the exchange of witness statements), it was incumbent on the Claimant to place all of the evidence on which she wished to rely before HHJ Clarke and (in the event that she wished to rely on further evidence) to seek a direction to permit her to do so well before the hearing. Having not done either of those things, the Claimant would have required relief from sanctions. In deciding whether to grant relief it would have been necessary to apply the test in Denton v TH White Ltd [2014] EWCA Civ 906 [2014] 1 WLR 3926. The breach of the court’s directions was significant, so the Claimant would not have succeeded at the first stage of the test. There was no good reason for the breach of the court’s directions, so the Claimant would not have succeeded at the second stage of the test. An application for relief from sanctions would therefore have required an assessment of all the circumstances of the case. If it had been known, at that point, that the Defendant would be prejudiced by the late introduction of the evidence, then the nature and extent of that prejudice would have been considered, along with ways in which it could be mitigated. Of course, the potential for part 36 consequences could not have been taken into account, because of the effect of CPR 36.16(2). It is, however, now known that the Defendant has been prejudiced by the late introduction of the evidence because of the potential part 36 consequences. It would be unjust to the Defendant to allow the Claimant to benefit from part 36(4) orders that are only available because she was permitted to rely on evidence which was served late without good reason.
    1. Accordingly, the Defendant has discharged the burden of demonstrating that the making of part 36(4) orders would, in all the circumstances of this case, be unjust. I therefore refuse the Claimant’s application for part 36(4) orders.”