PART 36: JUDGES SHOULD NOT LET THEIR HEARTS RULE THEIR HEADS: CLAIMANT ACCEPTING AN OFFER LATE FACES FULL COSTS CONSEQUENCES THAT FLOW

In the judgment in MRA -v- The Education Fellowship Limited [2022] EWHC 1069 (QB) (a copy of which is available here  MRA v EFL) Master McCloud held that it was not unjust for the usual principles in relation to costs to apply following a claimant’s late acceptance of a defendant’s Part 36 offer. It is important that the courts determine these issues by reference to the rules and their “heads” rather than their hearts. The fact that the costs involved would eat heavily into the claimant’s damages did not mean that it was “unjust” for the rules to apply. Further the fact that the claimant had acted reasonably did not mean that the normal principles should not apply.

 

“It will be apparent therefore that of all cases this is a prime example where a Judge has to try to have the humility to apply the law wherever it leads irrespective of sympathy at a human level whether for victims or insurers.”

A party may well act reasonably in not accepting a Part 36 offer, but it does not follow that the ultimate result if that is not the best judgment, is that one has shown ‘injustice’ by refusing to disapply the usual rule…one does not approach this case by asking whether the Claimant acted reasonably.”

THE CASE

The claimant, who had autistic spectrum disorder and ADHD,  had suffered abuse at the hands of a teacher employed by the defendant.  The teacher was imprisoned.  The claimant brought an action for damages for personal injury.

THE DEFENDANT’S PART 36 OFFER

The claim form was issued on 7th June 2017 and served on 7th September 2017.  On the 19th January 2018 the defendant made a Part 36 offer to settle in the sum of £80,000.   In February 2018 the claimant’s solicitors asked for an extension of time to accept the offer.  The defendant did not respond to this request, the claimant’s solicitors did not pursue the matter further.

On the 2nd April 2020 the claimant accepted the defendant’s Part 36 offer.

THE ISSUE BEFORE THE MASTER

The defendant declined to pay the claimant’s costs up to the date of acceptance.  The issue before the Master as to what costs order should be made.

THE RULES

The Master considered the normal principles that the party who has accepted late is responsible for their own costs, and the other party’s costs, from 21 days after the offer was received up to the date of acceptance.  The only exception was if it was “unjust” to do so.

CPR Rule 36.13(6) states:
“In considering whether it would be unjust to make the orders specified in para (5), the court must take into account all the circumstances of the case including
the matters listed in rule 36.17(5).”
CPR Rule 36.17(5) states:
“In considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4), 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.”
29. The effect of the rule is clear: the costs consequences favourable to the Defendant must apply unless it is unjust to so order.The burden is thus on the
Claimant to establish that it is unjust within the meaning of the rule, to so order.

IT WAS NOT UNJUST TO MAKE THE USUAL ORDER FOR COSTS ON THE FACTS OF THIS CASE

The Master reviewed the relevant principles and the respective arguments at length. She decided that it was not unjust for the normal costs consequences of late acceptance to apply.

65. I am not here going to decide the effectively ‘parked’ argument which was mooted at the outset of both days of hearing to the effect that there were
differences in treatment of protected parties versus non-protected parties which rendered them more exposed to the situation here under QOCS. This was not
fully argued before me even though it was listed in the Claimant’s counsel’s final comments summing up types of possible injustice in the case, but in
circumstances where the issues had not been fully ventilated. If it is thought that that line of argument might change the position here, then that can be heard in due course. I will also not determine the question whether (if the rule here would work an injustice) it would be possible or proper for me to then explore a means of approving an order drafted so as to avoid that alleged difference in treatment, if there is one, which was not argued but which I am aware would certainly be opposed by the Defendant as tantamount to being improper as a device to avoid the rule.
66. I have recited the applicable rules above and direct myself accordingly. It is for the Claimant to show that for the normal consequences to follow would be unjust.
67. Part 36 exists to ensure that a party can ordinarily obtain some degree of costs protection by making a well-judged (and ideally early) offer to settle. It is nowadays all the more important than perhaps it has been before (which is not to say that it has not always been important) because (1) with the case loads before the court, Part 36 remains a key post-issue way to encourage settlement
albeit that ever greater emphasis is being and will continue to be placed on preaction dispute resolution, neutral evaluation and technological solutions to avoidlitigation and (2) in personal injury cases the invention of QOCS (Qualified OneWay Costs Shifting) means that Part 36 provides a significant tool for  Defendants and insurers who would otherwise face, save in cases of dishonest
claims, an inevitable costs burden in paying their own costs come what may.
68. The second of the two points especially is in play here. In my role as a case management judge when not sitting at trial, I have seen since the advent of QOCS signs that insured Defendant do take into account that it may be better for a defendant to settle a case even at the risk of slightly over-paying or indeed paying when there might be a prospect of defeating the claim, than to incur the full costs of a trial against the backdrop that the defendant would be paying its own costs come what may due to QOCS. I do not know of course what lay behind the offer in this case but evidently Part 36 coupled with QOCS would logically point in a direction encouraging a defendant to err on the generous side given the QOCS costs burdens of fighting to trial.
69. The Court of Appeal in Briggs rightly said that Part 36 has a salutary effect and to depart from it requires the party so seeking to discharge a heavy burden,
namely to show injustice if the rules are not disapplied. A party may well act reasonably in not accepting a Part 36 offer, but it does not follow that the
ultimate result if that is not the best judgment, is that one has shown ‘injustice’ by refusing to disapply the usual rule. See Matthews: one does not approach this
case by asking whether the Claimant acted reasonably.
70. It seems to me that the evidence in the form of the medical reports which have been cited in some detail above makes out that as at 30 January 2018 this case concerned a young man with PTSD and depression, who had had suicidal thoughts and had self-harmed, that that was as a result of the abuse he had
suffered in the quite awful circumstances of a teacher abusing a child with learning difficulties, that (per Dr Iankov first addendum) prognosis was ‘poor’,
and that (per the educational psychology report) he was ‘unlikely to have been capable of finding at least part-time work in this field. … the Claimant is now
unlikely to obtain the qualifications necessary … likely to spend all or at least a large part of his time unemployed’. ‘It would in all honesty have been difficult for him’ to have found work in his preferred areas anyway and was highly unlikely that he would have gone into further education irrespective of the abuse,
continued the educational psychologist expert. Dr Iankov was not quite as pessimistic and still saw some prospect of qualification or work.
71. Medically his condition as at 30 January 2018 had ‘deteriorated’, prognosis was poor, and he needed proper treatment if he was to get any better. That was the position during the validity of the offer. The Claimant sought an extension. However there was no meeting of minds and no extension of any sort was
expressly entered into, something of which both sides were aware.
72. As it turned out, thankfully, he did improve as far as possible, as is shown by the later medical reports. It is obvious that there was uncertainty in this case as to prognosis, but in my judgment the bleak picture which appertained as at the 30th January, and which did not in any way result in a change to the statement of value on the claim (unsurprisingly since the facts such as suicidal thoughts had
pre-dated the claim and there was no change in diagnosis), was the starting point from which the Claimant might possibly (and in the event did) improve. Implicit in that is the prospect potentially of some deterioration instead, but there were clear limits to the effect that might have on this claim given the already pessimistic prognosis known at 30 January and the pessimistic employment and educational prognosis known at the time the claim was issued. This was therefore for the most part a case where the uncertainty was focussed, when one looks at the detail, on whether and to what extent the Claimant might improve, with some possible scope for deterioration.
73. What then of the offer? The statement of value on the Claim was £100,000 and that was not revised up after the report of 30 January 2018, as noted. A
statement of value does not bind the court as to the eventual award, and of course if a claim changes then that may be amended, but it is an indication of
the value as an upper limit reasonably placed on the claim when issued, on the basis of the facts known at time of issue. The Defendant offered £80,000 early
on. That is I think fairly described as a ‘high end’ offer given the placement of the Claimant in the moderate-severe range and not squarely in the severe range for his conditions, and in the light of the position as to modest employment and education prospects which he would have had but for the harm done.
74. As regards Hewitt, in my judgment it is as the Defendant argued a rather different type of case, where a key element – diagnosis – could not be reached
until majority and all experts agreed that. In this instance we have clear and unchanging diagnosis at the start and a degree of uncertainty (mostly in the ‘may
improve’) direction. That in my judgment is a risk of litigation such as one sees in many cases whether of personal injury or in other contexts where precise merits remain uncertain, possibly all the way to trial.
75. If one were to decide that uncertainty of prognosis of the sort here was sufficient to make the (important, salutary) application of rules quite deliberately created to shift risk an ‘injustice’, one would undermine a key aspect of balance in the QOCS regime. Insurers would face costs even though they wisely make high and well judged early offers. Settlements would be delayed so as to enable claimants to reach a high degree of clarity as to value and the table would in my
judgment become tilted by removal of one supporting leg from under the table, in the form of the protective Part 36 costs regime. This case is closer to Briggs,
which was a case of uncertainty in prognosis such as is common in personal injury.
76. That the Claimant lacks capacity is not a basis for departing from the usual rule (cf Matthews). If it were, the rules committee would have provided that this
regime is not applied to, or applies differently, to people lacking capacity. (One might, in place of the standard ‘injustice’ case, have seen for example a test
based on whether on the known facts it was reasonable for a litigation friend in the best interests of the Claimant to delay acceptance: but that is not the test, it
is not the approach the rules take).
77. It was said for the Claimant that per Downing, this case had a number of circumstances taking it out of the norm and going to the issue of injustice. I listed
them in the summary of submissions in reply. However it seems to me that an assessment of the reasonable range and certainly ‘best case’ quantum was
possible based on what was known, it is not material that the uncertainty in prognosis (largely as to degree of improvement) was known and acknowledged
by both sides – absent some misrepresentation leading the Claimant to rely on not facing the ‘bite’ of Part 36.
78. As to the point that a court would not have approved this settlement unless prognosis was clear, this point was one which I considered carefully and perhaps
at face value the most enticing one: but Masters are experienced in knowing the practical realities of litigation and injury quantification and we benefit from
exposure to the start, often the trial, and then settlement or aftermath of the case. In this instance if an advice had been presented which set out the effect
above, namely that on any basis reasonably likely this offer was ‘high end’ and that litigation risks and the risks of the offer made it prudent to settle, I believe a judge in my position would have approved it. Were one to expect absolutely settled prognosis in such cases, the court process itself would be a spanner in
the works in terms of settlement on a pragmatic basis.
79. That an extension was requested is something which was also referred to as relevant to injustice: but that cuts both ways. It was requested and no agreement
was reached, something which one can take as a flag that the offer may well be relied upon and that time was passing, absent an extension or stay.

SHOULD THE COURT TAKE INTO ACCOUNT THE IMPACT OF THE THE DEDUCTION ON THE CLAIMANT’S DAMAGES?

The claimant argued that the application of the rule would lead to a major deduction from their damages.

80. I turn to the question whether I can take into account the ‘heart’ points as counsel for the Defendant put them, namely that this is an abuse case in horrific
circumstances and that to decline to disapply the usual rules could – and on the face of it would, subject to assessment of costs – greatly reduce the damages
recovered by the abuse victim. The parties differ diametrically on whether I can take that into account.
81. The fact that the impact is not listed as an express factor in the rule is some indication but not conclusive. The view I have come to is that, just as one does
not take into account the prejudice caused to a party by its own breach, when considering the justice of granting relief, it would be to place the cart before the
horse to factor into account the impact of costs on damages, when it is the very question of mitigating the impact on damages which is the essence of the issue
itself: naturally the damages will always be impacted in such cases, that is the presumed ‘just’ outcome, unless other factors make it unjust for that to be the
case. I must therefore follow, as counsel put it, ‘my head’ and not my ‘heart’. I am of the view that it is not permissible to take into account the degree of
reduction (or the fact of reduction) of damages which arise from the operation of the rule in the ‘default’ form. Detailed Assessment exists to ensure that
excessive sums are not deducted, and that is the route to avoid injustice in that form. Taking that a step further whilst no doubt one would attract cynical derision if one considered the plight of insurers, large institutions with money, alongside the plight of an abused minor, as being in some sense directly comparable, it is nonetheless the case that it would be overly hard-hearted (were one in the business of following one’s ‘heart’) to say that greatly weakening the scope for insurers to protect themselves by making generous offers was not also to a degree a ‘moral’ issue touching on the money available to settle other cases and the impact on the court system which might arise from weakening Part 36.

THE EXPRESS FACTORS IN THE RULE

The Master then considered the express factors in the rule.

81. The rule requires me to look at all the circumstances but in particular I ‘must’ consider the following and will do so here:
(a) the terms of any Part 36 offer: this was clear and was a ‘high offer’ as I have found. Time for acceptance was not extended by agreement, as both sides
knew.
(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:
this was early and well judged, but not so early that no reasonable evaluation could be made by the party considering accepting it, that is to say it was not an
oppressive or ‘ambushing’ offer expecting unreasonable feats of foresight on the part of the Claimant, given the extent of expert evidence available.
(c) the information available to the parties at the time when the Part 36 offer was made: I have I think dealt with this extensively above. Sufficient
material was available to allow proper advice to be given to the Claimant and the Court as to value, in my judgment.
(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:
this does not appear to be relevant here.
(e) whether the offer was a genuine attempt to settle the proceedings: plainly it was and the contrary has not been alleged.

82. I shall therefore hold that it would not be unjust to allow the rule to apply, and the Defendant (subject to assessment) may make the relevant deductions from damages under Part 36.