PART 36 & COSTS: DEFENDANT COULD NOT SHOW INJUSTICE WHEN IT ACCEPTED A PART 36 OFFER OUT OF TIME: “PART 36 IS INTENDED TO BE A TWO-WAY STRAIGHT AND NARROW HIGHWAY”

In Holly Wright (& others) -v- Birmingham City Council District Judge Baldwin (sitting as Regional Costs Judge)* rejected an attempt by a defendant to obtain its costs where it accepted the claimants’ Part 36 offers late.  The judge held that normal Part 36 consequences should apply and the defendant could not show “injustice” in a case where it had deliberately elected to accept the Part 36 offers late.  The rules relating to Part 36 are clear, the defendant could not have its cake and eat it.

 

“Part 36 is intended to be a two-way straight and narrow highway, with a significant limitation on escape lanes. In my judgment, the Defendant has come a long way short of establishing injustice to cause this Court to overturn the presumption in r. 36.13(5) in this case.”

THE CASE

The claimants had each brought claims for disrepair against the defendant council. Each case had settled without the need for proceedings. Each claimant had then issued proceedings for costs. The defendant sought an order that a number of cases be linked for the purpose of assessment.

THE CLAIMANTS’ PART 36 OFFERS

After the court ordered the matters be heard together each claimant made a Part 36 offer to settle the costs.

THE DEFENDANT’S LATE ACCEPTANCE AND APPLICATION FOR COSTS

The defendant accepted each of the offers shortly after the 21 day period.  There was, therefore, no automatic entitlement to costs. The defendant made an application that a “different” order for costs be made. That is the claimants pay the defendant’s costs.   The defendant put forward a number of arguments  in support of its contention that a different order should be made.

THE CLAIMANT’S ARGUMENT

 

The Claimants’ response

19. Mr Exall’s approach on behalf of the Claimants is to emphasise the contended for straightforward nature of both the issue and the Court’s approach. In essence, the Defendant, he reminds the Court, has the heavy and high burden imposed upon it because, having voluntarily placed itself in a position whereby it was willing to go down the settlement route, it now wishes to escape the normal and natural consequences of doing so, the latter being part of the intentional framework of the Part 36 approach to encourage settlement as a whole.

20. He takes in turn the examples as set out in r. 36.17(5), noting on the way that the circumstances here arise in the context of settlement by acceptance before a hearing and not by way of the Part 36 costs consequences of judgment.

21. As to the “terms” of the offer, whilst Mr Hogan had submitted that this carries significant weight by way of noting the very large deduction accepted by the Claimants by way of the level at which the offers were pitched, characterised as a surrender, Mr Exall preferred to emphasise the commerciality of the offer, namely the fact of pitching it where it was pitched being representative of the margin of safety assessed as required in order to give protection, should the offer not be accepted, rather than entire capitulation to the best possible level which it was hoped could be achieved as a contested hearing.

22. As to the stage at which the offers were made, Mr Hogan having submitted that this was to be criticised as an obvious reaction to my ruling on 2nd November 2021 after a year of obfuscation, Mr Exall countered in effect that this is exactly what ought to be encouraged, namely when a material event occurs, the parties should modify their positions in order to reflect the “cut and thrust” of litigation and a party is quite in order to pitch an offer at a level whereby it feels that determinations on controversial issues may be avoided.

23. Whereas Mr Hogan had submitted that there is relevance in the late provision of information by way of the Part 18 responses, Mr Exall’s stance was that the plain fact is that all information was then available at the material time in order for these offers to be properly evaluated.

24. He also submitted that this was obviously a genuine attempt at settlement.

25. On the other hand, he urged upon the Court, the Defendant, when faced with a decision to make on acceptance of the Part 36 offers, positively chose to go down that route, rather than alternative options open, namely the making of a responsive Calderbank offer conditional upon leaving costs at large or simply taking its chances at a full hearing. However, by the late acceptance method, the Defendant was deliberately trying to gain the benefit of a defined settlement from the Part 36 route without being prepared to abide by the normal rules of the bargain.

26. In terms of other circumstances, it is pointed out that there is no satisfactory information on the evidence as to why the Defendant chose not to make any of its own Part 36 offers, as opposed to the Calderbank offers, both inclusive and exclusive of costs earlier made. Milbrooke, it is noted, relegates Calderbank offers in terms of importance or efficacy.

27. Mr Exall dismissed the Defendants’ contentions as to procedural irregularities as carrying little weight when the method of supplying draft or informal bills is one frequently utilised and encountered generally. Anything in terms of potential importance, he suggests, was ironed out by means of the Part 18 responses. Further, negotiations were entered into before proceedings were lodged, see Warburton paras 27 & 28 [703].

28. Insofar as it is suggested that public bodies deserve special treatment, this was rejected by Mr Exall as being without foundation, particularly where that body has itself seemingly made a commercial decision not to make its own Part 36 offers, see also para. 16 of Milbrooke. Mr Hogan ultimately accepted that there should be no special treatment, but emphasised the impact of the repeated nature of these sorts of cases against a single Defendant as a relevant circumstance.

29. He also warned against any temptation to make findings as to conduct related complaints, in the context of a settlement, rather than findings between the parties. Although late acceptance can have harsh consequences on the face of it, nevertheless the rough has to be taken with the smooth, as in the case, for example, of a disabled child Claimant in a sexual abuse claim, noted at para. 13 of his skeleton, MRA v The Education Fellowship [2022] EWHC 1069 (QB), a decision of Master McCloud, where the normal rule was not departed from, the decision not to accept the offer in time being “not the best judgment”.

30. Further, the Court is reminded that, despite raising the “small claims track” issue in 3 of these cases, the Defendant nevertheless ultimately filed notices of Part 36 acceptance.

31. Finally, there is a reminder that Part 36 is supposed to be a clear and simple framework for settlement, and not to be undermined by the application of general r. 44.3 principles, see Fox v Foundation Piling [2011] 6 Costs L.R. 961, Jackson J.

 

THE DISTRICT JUDGE’S DECISION

The judge did not accept the defendant’s contentions. There was a heavy burden on a party seeking to displace the normal cost rules relating to Part 36. The defendant did not meet the criteria here.

Discussion

32. In my judgment, the overall context overseeing the Court’s approach to an issue of this sort is the purpose and design of Part 36. As was agreed by the Court of Appeal in Fox v Foundation Piling [2011] EWCA Civ 790, it is indeed intended to provide a clear and simple framework within which parties can settle litigation. There has been much relief expressed since as to the approval thereby given to the straightforward codified nature of the Part 36 process, but in this instance that acknowledgment perhaps takes something of a back seat to the other aspect, namely that Part 36 is intended to be a vehicle for settlement and, by corollary, not for division.

33. As has been said, as a result, any party setting itself down the path of attempting to escape the norms of that framework and thereby continuing an element of division bears a heavy and significant burden of persuading the Court that therein lies the only route to a just outcome.

34. To my mind, whilst I have already acknowledged the deep sense of injustice obviously felt by the Defendant, for all the reasons carefully set out by Mr Hogan, there is one matter which tends to set these cases apart from those which these courts might ordinarily come across in terms of issues arising out of late acceptance. This is that, in this Court’s experience, late acceptance ordinarily comes about when the mists of risk in any litigated matter clear sufficiently to enable a party to accept that it may not have been the wisest move not to accept an older offer in the first place.

35. This is not the case here. Once these cases were linked by my Order, the Claimants, I accept, took the commercial decision to tempt settlement by making low offers, in the region of one third of their top lines. That may be described as a tactic to avoid the level of close scrutiny which would likely be applied in a detailed assessment hearing, but surely that is what the mechanism of Part 36 is there for, namely to allow any party at any stage in the lead up to an expensive final hearing, to engage in the settlement process in order to mitigate the costs risks which a failure to so engage inevitably carries with it. The Defendant, in response, I am entirely satisfied, not least as it was conceded by Mr Hogan, deliberately chose to accept the offers, but out of time, in order to avoid, or at least attempt to avoid the normal Part 36 consequences. There is no evidence that there were any evidential or clarification issues preventing acceptance, nor that any other circumstances, beyond deliberate choice, were preventing the Defendant being able to reach its decision in a more timely fashion.

36. As such, in my judgment I am able quickly and conveniently to deal with the checklist in r. 36.17(5):-

(i) I find that a genuine commercially low-pitched offer was made. I disagree fundamentally that the offer should be characterised as anything other than genuine. Concern for the issue of genuineness is aimed, I would suggest, much more at “silly” offers, such as offering £99,999.99 in a £100,000 claim or the like;
(ii) The offer was made at a stage significantly before any detailed assessment listing directions were even made, let alone the date for a final hearing listed. The fact that there had been a significant and costly lead up to this point does not, in my view, detract from that fact, as so to find would be to provide discouragement of anything other than the earliest of Part 36 offers, which cannot be what is intended by the framework. I also find noteworthy here an element of incongruity in importing r. 36.17(5) directly into r. 36.13(5) considerations, as the former is designed to assist in determining “costs consequences following judgment”, hence the reference to “how long before the trial started” in r. 36.17(5)(b);
(iii) As already identified above, I have found no information lacunae at the material time. Whilst I accept that there is an argument, semantically, that r. 36.17(5)(d) may cover all conduct at whatever stage impeding evaluation of an offer, it seems to me that, being preceded as it is by r. 36.17(5)(c), the real mischief being probed here is whether insufficient time has been afforded once the offer was made, given new issues of clarification potentially arising at that time.

37. In consequence, I determine all the r. 36.17(5) checklist in favour of the Claimants in not giving rise to an injustice requiring the remedy of departing from the norm.

38. I now turn to consider other matters raised comprising the residue of “all the circumstances”.

39. Any request for an interim payment which amounts clearly to more than a reasonable proportion of what is likely to be awarded ultimately is to be deprecated and discouraged. This Court’s approach to receiving an Acknowledgment of Service which disputed the request for such a payment would not have been that (as I was informed) of the learned Deputy in this case, namely to make the order as requested, as that type of response, in my judgment, raises an issue for further consideration, see my previous decision of Travers v Poole Hospital NHS Trust (28th April 2016 unreported). However, on the facts of this case, the remedy for the Order actually made lay in the Defendant’s hands, namely to apply to have it set aside, having been made without a hearing. This was not done.

40. I find no assistance for the Defendant in the “N260 versus the draft or informal bill” point. There is an equal, if not greater chance in this case, given the deep-seated issues, that the initial use of an N260 would have increased, rather than, as suggested, decreased costs, in particular given the Defendant’s (merited) overall concerns as to opacity in the bills themselves. I find it almost inconceivable, in all the circumstances, that a simple use of an N260 had any real prospect of achieving a settlement in this case.

41. The degree of abandonment has already been touched on by me above in terms of a genuine settlement attempt set against the backdrop of the commerciality of the evolving situation. In addition, however, I do find an element here of the Defendant, whilst accepting through Mr Hogan that the reduction of the bill element (r. 47.20(3) does not directly apply, trying to reimport the same with an invitation to attach significant equivalent weight in the process. The bald fact is that the bill has not been reduced by the Court, as was the context in Milbrooke. To that end, I find no direct guidance as to conduct issues in Milbrooke, by way of application to a late acceptance of a Part 36 offer situation. The Court has made no “really dramatic or exceptional overall reductions in a bill” (Milbrooke para. 19).

42. Once again, the ball, in my judgment, was in the Defendant’s Court. It had, it seems to me, four choices. First, to accept within the 21 days with the attendant costs consequences. This, it deliberately chose not to do, not seemingly being able to palate paying such costs of costs set against its overall background concerns. Secondly, to make its own counter-offer, either by way of Part 36 (which was similarly distasteful to it for the same reasons) or by way of Calderbank offer, which may well have had limited consequences. Thirdly, to take its chances and at least lance the boil, at whatever cost, by having proper scrutiny during a lengthy inter partes contest, or finally to take the approach adopted here.

43. The problem with the choice made, in my view, in terms of the injustice argument, is that it smacks too much of a “cake and eat it” approach. In other words, the Defendant is trying to settle, “sort of” within the Part 36 ethos, but just sufficiently outside of it to try to overturn the normal costs consequences, by being highly critical by way of allegation against the Claimants, but without being prepared actually to have the argument, such that the Court might actually be able to use its findings, leading to reductions made, as a foundation for its overall costs of costs decision.

44. This is not to be taken in any way as a discouragement to settle – quite the opposite – but rather as a discouragement to use a tactical device to half settle or, as I said in the course of the hearing, to turn a settlement into a non-settlement. As Master Brown had in mind, quite rightly, in Milbrooke (para. 16), “Part 36 provides a clear process to protect (a party’s) position. A paying party cannot simply sit back and hope for a good day in court”.

45. Part 36 is intended to be a two-way straight and narrow highway, with a significant limitation on escape lanes. In my judgment, the Defendant has come a long way short of establishing injustice to cause this Court to overturn the presumption in r. 36.13(5) in this case.

46. Injustice is not, of course, quite the same as rough justice, which the Defendant may well feel is the result of my decision. Nevertheless, the bills in these cases appear to be disproportionate and were accompanied by a degree of opacity, which required unnecessary legal wrangling to penetrate. Such matters are likely to provoke, rather than dispel, dispute between the parties, thus building costs and when the receiving party does hold most of the cards, such an approach should also be discouraged as not in accordance with the duty of parties to help to further the overriding objective pursuant to r. 1.3. Whilst the costs of costs may well be awarded in principle to the receiving party, the Court will be astute to take such matters into account in the assessment process.

47. Further, it seems to me that the position of the Defendant in these cases is not so weak as it might attempt to portray, as long as the Defendant were prepared to countenance taking a certain amount of nasty-tasting medicine in the process. In other words, the Defendant, having as many claims against it as it says it does, seems to me to be better placed that most paying parties to be able to analyse what would be a good Part 36 offer to make at an early stage to minimise the costs of costs burden. It should have sufficient data available to it to be able to analyse, for example, the extent to which similar bills are being reduced on provisional assessment, set against the claim settlement values. If a pattern of very significant reductions emerges, as I rather suspect it will, then that may be a good guide, when added to the data to be extracted from the outcome of the commercial approach ultimately adopted by the Claimants in these cases. The medicine referred to is, of course, bringing oneself to a position whereby one can countenance making an offer of reasonable costs by way of Part 36. Parties are generally well-advised, it seems to me, particularly when public money is at stake, to understand, rather than to claim not to understand, commercial reality, and throw a little bit more money at the problem at an early stage, in order to avoid the costs escalation issues of the type complained of here.

48. In conclusion, I am not persuaded by the Defendant that it would be unjust to make the normal Part 36 order in the offeror’s favour, in all the foregoing circumstances.

 

* A copy of the judgment is available here.HollyJudgment.