ANOTHER QOCS AND PART 36 CASE: COURT MAKING ORDER UNDER PART 36 DID NOT LEAD TO QOCS PROTECTION BEING OUSTED

December 19, 2022 · by · in Appeals, Clinical Negligence, Part 36, QOCS

In University Hospitals of Derby & Burton NHS Foundation Trust -v- Harrison [2022] EWCA Civ 1660 *  the Court of Appeal rejected the defendant’s argument that QOCS protection was lost when the court was called upon to make an order under r.36.22 (9).  This is the second case on QOCS and Part 36 in the last few days.

*The transcript of the case is available on Andrew Hogan’s blog, see here.

 

“… I conclude that a court making an order under r.36.22(9) is not making an order for damages and interest in favour of the claimant. Thus the Order did not mean that the claimant lost her QOCS protection, and the judge was right to reach the conclusion that he did. The remainder of my analysis is designed to show that, however the underlying issue on this appeal is approached, on the current wording of r.44.14(1), the claimant has the better of the arguments”

THE CASE

The claimant brought an action for damages for clinical negligence.  In 2019 the defendant made a Part 36 offer of £421,362.88. In November 2021 the claimant sought to accept the defendant’s offer.  Because further recoupable benefits had been paid after the date of the expiry of the offer the claimant required the permission of the court.

THE DECISION OF THE JUDGE AT FIRST INSTANCE

The judge gave the claimant permission to accept the offer, subject to having the additional CRU benefits deducted from the total.

The judge ordered that the claimant should receive her costs up to the end of the relevant period.

The judge also ordered that the claimant pay the defendant’s costs that had been incurred since 27 December 2019, however  these could not be enforced or set off against the costs that the claimant could recover.

THE DEFENDANT’S UNSUCCESSFUL APPEAL

The defendant argued that the court making an order under Part 36 in these circumstances, meant that an order of the court was made and thus the claimant did not have QOCS protection The defendant’s appeal was unsuccessful on a number of grounds, set out in the judgment of Lord Justice Coulson.

THE JUDGMENT IN THE COURT OF APPEAL
Reason 1: What The Court Does Under r.36.22(9)
  1. In order to address this, it is necessary to set out the relevant parts of CPR Part 36. Rule 36.11 deals with the acceptance of a Part 36 offer. It provides:
“36.11
(1) A Part 36 offer is accepted by serving written notice of acceptance on the offeror.
(2) Subject to paragraphs (3) and (4) and to rule 36.12, a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer), unless it has already been withdrawn…
(3) The court’s permission is required to accept a Part 36 offer where—
(a) rule 36.15(4) applies;
(b) rule 36.22(3)(b) applies, the relevant period has expired and further deductible amounts have been paid to the claimant since the date of the offer;
(c) an apportionment is required under rule 41.3A; or
(d) a trial is in progress…
(4) Where the court gives permission under paragraph (3), unless all the parties have agreed costs, the court must make an order dealing with costs, and may order that the costs consequences set out in rule 36.13 apply.”
  1. Rule 36.13 deals with the cost consequences of acceptance of a Part 36 offer. Rule 36.13(1) addresses acceptance within the relevant period. Where, as here, a Part 36 offer which relates to the whole of the claim is accepted after expiry of the relevant period, r.36.13(4) provides that “the liability for costs must be determined by the court unless the parties have agreed the costs.” In those circumstances, r.36.13(5) provides:
“(5) Where paragraph (4)(b) applies but the parties cannot agree the liability for costs, the court must, unless it considers it unjust to do so, order that—
(a) the claimant be awarded costs up to the date on which the relevant period expired; and
(b) the offeree do pay the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.”
  1. Enforcement is dealt with at rule 36.14:
“36.14
(1) If a Part 36 offer is accepted, the claim will be stayed.
(2) In the case of acceptance of a Part 36 offer which relates to the whole claim, the stay will be upon the terms of the offer.
(3) If a Part 36 offer which relates to part only of the claim is accepted, the claim will be stayed as to that part upon the terms of the offer.
(4) If the approval of the court is required before a settlement can be binding, any stay which would otherwise arise on the acceptance of a Part 36 offer will take effect only when that approval has been given…
(6) Unless the parties agree otherwise in writing, where a Part 36 offer that is or includes an offer to pay or accept a single sum of money is accepted, that sum must be paid to the claimant within 14 days of the date of—
(a) acceptance; or
(b) the order when the court makes an order under rule 41.2 (order for an award of provisional damages) or rule 41.8 (order for an award of periodical payments), unless the court orders otherwise.
(7) If such sum is not paid within 14 days of acceptance of the offer, or such other period as has been agreed, the claimant may enter judgment for the unpaid sum…”
  1. Rule 36.22 provides for the deduction of benefits and lump sum payments. Rule 36.22(9) provides:
“(9) Where—
(a) further deductible amounts have accrued since the Part 36 offer was made; and
(b) the court gives permission to accept the Part 36 offer,
the court may direct that the amount of the offer payable to the offeree shall be reduced by a sum equivalent to the deductible amounts paid to the claimant since the date of the offer.”
  1. As noted in paragraph 10 above, the judge gave effect to these provisions by giving the claimant permission to accept the appellant’s Part 36 offer and directing the amount of the deduction. He went on to do the resulting maths, to the effect that the net sum payable, after the deduction of deductible benefits and the interim payment, was £298,156.16. The critical question then becomes whether, in undertaking this exercise, the court was making an order for damages and interest in favour of the claimant pursuant to r.44.14(1).
  2. As a preliminary point, there was some debate during the hearing of the appeal as to whether the Part 36 procedure was in any way contractual. The authorities, such as Flynn v Scougall [2004] EWCA Civ 873; [2004] 1 WLR 3069 and Gibbon v Manchester City Council [2010] EWCA Civ 726; [2010] 1 WLR 2081, make it plain that Part 36 is a self-contained procedural code, a statement now enshrined in r.36.1(1). But contractual principles remain relevant when construing the terms of an offer (see Adelekun v Ho in the Court of Appeal at [2019] EWCA Civ 1988) or trying to establish the terms of settlement (Rosario v Nadell Patisserie Ltd [2010] EWHC Civ 1886 at [34]). An order under r.36.22(9) is a good example of a procedural adjustment required by Part 36 to the basic settlement evidenced by the offer and the acceptance.
  3. The two questions that the judge had to decide under this procedural code were each binary. One was whether or not he should grant permission to accept the offer out of time. The other was whether or not the deductions, in the amount set out in the CRU certificate and agreed between the parties, should be deducted from the amount of the offer. They were questions to which the answer was either Yes or No. The judge was not carrying out any evaluation or assessment of what was due or to be paid. He was not, therefore, making an order for damages in favour of the claimant.
  4. So what was the judge doing? In my view, he was simply directing that one part of the offer, when accepted pursuant to his permission, would be paid to the claimant, but that the balance (namely the deductible benefits) would be paid to the DWP. That was an adjustment to the settlement between the parties provided by the detailed procedure set out in Part 36.
  5. That the judge was directing the amount of a deduction, rather than making an order in accordance with the r.44.14(1), can also be demonstrated by reference to the question of enforcement. If the appellant had not paid the claimant the sum due, how would the claimant have enforced it? The answer is that she would have enforced it pursuant to the procedure set out at r.36.14(7) (paragraph 24 above). That reflects the fact that the appellant’s obligation to pay the amount accepted by the claimant arose from the CPR. It did not arise from the Order. In particular, paragraph 2 of the Order, which Mr Hutton argued was the critical element that brought it within r.44.14(1), could not have been independently enforced at all.
  6. A more general consideration of Part 36 leads to the same conclusion. In most Part 36 cases, a claimant does not require the court’s permission when deciding to accept the Part 36 offer, whether within the relevant period or thereafter. It is a settlement between the parties, based on an offer and an acceptance, which does not generally involve the court at all. Such a settlement would not ordinarily give rise to an order by the court for damages and interest made in favour of the claimant.
  7. Does it make a difference that, in some situations under Part 36, a claimant requires the court’s permission to accept the offer? The answer to that must be No: in those circumstances, the granting of permission by the court is simply a formal endorsement of the settlement between the parties. Mr Hutton fairly accepted that when he conceded that the court’s grant of permission did not by itself lead to an order under r.44.14(1). As he put it, “the court has to go further than that” for it to become an order which might permit set-off.
  8. His argument was that, in the present case, the court did go further, because it identified the amount of deductible benefits. But as I have explained, the court’s direction as to the deductible amount, which had the effect of identifying that part of the offer to be paid to the DWP rather than the claimant, did not somehow transform what the court was doing, in the words of r.44.14(1), into “an order for damages and interest made in favour of the claimant”. It was simply a redirection of part of the offer to the DWP, as required by the procedural code. As so many of the court orders required by Part 36 are, it was merely ancillary to the settlement which the parties had reached.
  9. Because Mr Hutton’s argument was based foursquare on the proposition that the deductible benefits were the “trigger” that removed the QOCS protection, he was asked what the rationale of such a reading might be. He fairly accepted that there was no link between an order which included the direction in respect of deductible benefits, and the QOCS regime, and he was unable to argue that, if his interpretation was correct, it would in some way link back to the underlying purpose of QOCS. Of course, in the absence of any such link, it became a question of happenstance that, simply because r.36.22(9) was in play, there was a potential route round the claimant’s QOCS protection that would not have existed if, for example, the Part 36 offer had not included the deductible benefits so that there was no deduction to be calculated. In my view, that would be an entirely random result.
  10. For these reasons, therefore, I conclude that a court making an order under r.36.22(9) is not making an order for damages and interest in favour of the claimant. Thus the Order did not mean that the claimant lost her QOCS protection, and the judge was right to reach the conclusion that he did. The remainder of my analysis is designed to show that, however the underlying issue on this appeal is approached, on the current wording of r.44.14(1), the claimant has the better of the arguments.
Reason 2: The Elevation Of Form Over Substance
  1. Picking up from the point made in paragraph 33 above, it seems to me that the entire basis of Mr Hutton’s argument ran the risk of elevating form over substance. Parties can settle their disputes in a myriad ways. On Mr Hutton’s case, a claimant who put the entirety of his or her agreement into a schedule to a Tomlin Order would not lose their QOCS protection (see Cartwright). A claimant who required a simple granting of permission by the court to accept a Part 36 offer would, likewise, not lose that protection. But if, for reasons wholly unconnected with the QOCS regime, a particular form of order was required in accordance with the CPR, notwithstanding the settlement reached between the parties, the QOCS protection might be lost.
  2. That would elevate the form of the order over the substance. On that basis, it would not matter what the settlement was: all that might matter is the form of court order in which that settlement was addressed. I simply cannot accept that that is a sensible or appropriate approach to the CPR.
  3. Mr Mallalieu demonstrated that this was not a hypothetical concern. In MRA v The Education Fellowship Ltd [2022] EWHC 1069 (QB) Master McCloud noted that there was an issue as to the form of order in cases concerned with protected parties, as opposed to non-protected parties, which rendered them potentially more exposed to a QOCS deduction. There was a related argument as to whether the court should explore a means of approving an order so as to avoid that alleged difference in treatment. The defendant opposed that suggestion as a device to avoid QOCS. MRA demonstrates that the risk in QOCS cases of the elevation of form over substance is, sadly, all too real.
Reason 3: Policy Considerations
  1. I agree, with respect, with the remarks of Lord Briggs and Lady Rose in Adelekun v Ho to the effect that, in this sort of dispute, policy considerations, and the adverse policy consequences of the opposing arguments on the question before the court, are not particularly helpful. That said, there is at least one clear policy point which arises out of this appeal and which seems to me to point away from the appellant’s interpretation of r.44.14(1) and towards the correctness of the judge’s conclusion.
  2. Usefully gathered together at paragraph 103 of Mr Hogan’s skeleton argument was a list of situations where Part 36 requires the court to make an order of some kind to reflect the settlement reached between the parties. Those include not only this sort of case (where a claimant is disabled, so qualifies for the ongoing receipt of disability benefits) but cases where a claimant is disabled and lacks mental capacity, so that any settlement that is reached requires the approval of the court; where the claimant is a child and lacks legal capacity; where a claimant is severely disabled and qualifies for an award of provisional damages (often high value claims); where a claimant is severely disabled and qualifies for an award of periodic payments (again these are often high value claims); or where a claimant has qualifying family status to be a dependent of a deceased and is entitled to an apportionment of an award of dependency damages.
  3. Those are all cases in which it might be said that a claimant has a particular need of the protection of QOCS but where, on the appellant’s case, because an order must be made by the court, such protection would or might be lost. On this analysis, an ‘ordinary’ claimant would be able to keep their QOCS protection, whilst a more vulnerable claimant would lose it. That would not be rational or proportionate, and no explanation or justification to the contrary has been provided. I do not need to go as far as Mr Hogan and say that such an outcome would be “absurd”; I can confine myself to saying that, in my view, such an outcome is not what the CPR means or intended.
  4. Moreover, the appellant’s interpretation could have a substantive, let alone a procedural, consequence. For example, a claimant has a choice as to whether or not to claim provisional damages. It might affect the substance of his or her claim if the claimant realised that, if they claimed provisional damages, which would ultimately result in a court order regardless of any settlement, they might be at risk of losing their QOCS protection. That would be a particular concern, because such a claim would be predicated on the happening of a future event which could not itself be predicted. The same would be true of a claim for periodical payments: a claimant may be put off making such a claim at all if he or she thought they would lose their QOCS protection on settlement, whilst they would not lose that protection if they framed their claim in a different way. Again, that would not in my view be in accordance with the CPR.
  5. On that basis, I agree with Mr Hogan and Mr Mallalieu that those wider policy considerations support the judge’s conclusion as to the operation of r.44.14(1).
  6. Of course, many of my observations under both Reasons 2 and 3 stem, in one way or another, from the distinction (drawn by the Supreme Court in Adelekun v Ho) between orders of the court, on the one hand, and settlements between the parties, on the other. I recognise that r.44.14(1) may soon be amended in an effort to do away with that distinction, and I also recognise that Mr Hutton might be right when he submitted that such a distinction was incapable of justification purely on policy grounds. But for the purposes of this appeal, the distinction, which is firmly grounded in the clear words of the current r.44.14(1), remains of critical importance.
Reason 4: The Authorities of Cartwight and Adelekun v Ho
  1. It seems to me that the judge was right to say that the authorities supported the claimant’s position. As to Cartwright, although I have already said that my analogy with Part 36 was obiter, there is undoubtedly a close similarity between a settlement under Part 36 and a Tomlin Order. As with a Tomlin Order, when a Part 36 offer is accepted, there is a settlement which is nothing to do with the court. Moreover, for the reasons that I have already given, I cannot see that that analysis is affected by the fact that, in a case like this, the court has to give a direction as to the amount of any deductible benefits.
  2. As to Adelekun v Ho, the issue of whether set-off of opposing costs orders under r.44.12(1) was permitted under the QOCS regime only arose at all because the parties agreed – and the Supreme Court held – that the settlement meant that there was no order for damages and interest made in favour of the claimant under r.44.14(1), so that another way had to be found for the set-off to arise. The suggested alternative was r.44.12. In other words, the specific issue that the Supreme Court decided only arose in the first place because they had held that the settlement under Part 36 was not caught by r.44.14(1).
  3. The Supreme Court did not differentiate between different kinds of settlement. Although, on the facts of Adelekun v Ho, the acceptance of the Part 36 offer led to a Tomlin Order by consent, and so was similar to Cartwright, that difference of form did not matter to the Supreme Court. They appeared to treat all types of settlement interchangeably, whether that was an offer and acceptance by way of Part 36, or by way of a Tomlin Order. They did not suggest that there was any meaningful difference between the two: they worked on the basis that, if there was a settlement of any kind, r.44.14(1) did not apply.
  4. Accordingly, it seems to me that the authorities – and in particular Adelekun v Ho – lead to the conclusion that a settlement achieved by an offer and acceptance under the Part 36 regime, whether it is recorded in a Tomlin Order or howsoever, is not “an order for damages and interest in favour of the claimant” within the meaning of r.44.14(1). That is therefore a fourth reason why I conclude that the present appeal should be dismissed.
Reason 5: What The Present Rule Does Not Say
  1. In its essence, Mr Hutton’s submission amounted to this: if there is a court order of any kind (beyond simply giving permission to accept an offer), which records a settlement between the parties howsoever reached, that is an order caught by r.44.14(1). But that is not what the rule presently says. At paragraph 50 of my judgment in Cartwright, I said this:
“50. It is these practical difficulties which have confirmed my view that Mr Williams QC’s liberal interpretation of r.44.14(1) is wrong. Essentially, he has to argue that the CPRC intended that the rule should cover any circumstances in which a claimant recovers something, by whatever means, from a defendant. But not only does the rule not say that, but if that is what was intended, the rule would have needed to contain much fuller guidance as to what should happen to settlements and Tomlin orders: whether they were to remain confidential; the circumstances in which the confidentiality would be removed; the way in which any global sum was to be apportioned, and so forth. In the absence of that sort of guidance, it cannot be said that this is a situation which the rules were intended to cover. So, it does not seem to me to have been an oversight or a lacuna in the CPR: if it had been the intention for r.44.14(1) to cover settlements of whatever kind, different words and greater guidance would have been required.”
  1. The same observations apply to Mr Hutton’s submissions here. If the CPRC had intended that r.44.14(1) should cover all the ways in which a claimant may recover something after issuing proceedings, including settlements, they would have said so. Until very recently, they did not.
  2. As a result of the decision in Adelekun v Ho, the Ministry of Justice consulted on proposed amendments which would allow set-off in respect of costs orders. It appears that, originally, the proposed amendments were directed solely at that point. However, at the meeting of the CPRC on 7 October 2022, a fuller amendment was agreed in principle, although it has yet to be formally ratified. That read as follows:
“(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for or agreements to pay damages, costs and interest made in favour of the claimant. (My emphasis).”
  1. It would not be appropriate to say anything more about this proposed change for the purposes of this appeal, save to note two things. First, it does not expressly address Part 36. Secondly, it provides a final indication of why I consider that the appellant’s interpretation is incorrect. Not only does rule 44.14(1) not presently say what it would need to say for the appellant to be right, but it would appear that the rule may be changed so as to make it at least arguable (if a settlement under Part 36 is an “agreement to pay”) that a party in the claimant’s position would lose her QOCS protection in the future. If the CPRC are changing the rule so as to cover “agreements to pay”, then it is not unreasonable to conclude that they think that the present rule does not cover “agreements to pay”.
  2. For all those reasons, I would dismiss this appeal.