PART 36, COSTS: THE JUDGE WAS CORRECT NOT TO FIND THAT PART 36 CONSEQUENCES SHOULD NOT APPLY: A DISPUTE “CONDUCTED IN AN ENTIRELY DISPROPORTIONATE WAY AND AT ENTIRELY DISPROPORTIONATE COST”

March 24, 2023 · by · in Appeals, Costs, Part 36

In Lampor & Ors v Jones [2023] EWHC 667 (Ch) Mr Justice Mellor dismissed the appeals by both parties in relation to costs orders made following Part 36 offers. The trial judge had held that the defendant had failed to beat the claimants’ Part 36 offers. However certain – non Part 36 – offers made by the defendant meant that it was unjust for the usual consequences of failing to beat a Part 36 offer to apply.   The judgement also contains some important observations as to the correct approach when a party has made an offer which includes costs, but those costs cannot be quantified when the offer is being considered.

Many people, including hardened litigators, may well be surprised at the sums involved in relation to costs.  This was a dispute about the width of a right of way, and associated matters.  The costs budgeted were £200,000 and £218,000. The claimants, in fact, incurred costs of £427,000.  This may explain the anxiety to obtain an order that would lead to more than the budgeted costs being allowed.  The judge noted that “this dispute has been conducted in an entirely disproportionate way and at entirely disproportionate cost.”

 

“The situation where the Court does not have the information available to assess whether an offer has been beaten or not is not unknown. It is open to either side (and in this case, particularly the Claimants) to invite the Court to defer consideration until the relevant information is available, whether it is a skeleton bill of costs or more detailed information.”

THE CASE

The claimants brought an action in relation to a right of way over a short rough track some 155m in length.  The defendant admitted the claimants had a right of way, but there was a dispute about the width of that right of way.

THE TRIAL JUDGE’S DECISION

The trial judge made decisions broadly in favour of the claimants.  He found that the defendant had failed to beat the claimants’ Part 36 offer. However the defendant had made certain offers of settlement which would have brought a satisfactory end to the matter.   The judge held, therefore, that it was unjust for the normal Part 36 consequences to apply.

    1. The second part concerned the effects of certain Part 36 offers made by the Claimant. On that, the Judge decided that the Claimant had beaten their Part 36 offer dated 27 August 2021, or, to be more precise, the judgment against the defendant was at least as advantageous to the claimants as the proposals contained in their Part 36 offer. CPR part 36.17(b) was engaged.
    1. In the third part, the Judge had to consider two offers made by the Defendant marked Without Prejudice Save As to Costs (WPSATC), and whether one or both of them should be taken into account in deciding whether the consequences of the D’s refusal of the C’s Part 36 offer should not extend beyond the date of the WPSATC letter or letters. Only the second one mattered. The WPSATC letter was dated 2nd March 2022 and the offer was open for acceptance until 10th March 2022. So, what the Judge had to consider was whether, pursuant to CPR 36.17(4) and (5), whether it would be unjust to allow the consequences of the Claimants’ successful part 36 offer, as set out in 36.17(4) to continue beyond 10 March 2022.
    1. The Judge considered two arguments put forward by Mr Nicholls for the Claimants as to why that offer should not be taken into account. His first point was that the offer made no reference to a final injunction, instead inviting agreement that the interim injunction should be discharged. The Judge dealt with that point in the following terms:
‘But it seems to me that if that offer had been accepted, then the stress and the bitterness which, no doubt, I have seen in this case would have been less. The parties would have agreed matters, and it is far better for the parties to agree matters than having to work side by side, and coming to court and having the matter canvassed in public before a judge.’
    1. Mr Nicholls’ second point concerned the offer to pay, so far as the Claimants costs were concerned, the higher of 80% of the Claimants costs for the substantive claim to the date of the offer to be assessed if not agreed or £65K inclusive of VAT or such lower figure as is appropriate if VAT is not properly payable, suggesting that offer had been beaten. The Judge dealt with that argument in the following way:
‘Mr Nicholls takes the point that had the Part 36 offer been accepted, then the further costs would not have been incurred which, of course, is correct. However, I have to consider whether this offer means that the consequences of that offer not being accepted should continue after March 2022. In my judgment, that letter and the offer contained therein is substantially similar to what has been achieved at trial by both parties and, indeed, goes somewhat further in relation to the raising of the surface of the track. In my discretion therefore, in my judgment, the consequences of the refusal of the Part 36 offer should not extend beyond the time for acceptance of that offer….’
  1. In the fourth part of the costs issues, the Judge ordered the Defendant to pay £98k plus VAT as appropriate by way of interim payment.

THE APPEALS ON COSTS

Both parties argued the trial judge was wrong. The defendant argued that the judge was wrong to find that the Part 36 offer had been beaten. The claimants argued that the judge was wrong to hold that the normal consequences for failing to beat a Part 36 offer did not apply.

    1. As I mentioned, the Defendant advanced four points in support of his contention that the Judge was wrong to hold that the Claimants had beaten their Part 36 offer of 27 August 2021. It is not necessary for me to set out the details of the Part 36 offer. In summary, it invited the Defendant to acknowledge and agree with, in Paragraph 1, the nature of the ‘Prescriptive Easement’ and, in Paragraph 2, the Claimants’ entitlement (a) to repair but not improve the Roadway and (b) to cut back vegetation which substantially interferes with the enjoyment of the Prescriptive Easement. For the avoidance of doubt, the Defendant was also invited, via Paragraph 2(a), that the works specified in Appendix B were works of permitted repair. I can discuss the arguments by referring to the specific parts in issue.
    1. Anticipating my analysis of each of the four points below, where I reject each of them, there is a general point of principle raised by all four of them, and by the arguments presented by the Claimants in their Appeal on costs which I deal with below. It concerns the level of generality at which one should make the comparison required by CPR 36.17(1)(b) between the Part 36 Offer and the Judgment (or, in the case of the Claimants’ Appeal, the comparison between the Defendant’s Offer and the Judgment). The arguments in this case demonstrate that in non-money claims, it can be easy to descend into ever greater levels of detail to find some distinction which can be said to make the Judgment less (or more) advantageous than the Offer. In the present case this was particularly the case bearing in mind the Judge decided the issues in his Main Judgment and then asked the parties to agree the specific terms of an Order.
    1. The Court depends on sensible co-operation between the parties to reach agreement on the types of subsidiary matters which were covered in the draft Order. Even if there is no love lost between the parties, their legal advisers have a duty to assist the Court to resolve matters in a proportionate manner. This case cried out for agreement on the details, for example, as to how the repairs should be carried out to avoid further disputes arising. In these circumstances, as a general matter I consider the Court should be loath to allow these types of agreed points to provide ammunition for attacking a trial Judge’s discretionary costs decisions, unless they reveal a real error of principle in his or her approach.
    1. Ground 2.1: The Defendant submitted that the Judgment entered against the Defendant is less advantageous than the proposals in the Part 36 Offer because it imposes greater restrictions on both the type of works and the manner in which they can be carried out. The Defendant contended that the Judge’s Order in paragraph 3 only entitled the Claimants to carry out certain limited repairs whereas the Claimants’ Offer entitled the Claimants to carry out repair and maintenance works generally without any qualification, save that those works include the works specified in Appendix B.
    1. The Defendant drew particular attention to the requirement in paragraph 3 that the repair work should be feathered into the existing surface where the Roadway adjoins the entrance to Wern in order to minimise the risk of diversion of surface water towards Wern. In argument, Mr Troup explained this was a significant risk since Blaen Wern and Golygfa were both above Y Wern and rain water flows down the track towards Y Wern.
    1. This is a point of detail. It was sensibly agreed between the parties in paragraph 3 of the Order. However, it seems to me that even if the Claimants’ Part 36 offer had been accepted, some agreement would still have been required between the parties as to precisely how the repair works were to be carried out. This does not make the offer invalid or incomplete. The Court is entitled to proceed on the basis that the parties would have given effect to the offer in a sensible manner. If that was not the case then any offer in a case of this type could be criticised for being incomplete and that would defeat the whole purpose of Part 36 and the necessary encouragement to achieve sensible settlements of disputes.
    1. In any event, I do not consider the Defendant’s point to be arguable. It rests on a misunderstanding of paragraph 3 of the Order. As the Claimants submitted, paragraph 3 was not prescriptive but represents the repair required at that point in time. It certainly did not preclude the Claimants carrying out further repairs in the future. As the Claimants also submitted, the Judgment makes it clear that the Claimants have a general right to repair to ensure the right of way can be exercised.
    1. Ground 2.2: For his second point, the Defendant suggests that the Part 36 offer included an unrestricted right to repair the track and the northern embankment.
    1. This point is also not arguable. It rests on a misinterpretation of the offer. In particular, it ignores the opening words of Paragraph 2 of the Offer which begins with the words ‘Incidental to the Prescriptive Easement aforesaid…’ Thus all the repairs specified in the remainder of paragraph 2 and in Appendix B are expressly incidental to the prescriptive easement. Accordingly, the Defendant is wrong to suggest that the offer included an unrestricted right to repair the track and the northern embankment.
    1. Ground 2.3: The third point is the ‘tractor mounted grader’ point. In their open letter sent on the same day as the Part 36 Offer, and as part of an on-going discussion, the Claimants’ solicitors set out a lengthy passage under the heading of ‘Work to the surface of the road’. They enclosed a draft letter of instruction to the contractor relating to the proposed work to the surface of the road, with a specification of works. In the second sentence, they said ‘As ever, we welcome a productive dialogue relating to these proposed works.’ There followed a series of 10 points in response to an earlier proposal from the Defendant’s side. After those 10 points, the Claimants’ solicitors made some suggestions as to the work needed including the introduction of some hardcore. These included these sentences on page 3 of 4:
‘We are instructed that with the material crushed, it will then be graded out to give an even surface. We anticipate that this work may be done with a tractor-mounted grader. At this time the grader will also be used to add a camber to the track to prevent water pooling and forming more potholes or ruts.’
    1. The Defendant points to the fact that paragraph 3 of the Order refers not to a tractor-mounted grader but to the use of a vibrating plate compactor. He suggests that the Part 36 Offer envisages the work being done by a tractor-mounted grader, relying on the mention in the open letter.
    1. The Judge held that the distinction between the compactor and the tractor-mounted grader was insignificant in determining whether the Claimants had beaten their Part 36 Offer. I agree.
    1. This point is not arguable. As the Claimants submitted:
i) The Part 36 Offer is clear in its terms. There is no ambiguity in the Part 36 Offer which might require a process of interpretation by reference to the open correspondence.
ii) Furthermore, there is nothing in the Part 36 Offer which suggests it should be read in the context of the open correspondence.
iii) As I have noted, in their open letter, the Claimants invited a dialogue with a view to reaching agreement on the repair works.
    1. Ground 2.4: The fourth point is concerned with the cutting back of vegetation. Paragraph 2(b) of the Part 36 Offer is clear. It stated that the Claimants were entitled at their own cost to cut back vegetation growing on the Defendant’s property on or along the Roadway which substantially interferes with the enjoyment of the right of way by the Claimants etc.
    1. The Defendant points to what the Claimants maintained up to and during trial: that they were entitled to cut the top and field sides of the hedges and trees (as they had done in August/September 2020). The Judge rejected this argument in his Judgment at [30].
    1. It is then said that when the Claimants made their offer in paragraph 2(b), they intended they would be entitled to cut the top and field sides of the hedges and trees. Once again, this ground is not arguable. The whole point of a Part 36 Offer is that it leaves the offeror free to run other arguments at trial which may be inconsistent with it, but there is no warrant to construe the clear terms of an offer by reference to other arguments which an offeror choses to run.
    1. Having dealt with the four parts of the Defendant’s Ground 2, I can leave Grounds 3-5 on one side, since all were dependent on the success of Ground 2.

THE CLAIMANT’S APPEAL

The judge considered, and rejected, the claimants’ argument that the trial judge was wrong to hold that the normal Part 36 consequences should not apply.

The Claimants’ Appeal on costs.
    1. The Claimants contend that the Judge was wrong to find that it was unjust to continue the effects of CPR 36.17(4) beyond 10 March 2022 because they contend that it is demonstrably the case that the Claimants obtained a better outcome at trial than the terms of the Defendant’s WPSATC letter dated 2 March 2022.
    1. Before the Judge, the Claimants argued two points to demonstrate they obtained a better outcome and I have quoted the way in which the Judge dealt with those points at paragraphs 16 and 17 above.
    1. Mr Nicholls ran the injunction point again but took a different approach so far as the costs point was concerned. Overall, his submission was that the Judge’s discretionary decision was so plainly wrong that it can be described as perverse, alternatively that the Judge wrongly left out of account matters which demonstrate that the Claimants substantially beat the Defendant’s offer.
    1. The arguments which Mr Nicholls presented to me were very much more detailed than before the Judge. In his Supplemental Skeleton, he analysed every point in the Defendant’s offer, suggesting that the Claimants either matched or beat the offer on every point. He also relied on the fact that his clients obtained an Order that they were permitted to repair the embankments. It is not necessary for me to discuss this analysis because the principal points remained the injunction and costs, as before the Judge.
    1. In response Mr Troup supported the Judge’s decision. He characterised the Defendant’s offer as essentially one of capitulation, giving the Claimants everything that they achieved at trial. It was an offer therefore which the Claimants should have accepted, so, at the very least, the Judge was right to say it would be unjust for the consequences of 36.17(4) to continue after the date for acceptance.
    1. So far as the injunction is concerned, Mr Troup submitted that it is evident from the Judge’s reasoning that he considered having an injunction in place for the limited period of 3 years would benefit both sides. I agree. Furthermore, the Judge would have been entitled to think that the terms of the Defendant’s offer were a strong indication that he had learnt his lesson, not least from the time and money which this dispute had taken up. So, in reality, the grant of the injunction for 3 years was there as a reminder as opposed to being necessary to restrain a real threat to obstruct the right of way. In any event, the Judge plainly knew that the Defendant’s offer had not included an injunction, but this was just one of the circumstances he was entitled to take into account.
    1. In view of the arguments, I need to discuss the costs issue in more detail. Mr Nicholls’ primary submission was that the costs could not be taken into account in determining whether the Claimants achieved a better result at trial because at the time, it was impossible to know whether the Claimants had beaten the offer on costs or not. He pointed out that the information was not available because a bill of costs had not been prepared at that time and therefore submitted that a comparison of the costs position was not a relevant factor when assessing whether the Claimants should have accepted the offer.
    1. Mr Nicholls’ secondary submission was to rely on some calculations set out in a letter dated 13th March 2023 from the Claimants’ costs draughtsman to say that the costs position was now known. These calculations were based on the Claimants’ actual costs but applying the rules of thumb of 70% recovery for standard assessment and 90% on the indemnity basis, and applying an assumption that the Claimants would reasonably assume that the Defendant’s offer was subject to assessment of costs on the standard basis. Those detailed calculations revealed the following:
i) The Defendant’s offer would have resulted in a payment of costs as at 10.3.2022 of some £80,661.
ii) Following trial, and taking into account assessment of the Claimants’ costs from 18th September 2021 to 10th March 2022 on the indemnity basis, the Defendant’s liability for the Claimants’ costs down to 10th March 2022 was around £85,386 which increased to £89,780 when one added the 10% windfall on assessed indemnity costs.
iii) Accordingly, Mr Nicholls argued that the Claimants had beaten the Defendant’s offer.
    1. In response, Mr Troup presented figures taken from the Claimants’ N252 which revealed the following:
i) By 10th March 2022, the Claimants had incurred costs totalling £199k (a figure greater than their total budgeted costs).
ii) After 10th March 2022, in relation to the PTR, Trial Preparation and Trial, the Claimants had spent a further sum just under £228k in costs.
iii) So the Claimants’ overall costs were £427k odd, against budgeted costs of £190k.
iv) The Defendant’s costs budget was £218k odd and, in response to my question as to how much the Defendant’s total costs were relative to his budget, I was told they were 5-10% higher.
    1. In the light of those figures, Mr Troup questioned whether the ‘rules of thumb’ are reliable in these particular circumstances.
    1. Overall, Mr Troup supported the Judge’s approach.
Discussion
      1. I confess I do not understand Mr Nicholls’ first argument on the costs issue. The situation where the Court does not have the information available to assess whether an offer has been beaten or not is not unknown. It is open to either side (and in this case, particularly the Claimants) to invite the Court to defer consideration until the relevant information is available, whether it is a skeleton bill of costs or more detailed information. By way of example see Crooks v Hendricks [2016] EWCA Civ 8 (referred to in the notes under CPR 36.17). That was a personal injury case where the defendant’s offer was a sum of money ‘net of CRU’ (a reference to recoverable benefits issued by the Compensation Recovery Unit). In that case, the parties knew that the CRU’s certificate was to be reviewed in the light of the Judge’s findings on causation and the Recorder adjourned the question of costs until after the CRU had reached its final determination. One of the issues on Appeal was whether the Recorder had been entitled to do so. This involved an issue of interpretation of the words ‘upon judgment being entered’ which are now in 36.17(1). The Court of Appeal held those words are properly to be read as meaning ‘once judgment has been entered and not before’, recognising that ‘There will be cases in which a judge is entitled not to proceed straight away to make his decision on costs’, even though it is preferable for a court to rule on costs without delay at the conclusion of the litigation.
    1. In this case the Claimants unsurprisingly wished to press ahead and have all questions of costs decided. Having done so, it seems unfair for them to criticise the Judge for reaching a decision which both sides were urging him to make.
    1. On the second argument, we now have more information but we still do not have a definitive answer as to whether the Claimants have actually beaten the Defendant’s offer on costs. That would only be supplied by a detailed assessment of the Claimants’ costs, and the Claimants are still not asking the Court to defer a decision on this point (unsurprisingly). However, the figures presented by Mr Troup suggest there are major issues as to the proportionality of the Claimants costs and this may well be a case where the actual recovery is less than is indicated by the rules of thumb on which the calculations rely. It is not clear that the Claimants would beat the Defendant’s offer on costs.
    1. Reverting to the Judge’s decision, it is clear that he had relevant factors in mind – the injunction and costs in particular – but he was also ideally placed to take the broader view even in the circumscribed circumstances of CPR 36.17(4), having all the matters in 36.17(5) in mind.
    1. I leave Mr Nicholls’ embankment repair point out of account, because that issue only arose after judgment had been given. As Mr Troup submitted, in no way was this case about the right to repair the embankments. However, the question remains: why did the Claimants fight on after the Defendant’s offer? Mr Troup suggested the answer can only be that they fought on to achieve matters which they did not achieve at trial, notably to raise the level of the track to produce a smooth surface of 2.5m in width at ground level, which the Judge rejected as plainly being an improvement and not repair. I consider there is force in this point.
    1. Overall, I am completely unpersuaded that the Judge’s decision was perverse or that he left out of account matters he should have taken into account or was outside the generous ambit within which reasonable disagreement is possible. For what it is worth, I consider the Judge was entirely right.
Conclusions
    1. For all the reasons set out above, I dismiss both Appeals. Each side served a Costs Schedule for this hearing, but sensibly did not divide the costs between the Appeals. I note that the total for the Claimants’ costs is considerably larger than that for the Defendant.
    1. In all the circumstances, I make no order as to the costs of each Appeal.
  1. Finally, I am acutely conscious that this Judgment is very much longer than the totality of the Judgment and the Rulings which the Judge gave, but it is a product of the lengthy and detailed arguments which each side sought to raise by way of appeal. These arguments demonstrate, once again, that this dispute has been conducted in an entirely disproportionate way and at entirely disproportionate cost. Nonetheless I am grateful to both Counsel for their assistance. It is to be hoped that these parties will be able to resolve any disputes which may arise in the future in a sensible and amicable way, without spending large sums on lawyers.
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