PART 36 DOES NOT APPLY TO SOLICITORS ACT ASSESSMENTS: HIGH COURT DECISION (YESTERDAY)

In Zuhri v Vardags Ltd [2023] EWHC 3050 (SCCO) Costs Judge Leonard held that the provisions of CPR Part 36 do not apply to a Solicitors Act assessment of costs.  However it may be relevant to Part 7 proceedings issued, but stayed, where the solicitors had brought proceedings to recover those costs.

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“CPR 47.20, as a part of the 2013 reforms, applied CPR part 36 to detailed assessments between parties to litigation, as conducted under CPR 47. Given the findings of Morris J in John Poyser & Co Ltd v Spencer, it cannot be said that it also imported those provisions into Solicitors Act assessments between solicitors and their clients, as conducted under CPR 46.9 and 46.10.”

THE CASE

The defendant  to the application for an assessment of costs under the Solicitors Act is a firm of solicitors.  They had earlier  issued Part 7 proceedings against the claimant for fees due.  The claimant then issued the current proceedings for an assessment under the Solicitors Act and the Part 7 proceedings were stayed.

THE ASSESSMENT AND THE DEFENDANT’S PART 36 OFFER

The defendant solicitors made a Part 36 offer in the Solicitors Act assessment. The matter proceeded to assessment and the defendant recovered 98.6% of the costs that were claimed.  The defendant had earlier made a Part 36 offer in relation to the assessment and achieved a better figure than that offer on assessment.

THE ISSUE: DOES PART 36 APPLY TO SOLICITORS ACT ASSESSMENT?

The Act has a built in mechanism for costs, with the tipping point being whether more than 20% of the costs being reduced – the “one-fifth” rule.

THE JUDGE’S CONCLUSION – PART 36 DOES NOT APPLY HERE

The judge held that the provisions of Part 36 do not apply to an assessment under the Solicitors Act.  Part 36 had been extended to cover inter partes costs but not to Solicitor Act assessments.

1. 1. Mr Kapoor has referred me to commentary in Friston on Costs (fourth edition, at 36.80) and in the ninth edition of Practical Law’s Costs & Funding following the Civil Justice Reforms: (page 698, paragraph 9-23). The author of Friston on Costs doubts that a Part 36 offer made in the course of a Solicitors Act assessment would have the consequences specified by CPR 36:

“..because s 70 of the Solicitors Act 1974 provides its own checks and balances, and is, in many ways, its own self-contained code; one could easily argue that it would subvert the intention of Parliament, as expressed in s 70, to add an adjective or gloss that either diluted or bolstered the one-fifth rule. In any event, there would be serious practical problems with applying CPR, Part 36: who, for example, would be regarded as the claimant? Would it be the solicitor (who claims the costs) or the client (it claims a reduction in those costs)? If the client were the claimant, then how would the court calculate the ‘additional amount’?… “

1. 1. The author of paragraph 9-23 in Costs & Funding following the Civil Justice Reforms has this to say:

“There is a lack of clarity in this regard. There is a primary statutory provision dealing with the incidence of costs at the conclusion of a statutory assessment of solicitor-client costs, namely s.70(9) of the Solicitors Act 1974.

This provision cannot be, and has not been, displaced by CPR Pt 36 and continues to apply. However, that provision is subject to s. 70(10), whereby the court can depart from the otherwise mandated outcome if there are “special circumstances”… It seems to be increasingly accepted that the making of effective offers by the parties to the assessment is capable in principle, dependent upon the particular facts, of amounting to a special circumstance, and this would appear to fit with the ethos of both the CPR generally and the Jackson reforms in encouraging the making of offers to compromise disputes at an early and less costly stage.

Accordingly, the making of a Part 36 offer may, on the facts of a case, be capable of amounting to a special circumstance, but the automatic provisions of CPR rr 36… do not appear to apply because they conflict with s. 70(9), which is the primary statutory provision of express application.

Whether a successful Part 36 offer therefore attracts any greater benefit than a Calderbank offer is open to argument. Given that the full rubric of Pt 36 cannot reply, and Pt 36 is intended to be a complete and self-contained code, it seems more likely that a successful Part 36 offer should be treated as an admissible offer under the court’s general discretion… assuming that the automatic consequences under s. 70(9) do not apply.”

1. 1. I agree with the commentary quoted above.

1. 1. CPR 47.20, as a part of the 2013 reforms, applied CPR part 36 to detailed assessments between parties to litigation, as conducted under CPR 47. Given the findings of Morris J in John Poyser & Co Ltd v Spencer, it cannot be said that it also imported those provisions into Solicitors Act assessments between solicitors and their clients, as conducted under CPR 46.9 and 46.10.

1. 1. Mr Kapoor suggests that the court’s conclusions in John Poyser & Co Ltd v Spencer are not consistent with the provision at CPR 44.1(2), that CPR 44 to 47 apply to costs payable by a client to a legal representative. I am unable to accept that. Morris J was careful to explain the proper interpretation of that provision, with which I respectfully agree.

1. 1. Mr Kapoor also invites me to distinguish this case from John Poyser & Co Ltd v Spencer on a number of grounds, none of which appear to me to be material other than that the focus of Morris J’s judgment was on the applicability of CPR 44.11, rather than CPR 36, and that it was not, on the facts of that case, incumbent upon the court to consider the issue of “special circumstances”.

1. 1. The point determined in John Poyser & Co Ltd v Spencer was indeed that CPR 44.11 has no application to Solicitors Act assessments, but Morris J’s conclusions to the effect that a Solicitors Act assessment is not a “detailed assessment” as defined by CPR 44.1, and that CPR 47.20 has no application to Solicitors Act assessments, seem to me to be an inextricable part of the logic that led into his primary conclusion. Even assuming that it is open to me to disagree with Morris J, I do not.

1. 1. It seems to me that (apart from the practical difficulties identified in Friston on Costs) one possible reason why CPR 36 has been imported into CPR 47, but not into the provisions for Solicitors Act assessments at CPR 46, is that it is not possible to reconcile the provisions of CPR 36 with subsections 70(9) and 70(10) of the 1974 Act.

1. 1. Self-evidently, the “one-fifth” rule at subsection 70(9) is entirely inconsistent with the application of CPR 36. Whilst I agree that the making of a Part 36 offer (or, for that matter, a Calderbank offer) could justify a finding of special circumstances that would allow the court, pursuant to subsection 70(10) to disapply the “one-fifth” rule, it is quite another matter to make the leap to concluding that CPR 36 must then apply.

1. 1. Where CPR 36 applies, the court’s jurisdiction to depart from its prescribed consequences is limited to cases in which that would be unjust. That seems to me to be wholly inconsistent with the power conferred upon the court by subsection 70(10), in special circumstances, to “… make such order as respects the costs of the assessment as it may think fit”.

1. 1. I am unable to accept that Orton v Collins furnishes authority for the proposition that CPR 36 applies regardless of any conflict with primary legislation. The difficulty addressed by the court in Orton v Collins was that a Part 36 offer made by a claimant and accepted by a defendant did not comply with the formal requirements of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 for a valid contract for the sale or other disposition of an interest in land, in that not all the agreed terms were set out in a single document. The claimant sought to escape from his Part 36 offer on that basis.

1. 1. The defendants, in seeking to hold the claimant to his offer, expressly disclaimed the proposition that Part 36 could override section 2 of the 1989 Act (paragraph 44 of the judgment of Peter Prescott KC refers). Their case was that Part 36 could create substantive obligations independently of the law of contract.

1. 1. At paragraphs 51 to 53 of his judgment Peter Prescott KC expressed as conclusions in this way:

“In my judgment, if parties who are before the court choose to employ machinery prescribed by the court’s rules in order to settle their dispute, they must be taken to submit to the consequences. Namely, that if the offer is accepted the court may enforce it. A party who makes a valid Part 36 offer, or one who accepts it, must be taken to be binding himself to submit to those consequences…

As to those consequences, I interpret Part 36 in the light of the overriding objective ( CPR r 1 ): the object is to deal with cases justly which includes saving expense, proportionality, expedition, fairness and saving court time. I therefore hold that it need not be a contract that is being enforced and that the regime of Part 36 , while it may well give rise to a contract under the general law touching offer and acceptance, does not depend upon contract law… Infringement of human rights there is none. Nobody is forcing a party to make or accept a Part 36 offer. The obligation that arises is not primarily contractual. It is sui generis. It is part of the court’s inherent jurisdiction, now regulated and clarified in Part 36 , “to fulfil the judicial function of administering justice according to law in a regular, orderly and effective manner”. The administration of justice includes addressing the settlement of disputes.

It follows that, subject to the separate point about mistake, rectification or rescission, which is to be decided elsewhere, the claimant and the defendants arrived at an enforceable settlement. The court has power to order the parties to sign a single document incorporating the terms of the settlement.”

1. 1. In short, it was open to the court to order that the parties, having reached a settlement under CPR 36, make that settlement effective by complying with the requirements of the primary legislation. There was no question of Part 36 negating or superseding those requirements. Secondary legislation such as the CPR cannot overwrite primary legislation.

1. 1. Nor, I would add, can it be said in this case that both parties “chose to employ” Part 36 to resolve their dispute: the Defendant’s Part 36 offer was not accepted by the Claimant.

1. 1. Nor does C v D seem to me to assist the Defendant. C v D furnishes authority to the effect that an offer which was expressed to be a Part 36 offer should be construed so far as reasonably possible as complying with Part 36, so that it will be effective rather than ineffective. It does not furnish authority for applying Part 36 where Part 36 (given the provisions of the primary legislation) can have no application.

1. For those reasons, my finding is that the Defendant’s Part 36 offer cannot have the consequences sought by the Defendant. Had the “one-fifth rule” operated against the Defendant in this case, the offer could have offered a sound ground for making a finding of special circumstances and awarding the costs of the assessment process to the Defendant, but the rule has operated in favour of the Defendant, which has already been awarded those costs.

THE INTERESTING FINAL POINT: PART 36 COULD STILL BE EFFECTIVE IN THE PART 7 PROCEEDINGS

1. “It occurs to me that it might still be open to the Defendant to revive the Part 7 proceedings, and to take advantage of its Part 36 offer in the context of those proceedings, but that is not a matter for me.”