piBlawg

the personal injury and clinical negligence blog

A collaboration between Rebmark Legal Solutions and 1 Chancery Lane

Fixed Costs and Part 36 Offers

What is the effect of a claimant’s ‘beaten’ Part 36 Offer upon their costs in a low value personal injury case within the RTA or EL/PL Protocol where claimants' costs are fixed pursuant to CPR 45? This has been a vexed question since the introduction of the fixed costs regime , but one the Master of the Rolls giving the sole judgment of the Court of Appeal in Broadhurst & Anor v Tan & Anor [2016] EWCA Civ 94 has now answered with important and far-reaching consequences for litigators in this area. The Court of Appeal held that Parliament and the draftsmen of the amended Rules intended Part 36 offers to have costs consequences in cases where they were bettered at trial even where costs were usually fixed. This means that, per Rule 36.14(3), where a claimant makes a successful Part 36 offer, the court will, unless it considers it unjust to do so, order that the claimant is entitled to four enhanced benefits including "(b) his costs on the indemnity basis from the date on which the relevant period expired” and thus (as held) the “tension between rule 45.29B and rule 36.14A must, therefore, be resolved in favour of rule 36.14A”, the specific provision taking precedence over the general.    At paragraphs 30 and 31, the Court held that:    “...The starting point is that fixed costs and assessed costs are conceptually different. Fixed costs are awarded whether or not they were incurred, and whether or not they represent reasonable or proportionate compensation for the effort actually expended. On the other hand, assessed costs reflect the work actually done... ...Where a claimant makes a successful Part 36 offer in a section IIIA case, he will be awarded fixed costs to the last staging point provided by rule 45.29C and Table 6B. He will then be awarded costs to be assessed on the indemnity basis in addition from the date that the offer became effective. This does not require any apportionment. It will, however, lead to a generous outcome for the claimant. I do not regard this outcome as so surprising or so unfair to the defendant that it requires the court to equate fixed costs with costs assessed on the indemnity basis... a generous outcome in such circumstances is consistent with rule 36.14(3) as a whole and its policy of providing claimants with generous incentives to make offers, and defendants with countervailing incentives to accept them.” Whether this clarification will lead to an increase or decrease in litigation will remain to be seen. Certainly the current interpretation of this (formerly) knotty issue ought to remind all litigators, but particularly those acting for claimant parties, of the importance of early, well-pitched Part 36 Offers in both encouraging settlement and giving rise to another means of escaping the confines of the fixed costs regime.

Part 36 Offer: derisory or genuine?

The case of Jockey Club Racecourse Ltd v Willmott Dixon Construction Ltd  [2016] EWHC 167 deals with two interesting questions: (1) does a Part 36 offer have to reflect an available outcome in the litigation to be valid? (2) when is it a genuine attempt to settle liability?  The case concerned a defective roof at the racecourse at Epsom. The claimant offered to settle the issue of liability on the basis that the defendant would “accept liability to pay 95% of our client’s claim for damages to be assessed.” The issues of liability were ultimately resolved by consent wholly in the claimant’s favour. The claim was pleaded at in excess of £5m. The judge endorsed the remarks of Henderson J in AB v CD  [2011] EWHC 602  in which he drew the distinction between a genuine offer or ‘merely a lightly disguised request for total capitulation’. A request to a defendant to submit to judgment for the entirety of the relief sought by the claimant was not an ‘offer to settle’ within the meaning of Part 36. An offer to settle had to contain some genuine element of concession on the part of the claimant to which a significant value could be attached in the context of the litigation. Henderson J considered in the context of a road traffic accident that the offer of 95:5 was derisory. In Huck v Robson [2003] 1 WLR 1340 the Court of appeal held that although no judge would apportion liability 95:5, that was irrelevant. The offer reflected the fact that most claimants prefer certainty to the ordeal of trial and uncertainty about its outcome. They did not think it was merely a tactical step to secure the benefit of the incentives provided by the rule but provided the defendant with a real opportunity for settlement. In Jockey Club Racecourse Edwards-Stuart J. found that, although the Part 36 offer of a 95:5 split was not an outcome available to the court, it did not prevent it being a valid offer. Nothing had been changed by the addition to rule 36.17(5) of subparagraph (e) which requires the court to consider whether the offer was a genuine attempt to settle the proceedings. The judge then went on to consider whether it would be unjust to order the consequences which flow from a failure to better a Part 36 offer. He did not order the consequences to flow from 21 days after the date of the offer but allowed the claimant to have costs on the indemnity basis from the earliest date after that by which “the Defendant could reasonably have put itself in a position to make an informed assessment of the strength of the claim on liability”. That conclusion sits uneasily with the comments of the Court of appeal in its harsh decision in Matthews v Metal Improvements Co Inc [2007] C.P. Rep. 27 where the judge was criticised for deciding the case on the basis of reasonableness. The answer to the two questions I posed above is: (1) a Part 36 Offer does not have to reflect an available outcome in the litigation to be valid although this is less likely to be an issue in personal injury where contributory negligence can reduce a finding that a defendant is liable. (2) A genuine attempt to settle liability is one where the offer is not derisory and is one in which there is ‘some genuine element of concession on the part of the claimant, to which a significant value can be attached’. This will depend on the facts of each case although in the context of a personal injury claim an offer of less than a 5% reduction would be risky where the value is not high.

COSTS AFTER A SPLIT TRIAL-THE BLACK HOLE

1.      Just over five years ago, there was an unfathomable change to the Part 36 rules on split trials which, it turns out, gives a huge incentive to defendants to make a monetary Part 36 offer before any split trial that is ordered.   2.      Prior to 6th April 2007, the matter was dealt with by Part 36.19.  Part 36.19, entitled Restriction on disclosure of a Part 36 offer or a Part 36 payment, stated (2)   The fact that a Part 36 payment has been made shall not be communicated to the trial judge until all questions of liability and the amount of money to be awarded have been decided. (3)   Paragraph (2) does not apply-….. (c) where-(i) the issue of liability has been determined before any assessment of the money claimed and (ii) the fact that there has or has not been a Part 36 payment may be relevant to the question of the costs of the issue of liability   3.      That rule was interpreted in HSS Group plc v BMB Limited [2005] 1 WLR 3158.  In that case the First Defendant had made a Part 36 payment after the start of proceedings but before an order for a split trial.  At the split trial, the First Defendant was found liable and the trial judge ordered it to pay the costs on the issue of liability. Held: The trial judge should have reserved costs. The First Defendant’s Part 36 payment might affect the final costs order.   4.       On 6th April 2007 the old Part 36.19 became the present Part 36.13.  In the present rule, there is no reference whatsoever to split trials.  It is difficult to know why the draughtsmen of the new rule thought it fitting to drop the clear and helpful sub-rule in the old Part 36.19(3) dealing with split trials.  There is now a blanket ban on telling a trial judge about the fact of Part 36 offer except where the parties agree or in two other exceptional cases.   5.      It is not hard to agree with the thoughts of Henderson J in AB v CD [2011] EWHC 602 at paragraphs 16 to 20 who did not have to decide the matter but found the wording of Part 36.13(2) unsatisfactory and who observed that the party against whom a costs order was otherwise likely to be made would simply withhold their agreement to disclosure of the fact of a Part 36 offer.  He concluded: “ I will merely hazard the suggestion…that a possible solution might be to focus on the words “until the case has been decided” in rule 36.13(2), which are much less specific than the wording of the old rule 36.19(2)…It may be that in appropriate circumstances the new wording should be construed as referring to the conclusion of the first part of a split trial. But even then the difficulty would remain that the court may only be told about the existence of the Part 36 offer [and not its terms], so the question of the costs would in practice still have to be reserved for the reasons given by the Court of Appeal in the HSS Group case”.   6.      The learned judge may be right about the need to construe the rule, although construing it in that manner appears to be re-writing it to include that which the rules committee thought fit to leave out.   7.      Accordingly where a defendant has made no monetary Part 36 offer (or one that is plainly hopeless and could not conceivably be engaged), the Court will be able to make a costs order after a split trial on liability.  In all other cases, it should reserve costs.   8.      But why shouldn’t the Claimant have his costs on issues of liability up to the date of the Part 36 offer?   9.      This question was posed in The Jean Scene Limited v Tesco Stores Limited [2012] EWHC 1275.  The Court held that the default position is that costs should be reserved and since in this case the Part 36 offer had been made early and there were potential arguments about pre-action protocol matters, the default position ought to apply. Costs were reserved and no payment on account of costs was made.   10.  So the position after the date of Part 36 offer is clear.  Costs must be reserved.  I have my doubts whether defendants will be able to smother the claimant’s right to the costs on liability pre-dating the Part 36 offer simply by making a Part 36 offer a week or two before the split trial.  It needs to be made early.   11.  In the latest case on this subject, Ted Baker PLC v Axa Insurance & ors [2012] EWHC 1779, the court declined to make any immediate costs orders but ordered the defendants to pay the costs of the preliminary issues subject to any settlement issues that might arise at the end of the case. A contingent order like that is scarcely the solution.  One can but agree with Mr Justice Eder that there is an urgent need for Part 36.13 to be reviewed and reformulated to deal with the matter of split trials.