The Court of Appeal has reserved its decision in an important case considering the curious state of the law in relation to Part 36 and late acceptance.
This was a clinical negligence case where the Claimant had sought £5.7 million, but after two years of litigation, and following a mediation, accepted a Part 36 offer of £421,362.88 made two years before.
The Defendant said that it had incurred £115,000 of costs since the time for accepting the Part 36 offer had expired.
As this was a Personal Injury claim, the Claimant enjoyed the benefit of Qualified One-Way Costs Shifting, which means that a costs order is made in the usual way, but there are heavy restrictions on the Defendant’s ability to enforce such an order.
Thus, the High Court ordered the Claimant to pay the post Part 36 expiry costs but stated that “the defendant may not set off or enforce this costs order against the claimant pursuant to rule 44.14”, that is CPR 44.14.
The effect of this is that the Claimant did not have to pay any of the Defendant’s costs, but of course, did not recover her costs for the post Part 36 expiry period.
Had the matter gone to trial, then the Defendant could have set off those costs against damages, up to the total awarded to the Claimant, thus, potentially wiping out the award, but not leaving the Claimant in debt to the Defendant.
The High Court Judge described this as “extremely regrettable” and said that it clashed with the policy aims of Part 36 to encourage early settlement but said that this was “the inevitable consequence of the authorities that bind me”.
The Court of Appeal has reserved judgment, which suggests that it might be considering overturning its own decision in
Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654 (17 July 2018)
which the High Court Judge here was obliged to follow.
The Court of Appeal is not bound by its own previous decisions, and so is free to depart from its own previous ruling.
Before it does so, it should remind itself that there are very much two sides to this coin, as a late accepting Defendant suffers no penalty either.
Neither side gets the benefit unless the matter goes to trial, which is indeed counter-intuitive to the whole purpose of Part 36, which is to encourage early settlement.
The decision in Cartwright is widely thought to have been a response to the earlier decision in
Hislop v Perde [2018] EWCA Civ 1726
where the court held that a late accepting Defendant did not have to pay indemnity costs from the date of expiry of the time for accepting the Part 36 offer.
Either both decisions should be overturned – arguably the sensible outcome – or neither should be.
The problem with overturning these decisions is that it is effectively retrospective law in that parties, both claimants and defendants in Personal Injury cases, have felt free not to accept a Part 36 offer in time in the knowledge that there will be no penalty on late acceptance.
True it is that the concept of a Court declaring the law to be otherwise than it was before is always in a sense retrospective, but the difference here is that it affects ongoing cases and will affect costs covering many years in many cases.
It is also important to note that these are not issues where parties and the legal profession generally were awaiting authoritative decisions from the higher courts, but rather where there are what we thought were definitive decisions of the Court of Appeal.
Generally, the Supreme Court will not get involved in costs matters, although it did in
Ho v Adelekun [2021] UKSC 43 (06 October 2021)
and therefore, for all intents and purposes, Cartwright and Hislop decisions were final and authoritative decisions in this area.
Indeed, the Senior Judiciary have expressed their concern at the rules which made them make these decisions, and they are currently under review, and legislation is expected to overturn these decisions, but that legislation will not be retrospective; the danger here is that the Court of Appeal’s decision will be, in effect, retrospective.
Of course, the offeror, as here, always has the power to withdraw the offer.
This issue, no doubt fed by the insurers’ bottomless pit of public relations funding, has been reported as a one-way street. It most certainly is not.
That does not mean that the insurers are wrong, but it does mean that the commentary has been skewed, and here I am unskewing it.
The High Court correctly stated the existing law:
His Honour Judge Sephton KC said the case turned on the nature of the acceptance of a Part 36 offer, the acceptance of which he said is not “an order for damages or interest made in favour of the claimant”.
The Judge stated that the costs order could not be enforced because the Civil Procedure Rules provide for enforcement only after proceedings have concluded.
On acceptance of a Part 36 offer, proceedings are stayed and are not concluded.
Some solicitors for insurance companies are openly stating in correspondence that I have seen that late acceptance of a Part 36 offer by a Claimant triggers an enforceable costs order.
Not only is that wrong, but they must know that it is wrong.
Some solicitors are going even further and saying that they will not pay up on late acceptance of a Part 36 offer by a claimant, without a court order, and that such an order then means that costs can be enforced.
That is doubly misleading.
On acceptance of a Part 36 offer the paying party must pay up within 14 days.
No ifs, no buts.
If a paying party does not want that consequence, then it should withdraw the offer.
Furthermore, as the High Court Judge said in this case, acceptance of a Part 36 offer leads to proceedings being stayed, and not concluded.
In my view, any defendant who seeks to avoid the clear requirement that payment must be made within 14 days of a Part 36 offer being accepted, and that is one of the few areas where a Part 36 is clear and seeks to require the claimant to obtain a court order, in the hope that that triggers a costs liability, is guilty of contempt of court and should be punished accordingly.
Counsel for the insurers here said that the Lower Court decision meant that the Defendant would have been able to recover it costs only if it had taken the case to trial.
He said:
“If the dividing line is between settlements and trials, what is the logic of that dividing line? Why would Parliament have intended to distinguish those two? Your disincentive for making offers or accepting offers is, “we will not get our costs back”, which is a perverse incentive. If that dividing line is here, defendants are not encouraged to settle, they are encouraged to take things to trial.”
As an anonymous commentator on the Law Society Gazette article said – and I wish I had your name to give you public credit:
“Mr Pot, may I introduce you to Mr Kettle?
This is the exact flaw that Defendants benefit from when the accept Claimant offers at the door to the court.”
Quite.
The whole stance of the Defendant here is very strange indeed.
They are clearly alleging fundamental dishonesty.
In response, the trust introduced evidence collected from social media and surveillance which it alleged showed “a gross lack of consistency such that the credibility of the claimant was undermined and the honesty of the claimant’s account was in issue”.
Now, I do not know when the incident occurred, but if it was after the implementation of the Criminal Justice and Courts Act 2015, then if fraudulent dishonesty is found, the Claimant is held to have lost the claim.
If it was before then, then the Claimant still loses costs protection under Qualified One-Way Costs Shifting, if fundamental dishonesty is found.
Why did the Defendant not withdraw his Part 36?
On the face of it, it looks as though the insurers had deliberately chosen to fight the Part 36 point on a case which, by any standards, does not reflect well on the Claimant.
Yet, on the face of it, the Defendant had its remedies elsewhere, as set out above.
In this Issue I also look at the decision in
Kerseviciene v Quadri & Anor [2022] EWHC 2951 (KB)
where the Court allowed the admission of evidence produced by a Defendant Insurer’s solicitor about the alleged pattern of conduct in cases where a particular firm of solicitors was representing the Claimant.
The Personal Injury market has been described as an open sewer.
Let us not forget that whatever the conduct of claimant solicitors and defendant solicitors, and let us be blunt, conduct of some solicitors on both the claimant and the defendant’s side is a disgrace to the legal profession, the reality is that thousands of people each year, through no fault of their own, suffer life changing injuries.
It is those people who have been under constant attack from all the main political parties, either by active legislation, or a failure to oppose repressive legislation.
We have the whiplash tariff and the Small Claims Portal, both of which disgrace a supposedly civilized country where the Rule of Law is supposed to rule supreme.
We have had Criminal Injuries Compensation, where a person is seriously injured by criminal behaviour, massively reducing cap.
Court fees are beyond the reach of ordinary people.
It is not a sin to be injured.
The atmosphere in the United Kingdom is becoming thoroughly toxic.
The Court of Appeal needs to think very carefully about this one, and to recognize the massive financial and political power enjoyed, and abused, by some insurance companies.
If I were the Court of Appeal, I would reverse both decisions, that is Cartwright and Broadhurst, but only prospectively, that is in relation to Part 36 offers made after the Court of Appeal gives its judgment.
Late Settlement Punished, Even Though It Beat Part 36 Offer: Carver Restored? Parliament Ignored?
The confusion of the courts was further demonstrated in the case of
Moradi v The Home Office (Costs) [2022] EWHC 3125 (KB) (05 December 2022)
where the High Court penalised a Claimant for late settlement, even where the settlement agreed on the last working day before trial was 50% more than the Part 36 offer made by the Defendant.
The Court was critical of the fact that the Claimant did not accept that Part 36 offer, even though it did 50% better on settlement, and made no counter-offer until nine months after that offer was made.
“The Claimant’s costs submissions do not explain why, having initially proposed settlement, she then did not pursue it for nine months. That fact is central to the costs issue in this case.”
The Claimant did then make a Part 36 offer in the sum of £40,000, which it revised downwards to £22,500, and then to £18,000, before finally accepting the Defendant’s Part 36 offer of £15,000, itself made just two working days before trial.
Here, the automatic costs consequences of Part 36 did not apply because the offer was made less than 21 days before the start of the trial, and therefore, comes within CPR 36.13(4)(a) which provides that costs must be determined by the court, unless the parties agree those costs.
The parties did not agree costs, and so here the Court was determining those costs.
What the Court did was to award the Claimant its reasonable costs in the usual way up to the 21 December 2021, which was the date of expiry of the Defendant’s Part 36 offer, which the Claimant bettered by 50% on settlement.
For the period after that the Court only awarded the Claimant 66% of its reasonable costs, or to put it another way, imposed a 34% penalty on the Claimant for settling shortly before trial.
This is not a case of late acceptance of a Part 36 offer, as the offer made by the Defendant, which was accepted, was only made two days before trial and a party always has at least 21 days to accept an offer.
The irony is that had this offer been made more than 21 days before trial, and the Claimant had accepted it, then the Court would have no discretion as the costs consequences are then automatic.
Thus, the Court only had the opportunity to punish the Claimant here because of the Defendant’s very late offer, which the Claimant accepted. This actually encourages paying parties to hold off making offers until within the 21-day period before trial, and rely on earlier, lower offers, again something which Part 36 specifically forbids if the second, higher offer is made more than 21 days before trial.
In those circumstances the Part 36 consequences run only from the second, more advantageous offer. It is only when the offer is lowered that costs consequences run from the first, higher, offer, as discussed at length by me in Issue 49, page 271
and Issue 86, pages 863-865
DEFENDANTS REDUCING PART 36 OFFERS AND CLAIMANTS INCREASING THEM
This make no sense at all and part of the reasoning, which to put it mildly is not lucid, appears to be that the Claimant has gone on for a long period after the Part 36 offer of £10,000 was made, with considerable costs incurred, and only achieved a further £5,000, albeit that that is 50% more than the original offer.
This decision seems perilously close to following a decision in
Carver v BAA Plc [2008] EWCA Civ 412 (22 April 2008)
which Parliament specifically overturned saying that there is a bright line and the fact the Claimant only just beats its offer by a pound or so, can never lead to the Claimant being punished in costs.
If it were otherwise, then there is total uncertainty on costs.
This is a wrong decision which should be overturned, and as I make clear in this whole piece, this whole issue needs very careful consideration.
