CPR 36 is the most important, and complicated, rule in the book, and so it is not surprising that there is a torrent of cases with major issues still unresolved.
Here I look at no fewer than nine recent decisions at High Court level or above.
In Lowin v Portsmouth, the Court of Appeal, in overturning the decision of the High Court and restoring the decision of the costs master, held that in provisional assessment proceedings under CPR 47, the costs cap in CPR 47.15(5) applied even when a party was entitled to indemnity costs under CPR 36.17(4)(b), where it had matched or beaten its own offer.
However, in Martin and another v Kogan and others, the Intellectual Property Enterprise Court (IPEC) upheld the principle set out in its earlier decision of Phonographic Performance Limited V Hagan, that costs caps did not affect an award of indemnity costs and did not limit those costs. The court suggested that the IPEC adopt the proposals contained in Jackson LJ’s Supplemental Report on Extending Fixed Recoverable Costs in relation to the pilot scheme for business cases. Thus, in the absence of serious misconduct by the defendant, CPR 36.17(4)(b) should be applied so that the costs cap on each stage be raised by 25%, increasing the total cap from £50,000 to £62,500, subject in any case to the discretion of the court.
In Lowin, the Court of Appeal considered the Phonographic decision of the same judge to the same effect concerning Part 36 indemnity costs overruling the cap, and specifically declined to overturn it, or say that it was wrongly decided.
Thus, there are now five different lines of authority in relation to the interplay between Part 36 and fixed and capped costs.
- Fixed costs are disapplied and the usual Part 36 consequences apply: Broadhurst v Tan.
- Capped costs impose an upper limit even when an indemnity costs order is made: Lowin v Portsmouth.
- Capped costs do not impose an upper limit when an indemnity costs order is made: Phonographic Performance Ltd v Hagan.
- Capped costs do not impose an upper limit when an indemnity costs order is made, but those indemnity costs should be a fixed percentage increase as per Jackson LJ’s proposal: Martin and another v Kogan and others.
- Capped costs can be waived by the court before the end of the case: Aarhus Convention cases.
In fairness, the fourth can be regarded as having replaced the third in the IPEC.
Defendant gets indemnity costs on late acceptance
In Lokhova v Longmuir, the Queen’s Bench Division of the High Court ordered a late accepting claimant to pay indemnity costs from expiry of the relevant period until acceptance. Once again, the court seemed not to take into account the fact that an order on a standard basis is a punishment in itself as the winning claimant is both being deprived of the costs for that period and being ordered to pay the losing party’s costs for that period.
If the conduct warranted indemnity costs in any event, then fair enough, but an award of indemnity costs merely for failing to accept the offer is wrong in principle. In such circumstances the claimant suffers a triple penalty:
- Deprivation of costs.
- Payment of costs.
- Payment of costs on an indemnity basis.
This is brought all the more sharply into focus by the fact that a late accepting defendant usually faces no penalty at all and thus can accept late with impunity.
Take paragraph 36:
“In my judgment, however, it is also of importance that the Court should be willing to examine the conduct of those who first refuse and then accept a Part 36 offer. If a claimant’s conduct in this respect is wholly or highly unreasonable, the Court should be prepared to contemplate an indemnity costs order. A readiness to do so should provide a proper incentive for the timely acceptance of fair and reasonable offers.” (Emphasis added.)
There is no suggestion here of any misconduct beyond accepting late, for which the claimant is doubly punished without indemnity costs. Also, why do the courts not apply this reasoning in paragraph 36 to late accepting defendants?
This is in contrast to what I submit is the correct approach of the judge in Martin and another v Kogan and others. There, the judge said that where the defendant made a Part 36 offer which was not beaten in an IPEC case, the stage and overall costs caps should remain in place, the point being that the defendant gets its post relevant period costs, and the claimant is deprived of its own costs, even though the defendant has lost. Removing the caps where a claimant has failed to beat a defendant’s offer would tilt the balance unfairly in favour of defendants. As the judge correctly states:
“No question of indemnity costs or an additional amount arises under Part 36 where a defendant makes a successful Part 36 offer because there is no need. Rule 36.17(3) provides that the defendant gets his costs from the date of expiry of the relevant period, plus interest.”
90% is genuine offer of settlement
In JMX (a child by his mother and litigation friend, FMX) v Norfolk and Norwich Hospitals NHS Foundation Trust, the Queen’s Bench Division of the High Court held that a Part 36 offer on liability of 90% of the damages to be agreed or assessed was a genuine offer of settlement within the meaning of CPR 36.17(5)(e).
This case follows a long line of cases, including ones where a 95% offer to settle has been held to be a genuine offer to settle.
The White Book commentary on this whole issue is wrong.
Uncertainty of prognosis makes no difference
In Briggs v CEF Holdings Ltd, the Court of Appeal overturned a district judge’s decision not to order a late accepting personal injury claimant to pay the defendant’s costs from expiry of the relevant period. The district judge had held that it would be unjust to apply the usual rule as the extent of the injury had not been resolved and the prognosis was uncertain.
The Court of Appeal rejected that approach. Uncertainty about the claimant’s prognosis is part of the usual risks of personal injury litigation and one of the purposes of Part 36 is to shift the risk to a party which does not accept an offer, and that aim should not be undermined. To disapply the Part 36 consequences a party must demonstrate injustice, not just uncertainty.
Here, the Court of Appeal noted that it had applied the same principles in SG (a minor) v Hewitt, an extreme case where it had held that the usual costs order would be unjust due to difficulties in forming a prognosis following brain damage to a small child. That was a “very clear case on the other side of the factual line” and was very different from this case where, simply as one of the contingencies of litigation, it was perhaps difficult to work out how it might turn out.
Payments on account
In Gamal v Synergy Lifestyle Ltd, the Court of Appeal held that a payment on account by a party who had made an earlier Part 36 offer reduced that offer by the same sum as the payment on account.
The defendant made a Part 36 offer of £15,000 and then made a payment on account of £10,000. The effect of this was to reduce his Part 36 offer to £5,000. Thus, when at trial, the balance awarded was £14,275.59, the claimant had beaten the defendant’s Part 36 offer.
The Court of Appeal upheld its own reasoning in Littlestone v Macleish, on the effect of admissions payments on Part 36 offers to payments on account.
In Application in Private, the Queen’s Bench Division of the High Court reviewed the law on withdrawal of a Part 36 offer during the relevant period, when that period included the trial. The court said that CPR 36.10, dealing with the withdrawal or changing of a Part 36 offer before the expiry of the relevant period, did not allow for the situation where an offer is withdrawn during trial and purportedly accepted during the trial, which requires the court’s permission. The court held that CPR 36.10(3) applied indirectly where the recipient of the offer needed the court’s permission to accept an offer during the trial. The court also gave guidance on the “change in circumstances” required for permission to withdraw the offer to be given.
This case related to fees paid to issuers of debit and credit cards by acquirers and was case managed with the Arcadia MasterCard litigation, involving many of the same issues and claimants. On the day that judgment was given in favour of the defendant, MasterCard, in those proceedings, the defendants here purported to withdraw their Part 36 offer. The next day, all but one of the claimants purported to accept that Part 36 offer.
The judge here refused to allow the defendants permission to withdraw the Part 36 offer, holding that a judgment handed down in a case involving similar issues was not a change in circumstance, meaning that it would be unjust to hold the defendants to their Part 36 offer.
Permission is required to withdraw a Part 36 offer during a trial.
Permission is also required to accept a Part 36 offer during a trial.
If permission is given to accept a Part 36 offer during a trial, then the issue of costs is one for the court, as compared with the ordinary rule where automatic provisions apply unless the court thinks it unjust. However, in determining the costs consequences, the court took into account the fact that the claimants had deliberately chosen not to accept the Part 36 offer for three months while waiting to see how the proceedings progressed. Here the court allowed the claimants their costs to 21 days after the Part 36 offer was made, and awarded the defendants costs thereafter. The lengthy decision contains a useful review of the law in this field.
In Ballard v Sussex Partnership NHS Foundation Trust, the High Court refused to apply the Part 36 consequences to a withdrawn offer. This was a personal injury case where liability had been admitted. In January 2016, the defendant made a Part 36 offer of £50,000, but withdrew it in February 2017 and made a revised offer of £30,000. At trial, the claimant was awarded £23,315.13 and thus failed to beat either offer.
It was common ground that the claimant was liable for the defendant’s costs from expiry of the second offer in March 2017, but the trial judge had ordered the claimant to pay the defendant’s costs from expiry of the first, now withdrawn, offer in January 2016 and deprived the claimant of its costs from expiry of that first offer. The High Court overturned that decision and applied the usual Part 36 consequences in relation only to the second, unwithdrawn, offer.
In Triple Point Technology Inc v PTT Public Co Ltd, the Technology and Construction Court considered the rates and period of interest payable on damages when the loss and damage is in a foreign currency and held that that foreign currency and its relevant interest rates should be utilised.