REUTERS | Ibraheem Abu Mustafa

The Court of Appeal rules on Part 36 costs consequences where an accepting party has been dishonest

In Tuson v Murphy, the Court of Appeal ruled the defendant would have to bear the claimant’s costs up to the end of the relevant period even in circumstances where the claimant had been dishonest and misled the court.

Facts

The claimant brought a claim against the defendant following a fall from a horse at the defendant’s riding school. The claimant claimed she suffered from obsessive compulsive disorder as a result of the accident and had had to give up work in September 2012. She claimed some £1.5 million.

Proceedings were issued in August 2013; in April 2014, witness evidence was served. The claimant’s witness evidence made no mention of the fact that, despite her claiming she could no longer work, she had obtained a franchise in a playgroup organisation. The defendant became aware of this in 2015.

The claimant attempted to explain the position in a further witness statement in September 2015, stating the franchise was obtained for the purposes of establishing a playgroup for her son and not for the purposes of making money (indeed, no money was made).

After the further witness statement, the defendant made a Part 36 offer to the claimant, which was accepted in December 2015, some three months after the end of the relevant expiry period.

Decision

The court at first instance ruled that it would be unjust to order the defendant to pay the claimant’s costs up to the expiry of the relevant period, as this would mean the claimant avoided any sanction for, “presenting her case on a misleading basis…” The court ordered the claimant, therefore, should pay the defendant’s costs from April 2014, the date when initial witness evidence was exchanged. Unsurprisingly, the claimant appealed.

The Court of Appeal, whilst agreeing the claimant’s conduct was dishonest and misleading, overturned the decision on costs on the basis the Defendant had made the Part 36 offer in full knowledge of the claimant’s material non-disclosure. Accordingly, the defendant was ordered to pay the claimant’s costs up to the end of the relevant period.

Practical implications

The Court of Appeal commented that it had been open to the defendant to make a Calderbank offer to the claimant which took into account her misleading behaviour, for instance by stating that only costs associated with the genuine claim (and not the loss of earnings aspect) could be recovered.

This case is a stark warning to parties that where there is a suspicion (or indeed confirmation, as was the situation here) that part of a claim (or a defence) is dishonest, a party should think carefully before making an offer on a Part 36 basis. Of course, if dishonest or misleading conduct of a party is not discovered until after a Part 36 offer has been made and accepted, then one would hope a court would take a more sympathetic view.

Part 36 offers are often made to put costs pressure on an opposing party, whereas Calderbank offers, whilst they do not have the same costs consequences, can be much more flexible. It may be that from a tactical point of view, a party wishes to make a Part 36 offer in order to benefit from the costs consequences of the same.

Whilst it can appear harsh that the claimant was not sanctioned for her conduct in this instance, it was open to the defendant to make a Part 36 offer that was limited to the genuine aspects of the claimant’s claim, as well as a Calderbank offer, and still benefit from those costs consequences. It would then have been at the claimant’s own risk had she pursued those parts of her claim which were known to be dishonest. However, so as to be clear as to which part of the claim the offer related to, a “limited” Part 36 offer would need to be very carefully worded.

In the event of a party becoming aware of dishonesty after making a Part 36 offer, it should be borne in mind that such an offer can only be withdrawn or varied after the end of the relevant period (21 days or more), and it should be withdrawn or varied in writing.

In summary, parties should only make a Part 36 offer in circumstances where they are willing to pay the other parties’ costs up to the end of the relevant period, particularly if the offering party is aware of dishonesty on the opposing party’s side.

Kennedys Joanne Lewis

Leave a Reply

Your email address will not be published. Required fields are marked *