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Part 36 & Late Acceptance: When Is It Unjust to Apply the Usual Order? - Fran McDonald, Old Square Chambers

07/08/17. The case summary of Briggs v CEF Holdings Ltd (Court of Appeal, 13/7/17) was published on Lawtel this morning. Although it is important to bear in mind the lack of a full judgment as yet, the decision gives further guidance on the way in which lower courts should decide if it is unjust to impose the normal Part 36 cost consequences, where an offer is accepted out of time.

Readers will recall that four factors are specifically listed in the rules. Together with all the circumstances, these should be considered in determining if it is unjust to impose the usual Part 36 costs orders:

(a) the terms of any Part 36 offer;

(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

(c) the information available to the parties at the time when the Part 36 offer was made; and

(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.

Briggs follows the seminal case of SG (A Child) v Hewitt (Costs) [2012] EWCA Civ 1053, where it was found to be unjust to impose the normal order, and Matthews v Metal Improvements Co Inc [2007] EWCA Civ 215, where it was not.

This article looks at these decisions and comments on some tactical lessons which might be learned along the way.

SG

In SG, Lady Justice Black (with whom Arden and Pill LJJ agreed), said at [29]:

“Rule 36.14(4) requires that, in considering whether it is unjust to make the normal order, the court must take into account all the circumstances of the case. The four factors specifically identified as relevant cast quite a wide net on their own but they are not the only matters that fall for consideration and anything else which is relevant must be considered as well. Costs decisions are particularly sensitive to the facts of the individual case."

Her Ladyship went on to analyse the authorities, including Stanley Burnton J’s decision (as he then was) in Matthews and, to a lesser extent,Lord Woolf’s judgment in Abada v Gray and the Motor Insurers Bureau (CA, 25 June 1997, unreported), before giving her judgment and declining to make the usual order.

In doing so she, along with Arden and Pill LJJ, happily gave practitioners some guidance which remains very useful:

(a) The reasonableness of not accepting an offer is not the test, but it remains an important factor.

As Black LJ stated at [43]

“Reasonableness was relevant but not necessarily determinative, as Popplewell J held [at first instance in SG]. However, rightly in my view, he did not accept the defendant’s submission that it could not ever be a sufficient factor to justify departure from the normal rule. It would all depend on the facts of the particular case.”

Pill LJ, at [93], also said:

while the reasonableness of the conduct of the advisers is not to be “identified” with justice as between the parties, it is an important factor, in circumstances such as these, when deciding what justice requires.

(b) Protected status on the part of the claimant, where the litigation friend wanted to accept but would have been unable to or did not get the necessary court approval, is relevant.

Protected status is not a ‘get out of jail free’ card. Arden LJ said at [78]:

“The fact that the claimant is a child is not in my judgment in general a strong enough factor of itself because the child has the protection of a litigation friend and approval by the court of any settlement. Thus the fact that the claimant is a child is not necessarily of itself sufficient to bring the case within the safety valve: see Abada v Gray & MIB Court of Appeal, 9 May 1997 unreported.”

However, it is a factor the court should bear in mind.

"The advisers know that, in circumstances such as the present, they cannot expect a court to act on an uncertain prognosis (unless of course the offer substantially meets the worst scenario, which the present offer did not). That has a bearing on what justice requires when acceptance of a payment in or offer is deferred."

Black LJ’s seems to have been much influenced by the extreme difficulty in SG of evaluating the offer and then getting court approval on behalf of the child claimant, given it was agreed by both sides' paediatric neurologists that there may be significant changes to come in adolescence. See [67] and [68]:

“Indeed it is arguable that it would have been more than just “difficult” for them to have advised acceptance, let alone to have persuaded the court to sanction it.

…it seems likely that the judge would have determined that the proper course was to await developments so as to ensure that the claimant might recover full compensation for his actual injury and counsel had to have that in mind when advising whether approval could/should be sought.”

If a party concludes it cannot reasonably hope for acceptance, preparing a fully-reasoned document setting this out (such as an advice from counsel or a letter from a senior solicitor) would be wise insurance. Counsel's advice in SG was much quoted.

However, there will be many cases where the court’s view cannot be predicted with any great certainty so that refusal to approve is merely doubtful. A litigation friend (especially one without sufficient ATE insurance) might reasonably decide that as they have the security of needing a normally cautious court’s approval, it is worth trying to accept the offer rather than continuing and running a part 36 risk. If a judge thinks it a reasonable offer, who are they to argue? Further, a defendant would find it hard to argue that the costs of the approval hearing should not be costs in the case, given it would have to accept it made an unreasonable offer which it knew would not be approved in any event, or can show the approval hearing was a sham designed to show that the offer was too low.

Long experience suggests judges are very reluctant to approve a settlement which might undervalue a claim especially where medical evidence is not complete. There would however be a risk for a litigation friend and/or their advisers i.e. under settlement and possible satellite litigation, if the offer was approved against the odds.

Another option, which is less open to accusations of using the court for an improper process and does not carry those risks, might be to seek an Early Neutral Evaluation under CPR r. 3.1(2)(m). It will be recalled that since 1 October 2015 the court has power to:

“take any other step or make any other order for the purpose of managing the case and furthering the overriding objective including hearing an Early Neutral Evaluation with the aim of helping the parties settle the case”

In Seals and Anr v Williams [2015] EWHC 1829 (Ch) one of the very few cases where Early Neutral Evaluation has attracted any judicial comment, Norris J was enthusiastic:

“…it is highly commendable that the legal representatives for the parties have proposed as a way forward, and the court has been invited to undertake, an Early Neutral Evaluation of the case. The advantage of such a process over mediation itself is that a judge will evaluate the respective parties' cases in a direct way and may well provide an authoritative (albeit provisional) view of the legal issues at the heart of the case and an experienced evaluation of the strength of the evidence available to deploy in addressing those legal issues. The process is particularly useful where the parties have very differing views of the prospect of success and perhaps an inadequate understanding of the risks of litigation itself.”

There is however a near total dearth of reported decisions on how Early Neutral Evaluation will work in practice or what effect it will have on costs orders. I could not fund any none made in the personal injury and clinical negligence context from a search on Lawtel, Westlaw and LexisNexis. Nonetheless I consider it likely that judges will want to encourage uptake and make the process as useful as possible.

To be most effective, in my view the court should be asked to allocate the hearing to a judge of the same level who would deal with the eventual case, to avoid a party feeling that a higher court may deliver a different answer and/or one which would command the most deference at a costs hearing. There is nothing in the rules which preclude disclosure of a Part 36 offer at a neutral evaluation. Where similar hearings take place as part of case management on the South Eastern circuit the judge often is aware of offers. However, the trial judge may not then hear the evaluation (see CPR r. 36.16(2)) unless the parties agree in writing (see CPR r. 36.16(3)(c)).

(c) Where a party receiving an offer reasonably asks for a stay or extension while a piece of information such as a crucial test result is awaited, but had been refused, is a factor.

It is submitted that stay requests are underused. It goes without saying that a request for a stay should be made as promptly as possible, something which as will be seen was noted in the new case of Briggs.

Another possibility put forward by Black LJ in SG (at [62], also it is submitted underused, is asking a defendant to extend the time for acceptance until the date when new information could be considered (cf the reluctance to allow this as a reason to withdraw an offer within the 21 days for acceptance and has chosen or failed to obtain such information first).

(d) Different injuries processes may need to be treated differently.

Different kinds of injury, and the way in which they progress, may involve something other than the risks as part of “an ordinary contingency of litigation” which can be transferred via the statutory Part 36 scheme.

Black LJ noted that the offer had been made before litigation had commenced, yet both paediatric neurologists agreed that progress of the claimant’s brain injury would still have been in its early stages, at [71]:

“The two stage process of the development of the consequences of that particular injury – initial damage and damage developing as the brain evolved in puberty/adolescence – and the resulting lack of a safe prognosis do not seem to me to fit easily under the rubric “an ordinary contingency of litigation”

One can see this principle being applied to other injuries – for example an exposure to an irritant or asbestos, where the bodily harm caused cannot yet be determined due to factors inherent in the disease. This may also be relevant to the ongoing research into the long-term effect of TBIs, about which much research is ongoing.

(e) The court will not conduct a microscopic look at the conduct of the litigation.

Again mentioned in Briggs in the context of uncertainty regarding the prognosis, one suspects this in practical terms will at least partly depend on whether a departure from the normal Part 36 order is being sought at 4.30 p.m. before a tired judge at the end of a trial, in a 30 minute hearing or during a telephone hearing, or in more detailed written submissions.

However, if a party wants to help itself, it is submitted that the reasoning behind asking for more time for acceptance, a stay or other factors which prevented acceptance within 21 days are expressly spelled out clearly in short, separate letters to the other side, which are apt to be handed up to the judge when relying on the conduct of the litigation.

(f) Each case turns on its facts, and only principles should be used as the basis for submissions.

At [47] of SG,Lady Justice Blackopined:

“The defendant rightly invited us to be careful in reaching our decision that we did not condemn the courts to intensive investigations in every Part 36 case as to how the parties should have approached an offer; I would be equally resistant to encouraging a time-consuming practice of citing authorities on costs for the purpose of persuading courts to follow decisions on the facts as if they were precedents. This too has the capacity to lead to intensive investigations designed to demonstrate similarities and differences between the two sets of facts. I would therefore hope that a firm distinction is made between, on the one hand, principle and guidance which can valuably be transported from one case to another and, on the other, consideration of the individual facts which cannot.”

Black LJ concluded at [73]:

“Some words of caution: as I have already said, costs decisions are particularly fact sensitive. The view I have formed of this case, albeit a clear one, is an amalgam of all of its features. It is unlikely that they would be replicated precisely in another case. The various factors interact with each other and just as Stanley Burnton J identified in Matthews that a particular change in the circumstances there may have led to a different result, so differences between the facts of this case and the facts of other cases may mean that the result in the other case should differ from the result in this one.”

Briggs

Briggs involved a claimant who suffered a foot injury in January 2010. Proceedings were issued in January 2012, and attached an orthopaedic surgeon's report containing an unfavourable prognosis. In May 2013 the claimant obtained a stay of proceedings and underwent surgery. The stay was lifted in April 2014 and the claimant amended his claim to seek damages of £248,000.

A new orthopaedic surgeon produced a report in October 2014. Although the prognosis was slightly better, it was still unfavourable. The defendant obtained a report which had a more positive prognosis. The Lawtel summary does not say when the defendant’s medical report was disclosed.

As all readers will have experienced, the joint statement seems to have changed quantum significantly. The surgeon instructed by the claimant agreed that the claimant had a better prognosis than previously stated, and further agreed (no doubt to the claimant’s great consternation) that the claimant would be able to work until retirement age. Again, the Lawtel summary does not say whether this left an argument that the claimant still had a Smith v Manchester claim. Nor does it say whether the expert's joint statement precluded an argument that claimant was disabled within the meaning of the Equality Act 2010, such that a lower factor for contingencies other than mortality should be applied to future loss of earnings.

The claimant applied to vacate the trial listed for early 2015 in February 2015 (the Lawtel summary does not say on what basis the application was made, but it seems it was granted). According to the Lawtel summary, the claimant then waited until 2 June 2015 to accept the defendant’s offer of £50,000. This had been made as long ago as September 2012. It is not clear why the claimant waited this long to accept.

Regardless, the judge ordered that the defendant should pay the claimant’s costs up to 30 October 2014 when the second surgeon’s report had been received, on the basis that it was unjust to apply the usual Part 36 order. The defendant appealed.

Allowing the defendant's appeal and substituting the usual Part 36 order that the claimant pay the defendant’s costs from 21 days after the offer had been received, the Lawtel summary sets out that the Court of Appeal stressed the following:

  1. The burden is on the party who accepts an offer out of time to persuade the court to depart from the default position.

  2. In looking at uncertainty in the case, the court would not conduct a microscopic analysis of the litigation's details.

  3. As the helpful general note on 36.17(5) in The White Book set out, an offer shifted the costs risk onto the offeree. It was important not to undermine the purpose of the statutory scheme.

  4. There was nothing to distinguish this case from one involving the usual risks of litigation; it had simply been hard to work out how it might go. It was not infrequent for an uncertain prognosis to make it difficult to value a claim. Part 36 offers were made against that risk. As such, there was nothing about the claim capable of rendering the usual costs order unjust. 

  5. SG was a clear decision on the other side of the line.

  6. The stay might have been relevant if it had promptly followed Part 36 offer, but it had come much later. Even without a finding of exaggeration on the claimant's part, there was some force in the submission noting that he had greatly increased the amount claimed following the stay.

  7. The court would not go so far as to say that the claimant had exaggerated his injury, but the progress of the litigation (such as the increase in the claim value to £248,000 following the stay) had been troubling. The Court of Appeal also observed that claimant had decided to carry on with the case following both the second medical report and the joint statement.

Conclusion

Sight of the full transcript will obviously be important before the claim can be fully understood. But the case summary strongly suggests that the message from the Court of Appeal is that parties can normally expect Part 36 offers to transfer risk on costs in cases which are subject to the usual risks of litigation; one of those risks is that medical experts will sometimes hedge their bets at first, and sometimes change their minds.

Even if the prognosis is unclear, it is suggested that as a starting point the court will expect a party seeking to displace the usual order to show it promptly asked for more time, or a stay, while it gathered the necessary information to put itself in a position to consider the offer as quickly as possible.

Waiting to see how things go and then arguing a couple of reports down the line that the case has not gone as well as could be hoped for is very unlikely to suffice. Nor will it help your cause if (i) you are seen to continue beyond the point where the offer should have been accepted (even if you don’t claim costs for all of that period) (ii) you value the claim out of line with the medical evidence, even in the absence of exaggeration being proved. It perhaps is significant that conduct which lacked reality, and seemed to smack of playing games to obtain tactical advantage, was recently condemned as an abuse of process by Coulson J in Findcharm Ltd v Churchill Group Ltd [2017] EWHC 1109 (TCC) (in that case, in the context of a defendant's wholly unrealistic Precedent R). Such criticism of treating litigation as a game, and not being realistic, could equally count against to a party seeking avoid paying the usual order following acceptance of a claimant or defendant's Part 36 offer.

Parties can still look to SG for guidance, as it appears the Court of Appeal thought that a ‘clear’ case where the normal order would have been unjust. Even so, it should be remembered that even on the facts of SG, Popplewell J had first decided otherwise.

Parties wishing to obtain the normal order following late acceptance are likely to find much to cite in Briggs given the guarded prognosis often given by orthopaedic surgeons, especially prior to surgery.

Points that (i) difficulty arising from this type of prognosis should be regarded as part and parcel of the contingencies of litigation, especially in cases dealing with orthopaedic evidence (ii) parties must keep sums claimed (or put forward in counter-schedules) reasonable or find the court being less inclined to find that the normal order is unjust, and (iii) parties should be required act with expedition and clarity where offers are being accepted, are all likely to be well worth using.

Further, the outcome in Briggs is likely to be illustrative. Even if an advocate properly highlights only the parts of the authority dealing with the general principles to be applied, a first instance judge will probably at least glance over the whole case, or the summary, and potentially be much influenced by the application of the law to these particular facts.

Those accepting offers out of time and seeking to avoid the usual order can for their part point out Black LJ’s ‘words of caution’ in SG, namely that each case and especially costs decisions turn on their own individual facts, and that courts should not entertain submissions which merely compare the facts in one case with another. It is also worth reminding the court that Part 36 comes with a built-in ‘safety valve’, as Arden LJ puts it in SG: some injuries simply take time to show their full extent. If you can show you have been reasonable throughout, that is important, but even so you may not avoid paying the other sides costs if you accept an offer late. Reference to open and honest communication and a willingness to settle promptly once more clarity is obtained will assist. If representing a protected party, pointing to difficulty with acceptance of an offer should also help.

Regardless of the safety valve, Briggs underlines the fact that a party who entirely reasonably choses not to accept an offer where they depend on expert medical advice may still lose out when it comes to costs. If that doesn't show that litigation is a gamble, I don't know what does.

© Ms Fran McDonald, Old Square Chambers, 14/7/17

Image ©iStockphoto.com/BrianAJackson