CAN IT BE PROFESSIONAL NEGLIGENCE
TO PAY MONEY INTO COURT?

Niazi Fetto and Elizabeth Wale identify some pitfalls presented by Part 36 payments, and some ways to avoid them.

Most reading this will be familiar with the costs advantages and disadvantages associated with Part 36.  This article looks at a lesser known, but extremely significant feature of the regime, which particularly affects parties who make Part 36 payments and wish subsequently to withdraw them.

The issue arises when, in the wake of a Part 36 payment, a development occurs which leads the paying party to regret having put so much money in Court. A typical example would be where video surveillance of a claimant reveals that no significant injury was suffered, or where a new medical report is unfavourable to a claimant’s case on quantum. A defendant might expect the withdrawal of its money to be a relatively straightforward matter following such a change in circumstance.

Far from it.

Withdrawing money paid into court – the Rules

CPR 36.6(5) provides that a Part 36 payment can only be withdrawn, at any time, if the Court gives permission. No conditions for permission are specified. Rather, as is the custom of the common law, a befuddling array of principles has been laid down by a number of decisions.

Withdrawal within the 21-day acceptance period - Flynn

In Flynn v Scougall , the defendant made a Part 36 payment of £24,500 in relation to the claimant’s personal injury claim. However, upon receipt of their medical expert’s report and within the 21-day period for acceptance, the defendant applied to reduce the sum in court to £10,000. The claimant duly gave notice accepting that payment, also within the 21-day acceptance period.

May LJ, giving the leading judgment of the Court of Appeal, made the following findings:

1. Provided both parties had acted within the 21 days, the Court would decide the defendant’s application in the light of the claimant’s notice of acceptance. There was accordingly no need for “an unseemly rush” to establish procedural advantage.


2. Since to allow the defendant’s application would deprive the claimant of an otherwise unfettered right, the fact that the claimant had given notice of acceptance would be an important consideration to be taken into account in deciding whether the defendant should be given permission. It would be an additional consideration to those which might arise if a defendant’s application were made outside the 21-day period.


3. Following the approach of Garland J in MRW Technologies v Cecil Holdings , a party seeking to withdraw money from Court must demonstrate:

“a sufficient change of circumstance since the money was paid to make it just that the defendant should have an opportunity of withdrawing or reducing his payment”.

Significantly, the change of circumstances in Flynn was held to fail that test dramatically by May LJ. It was:

“not even close to a sufficient change of circumstance…[The application] was not based on the discovery of new evidence nor a change in legal outlook. Rather, the defendant was relying on a further review of available information by a fresh expert.”

In so deciding, May LJ plainly had in mind the Claimant’s submission that the Defendant had chosen to make the Part 36 payment prior to receiving the report, in order to obtain costs protection, and had in so doing taken the risk that the report might turn out as it did.

Muddied waters

Unpalatable it may be for defendants, but Flynn is at least clear. The waters are muddied, however, by the comments of Longmore LJ – technically obiter – in another leading case concerning applications to accept Part 36 offers out of time.

In Capital Bank v Stickland [2004] EWCA Civ 1677, the defendant applied to accept the claimant’s Part 36 offer outside the 21-day acceptance period – indeed, on the day of trial. New evidence had been obtained by the claimant since that offer had been made. Longmore LJ, who gave the leading judgment, stated :

“I would not… seek to limit in any way the extent of the discretion of a judge who has to consider whether a Part 36 offer or payment into a court can be accepted after the expiry of the period of 21 days. Both the timing of the application and the ready availability of the defendant’s money may well be relevant considerations. If a change of circumstance has occurred that will also be a relevant consideration.” [Emphasis added.]

Longmore LJ went on to refer to the case of Flynn and its recognition of the pre-CPR authority of Cumper as consistent with the overriding objective that cases be dealt with justly.  He held that:

“…similar principles should in my judgment now apply to Part 36 offers by claimants and late applications for their acceptance,”

adding that “the fact that there has been a change of circumstance is certainly relevant and may well be the most important factor to be taken into account”.

On its face, Longmore LJ’s reasoning leaves the door open to a defendant, seeking to withdraw a Part 36 payment, to argue that the Court must not mechanically look for a “sufficient” change of circumstance (Flynn), but rather must examine all relevant factors, together with “any” change of circumstance, in considering the issue in the round (Capital Bank).

There is certainly support in the pre-CPR authorities for a less rigid approach than was taken in Flynn. In Proetta v Times Newspapers Ltd , which was not cited in Flynn, the Claimant applied for an extension of time to accept a sum paid into court.  Neill LJ overturned the decision to grant of an extension on grounds that, following Lord Denning MR in Gaskins v British Aluminium Co Ltd , there had been a “substantial alteration in the risks” since the time of the payment into court, resulting from a change in the pleadings, and that it would be unfair to hold the defendant to a sum which he had offered in different circumstances. This is clearly a wider test than in Flynn, and can plainly encompass new expert evidence.

In Black v Doncaster Metropolitan Borough Council (also not cited in Flynn) Stuart-Smith LJ referred to Proetta and Gaskins, stating that “these are cases where the balance of risk had changed either in the course of the trial or because the defendants had obtained stronger evidence” and referred to Cumper as a example of that balance altering because of a change in the law. Stuart-Smith LJ held that payment out should not be ordered once there was “a substantial alteration in the balance of risk”.

One problem for defendants seeking to apply the Capital Bank test is that that case may be distinguished from Flynn on grounds that it concerned the situation outside the 21-day period for acceptance. Longmore LJ himself observed , in reference to Flynn, that “the present case is entirely different” but on close examination this appears to refer only to the fact that there had been no “discovery of new evidence or a change in legal outlook” in Flynn. Unquestionably, though, Flynn cannot simply be brushed aside, and cases with similar facts are almost certain to be decided the same way. Even if a Court can be persuaded to take into account factors beyond any change of circumstances, it will nonetheless be extremely difficult for a defendant seeking to withdraw within the period for acceptance to meet the objection that such an outcome would deprive the Claimant of an otherwise unfettered right.

Is it worth making a Part 36 payment at all?

Having identified the pitfalls and noted the ease with which defendants might fall into them, defendant lawyers might well wonder whether it is worth the risk of paying money into court at all.

The CPR suggests that a defendant has no choice: “an offer by a defendant to settle a money claim will not have the consequences set out in [Part 36] unless it is made by way of a Part 36 payment.”

The reality is very different. In Crouch v Kings Healthcare NHS Trust the Court of Appeal considered the NHS practice of making Part 36 offers rather than payments, in order to allow NHS funds to be available for patient services. Waller LJ observed that, if a Part 36 offer was admissible and something to which the court should have regard, “it is much less easy to see why, unless it could be shown the offer was sham or non-serious in some way, it should not in normal circumstances have the same result as if the sum had been paid in”. He noted that the NHS were bound to be good for the money and absent “some special factor about the circumstances of the case” the court “should treat such an offer in the same way as a payment in” when considering liability for costs.

The reasoning in Crouch was taken further in Trustees of Stokes Pension Fund v Western Power Distribution (Southwest) Plc .  Dyson LJ considered Crouch and held that despite there being no automatic cost consequences, the discretion to penalise a failure to accept in costs accorded by r36.1(2) and 44.3(4)(c) should be exercised if four conditions are satisfied:-

1. The offer is expressed in clear terms, so that there is no doubt as to what is being offered.
2. It is open for acceptance for at least 21 days and otherwise accords with the substance of a Calderbank offer.
3. It is a genuine offer and not “sham or non-serious in some way”.
4. The Defendant was clearly good for the money at the time when the offer was made.

If any of these conditions are not satisfied the offer should be given less weight than a Part 36 payment for the purposes of a decision on costs. If none of the conditions are satisfied it is likely that the Court will hold that the offer affords no costs protection at all.  Dyson LJ confirmed that the Court should not approach this matter by determining whether there was a good and practical reason for not making a payment in, but rather by considering whether the offer was genuine and the offeror bound to be good for the money.

Might it be negligent to pay into court?

Since Stokes, defendants with deep pockets (which will include most insured defendants), may make appropriately worded offers safe in the knowledge that their costs protection will by identical, or nearly identical, to that of a Part 36 payment.

That costs protection will have been obtained, however, without having to comply with the Flynn test in the event that the offer turns out to have been pitched too high and it is desired to reduce the sum offered or even to withdraw it entirely..

So, whilst the title of this article might be accused of sensationalism, its warning should not be taken lightly. It is surely unreasonable for lawyers representing a wealthy or insured defendant to advise their client to pay a substantial sum into court if there is a real risk that his position might improve at some point before trial. Only the lawyer whose client is less well-heeled can cite a good justification for doing so, and even then may face awkward questions if (s)he did not carefully take the temperature before taking the plunge.