Late acceptance of claimants’ part 36 offers II

The issue of late acceptance of a claimant’s part 36 offer in personal injury proceedings, by a defendant, and whether this in turn permits escape from the regime of fixed costs is continuing to attract interest, with the respective claimant and defendant interests, arguing the toss vigorously.

In this post, which I note with angst, is already far too long, I shall first of all look at the arguments from the defendant’s perspective, and leave the very respectable arguments that exist for those who represent claimants in abeyance, for a later blog post.

The starting point in the context of a modestly valued claim for damages for personal injuries sustained in a road traffic accident is rule 45.29:

45.29B

Subject to rules 45.29F, 45.29G, 45.29H and 45.29J, if, in a claim started under the RTA Protocol, the Claim Notification Form is submitted on or after 31st July 2013, the only costs allowed are—

(a) the fixed costs in rule 45.29C;

(b) disbursements in accordance with rule 45.29I.

There is an escape clause: rule 45.29J affords the court discretion to allow more than fixed costs, but the exercise of the discretion is tightly prescribed by the rules. There must be something “exceptional” to justify a departure from the fixed costs regime:

(1) If it considers that there are exceptional circumstances making it appropriate to do so, the court will consider a claim for an amount of costs (excluding disbursements) which is greater than the fixed recoverable costs referred to in rules 45.29B to 45.29H.

(2) If the court considers such a claim to be appropriate, it may—

(a) summarily assess the costs; or

(b) make an order for the costs to be subject to detailed assessment.

(3) If the court does not consider the claim to be appropriate, it will make an order—

(a) if the claim is made by the claimant, for the fixed recoverable costs; or

(b) if the claim is made by the defendant, for a sum which has regard to, but which does not exceed the fixed recoverable costs, and any permitted disbursements only.

This is a provision which repays careful consideration: there is very little law, on what constitutes “exceptional” at the current time.

Turning to consider part 36, rule 36.11 provides so far as is material:

(1) A Part 36 offer is accepted by serving written notice of acceptance on the offeror.

(2) Subject to paragraphs (3) and (4) and to rule 36.12, a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer), unless it has already been withdrawn.

Turning to rule 36.13 that states as far as is material:

(1) Subject to paragraphs (2) and (4) and to rule 36.20, where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings (including their recoverable pre-action costs) up to the date on which notice of acceptance was served on the offeror.

(Rule 36.20 makes provision for the costs consequences of accepting a Part 36 offer in certain personal injury claims where the claim no longer proceeds under the RTA or EL/PL Protocol.)

(2) Where—

(a) a defendant’s Part 36 offer relates to part only of the claim; and

(b) at the time of serving notice of acceptance within the relevant period the claimant abandons the balance of the claim,

the claimant will only be entitled to the costs of such part of the claim unless the court orders otherwise.

(3) Except where the recoverable costs are fixed by these Rules, costs under paragraphs (1) and (2) are to be assessed on the standard basis if the amount of costs is not agreed.

(Rule 44.3(2) explains the standard basis for the assessment of costs.)

(Rule 44.9 contains provisions about when a costs order is deemed to have been made and applying for an order under section 194(3) of the Legal Services Act 20073.)

(Part 45 provides for fixed costs in certain classes of case.)

(4) Where—

(a) a Part 36 offer which was made less than 21 days before the start of a trial is accepted; or

(b) a Part 36 offer which relates to the whole of the claim is accepted after expiry of the relevant period; or

(c) subject to paragraph (2), a Part 36 offer which does not relate to the whole of the claim is accepted at any time,

the liability for costs must be determined by the court unless the parties have agreed the costs.

(5) Where paragraph (4)(b) applies but the parties cannot agree the liability for costs, the court must, unless it considers it unjust to do so, order that—

(a) the claimant be awarded costs up to the date on which the relevant period expired; and

(b) the offeree do pay the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.

(6) In considering whether it would be unjust to make the orders specified in paragraph (5), the court must take into account all the circumstances of the case including the matters listed in rule 36.17(5).

(7) The claimant’s costs include any costs incurred in dealing with the defendant’s counterclaim if the Part 36 offer states that it takes it into account.

It will be noted that rule 36.13(5) does not specify that the costs are to be awarded on the indemnity basis in contrast with rule 36.17 which expressly does prescribe when indemnity costs can be awarded under part 36: when a claimant’s part 36 offer is beaten at trial.

Rule 36.17 provides:

(1) Subject to rule 36.21, this rule applies where upon judgment being entered—

(a) a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer; or

(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer.

(Rule 36.21 makes provision for the costs consequences following judgment in certain personal injury claims where the claim no longer proceeds under the RTA or EL/PL Protocol.)

(2) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.

(3) Subject to paragraphs (7) and (8), where paragraph (1)(a) applies, the court must, unless it considers it unjust to do so, order that the defendant is entitled to—

(a) costs (including any recoverable pre-action costs) from the date on which the relevant period expired; and

(b) interest on those costs.

(4) Subject to paragraph (7), where paragraph (1)(b) applies, the court must, unless it considers it unjust to do so, order that the claimant is entitled to—

(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;

(c) interest on those costs at a rate not exceeding 10% above base rate; and

(d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is—

(i) the sum awarded to the claimant by the court; or

(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs—

Amount awarded by the court

Prescribed percentage

Up to £500,000                                           10% of the amount awarded

Above £500,000                                         10% of the first £500,000 and (subject to the limit of £75,000) 5% of any amount above that figure.

(5) In considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4), the court must take into account all the circumstances of the case including—

(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;

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

(e) whether the offer was a genuine attempt to settle the proceedings.

The rules noted above cross refer to two further rules, which apply in the context of a case which started but did not continue under the RTA Protocol, in order to ensure that part 36 and the fixed costs rules in part 45 read seamlessly. Rule 36.20 specially deals with the costs consequences of acceptance of a part 36 offer:

(1) This rule applies where a claim no longer continues under the RTA or EL/PL Protocol pursuant to rule 45.29A(1).

(2) Where a Part 36 offer is accepted within the relevant period, the claimant is entitled to the fixed costs in Table 6B, Table 6C or Table 6D in Section IIIA of Part 45 for the stage applicable at the date on which notice of acceptance was served on the offeror.

(3) Where—

(a) a defendant’s Part 36 offer relates to part only of the claim; and

(b) at the time of serving notice of acceptance within the relevant period the claimant abandons the balance of the claim,

the claimant will be entitled to the fixed costs in paragraph (2).

(4) Subject to paragraphs (5), (6) and (7), where a defendant’s Part 36 offer is accepted after the relevant period—

(a) the claimant will be entitled to the fixed costs in Table 6B, Table 6C or Table 6D in Section IIIA of Part 45 for the stage applicable at the date on which the relevant period expired; and

(b) the claimant will be liable for the defendant’s costs for the period from the date of expiry of the relevant period to the date of acceptance.

(5) Subject to paragraphs (6) and (7), where the claimant accepts the defendant’s Protocol offer after the date on which the claim leaves the Protocol—

(a) the claimant will be entitled to the applicable Stage 1 and Stage 2 fixed costs in Table 6 or Table 6A in Section III of Part 45; and

(b) the claimant will be liable for the defendant’s costs from the date on which the Protocol offer is deemed to have been made to the date of acceptance.

(6) In a soft tissue injury claim, if the defendant makes a Part 36 offer before the defendant receives a fixed cost medical report, paragraphs (4) and (5) will only have effect if the claimant accepts the offer more than 21 days after the defendant received the report.

(7) In this rule, “fixed cost medical report” and “soft tissue injury claim” have the same meaning as in paragraph 1.1(10A) and (16A) respectively of the RTA Protocol.

(8) For the purposes of this rule a defendant’s Protocol offer is either—

(a) defined in accordance with rules 36.25 and 36.26; or

(b) if the claim leaves the Protocol before the Court Proceedings Pack Form is sent to the defendant—

(i) the last offer made by the defendant before the claim leaves the Protocol; and

(ii) deemed to be made on the first business day after the claim leaves the Protocol.

(9) A reference to—

(a) the “Court Proceedings Pack Form” is a reference to the form used in the Protocol; and

(b) “business day” is a reference to a business day as defined in rule 6.2.

(10) Fixed costs shall be calculated by reference to the amount of the offer which is accepted.

(11) Where the parties do not agree the liability for costs, the court must make an order as to costs.

(12) Where the court makes an order for costs in favour of the defendant—

(a) the court must have regard to; and

(b) the amount of costs ordered must not exceed,

the fixed costs in Table 6B, Table 6C or Table 6D in Section IIIA of Part 45 applicable at the date of acceptance, less the fixed costs to which the claimant is entitled under paragraph (4) or (5).

(13) The parties are entitled to disbursements allowed in accordance with rule 45.29I incurred in any period for which costs are payable to them.

This rule contains no provisions for the costs consequences of acceptance of a part 36 offer to the defendant made by the claimant outside the “relevant period” i.e the 21 days. The effect therefore is that the court is thrown back onto the general provision under rule 36.13(4)(b) and 36.13(5): it has a discretion as to whether to order costs or not.

However, there is an important pointer in the rules to what was contemplated to be the just result: where a claimant accepts a defendant’s part 36 offer out of time, so that the claimant is entitled to costs until 21 days after the date of the offer, and the defendant to its costs thereafter, pursuant to rule 36.20(12) the costs the claimant must pay, are not costs on the standard basis, but costs which cannot exceed an amount calculated by reference to the fixed costs in table 6B, 6C or 6D.

In effect, although the costs liability is split between the parties, both sets of costs are calculated by reference to the tables for fixed costs.

Rule 36.21 deals with the costs consequences after judgment is obtained in a case which started in the RTA Protocol. It has no application to a case that settles before trial and is stayed, pursuant to rule 36.14, without judgment being entered.

The origin of the rule in rule 36.13(5) is that it represents the codification of the approach and principles set out in Lumb v Hampsey [2011] EWHC2808. The origins of the rule are therefore grounded in the need in some cases, to adjust the normal “before and after” rule for the allocation of costs: eg where a claimant accepts a defendant’s part 36 offer late, because of belated disclosure by the defendant or other conduct justifying disapplication of the normal rule.

The rule gives the court jurisdiction to potentially make an award of indemnity costs or standard basis costs. The issue is what criteria would justify an award of other than fixed costs.

The leading case on when it is appropriate to award indemnity costs remains that of Excelsior Industrial and Commercial Holdings v Salisbury Hammer Aspden and Johnson [2002] EWCA Civ 879 where Lord Woolf LCJ made a number of observations. As a statement of principle binding upon the lower courts, mere late acceptance of a settlement offer, without more is not conduct justifying an award of indemnity costs.

Similar considerations drove the decision in the case of  Fitzpatrick Contractors Ltd v Tyco Fire and Integrated Solutions [2009] EWHC 274: there has to be something more than late acceptance. The case is important for the very detailed and careful exposition of Coulson J, forming part of the ratio of the case, as to why mere late acceptance of a claimant’s part 36 offer did not generate a presumption in favour of indemnity costs.

19 First, I am bound to note that there is no reference at all within CPR 36.10(4) and (5) to a presumption that, unless it is unjust to do so, the court will order a late-accepting defendant to pay the claimant’s costs on an indemnity basis. The absence of such a provision is important. The usual basis for the assessment of costs is the standard basis; if there is an entitlement to seek indemnity costs, then it is expressly spelled out in the CPR , either as a rebuttable presumption (such as the presumption in r36.14 ) or by way of conduct ( r44.3 ). There is no rebuttable presumption expressed here.

20 Although it is always dangerous to speculate how and why the rules say what they do, it seems to me that there is a relatively straight forward explanation for why this part of the CPR is in its present form. A claimant’s entitlement to indemnity costs when it beats its own offer after a trial was first enshrined in the old r36.21 and was plainly designed to deal with the situation where a trial had taken place and costs had been wasted because the defendant should have accepted the Part 36 offer. For the reasons explained by Lord Woolf in Excelsior , this was more advantageous than the defendant’s position under r36.20 . On the words of the old r36.21 the situation argued for here could not have arisen, because r36.21 applied only where the defendant was held liable “for more” than the amount of the offer. Following the decision in Read v Edmed the rule was changed so that it expressly covered the situation where, after a trial, the claimant recovered the same as the amount of its unaccepted offer. But there is nothing on the face of any of the existing rules to suggest that this change was also designed to reward a claimant (whose offer under CPR 36.10 was accepted out of time and before there was any trial) with a rebuttable presumption in its favour in respect of indemnity costs.

21 Secondly, I consider that the court has to be very careful before inserting into a rule, which is silent on costs, a presumption of this kind, extracted from a different rule altogether. It seems to me that, on this point, Lord Woolf’s remarks in Excelsior are of some relevance (although I acknowledge that he was dealing there with a contrast between the old r36.21 and the old r36.20.) He concluded that, in the absence of any reference to the indemnity basis, an order for costs which the court was required to make under the old r36.20 was an order for costs on the standard basis. It seems to me that precisely the same general reasoning would apply here to CPR 36.10(4) and (5).

22 I accept Mr Thomas’s submission that the other cases relied on by Fitzpatrick, namely Petrotrade , Huck and Read do not offer very much assistance to the central question here, which is whether a rebuttable presumption in favour of indemnity costs, taken from a rule dealing with the situation following a trial where the offer has not been accepted, should be inferred into a rule dealing with the position prior to trial, where the offer has been accepted. I do not accept that the present situation is analogous to those cases. In all three of them, the courts were endeavouring to apply the words of the old r36.21 in a commonsense way, to achieve a just and sensible result, and to prevent injustice; they all arose after a trial on the merits (either on a summary or a full basis). In contrast, I conclude that the replacement of old r36.21 – the new CPR 36.14 – does not apply to the present case, because there has been a settlement, and it has occurred before the trial. The claimant has therefore been spared the costs, disruption and stress of the trial.

23 Thirdly, I note that r36.10(3) , which deals with the situation where the claimant’s offer is accepted within the relevant period, expressly provides that costs will be assessed on the standard basis. If, therefore, there was a presumption that indemnity costs would apply under r36.10(5) , when an offer was accepted outside the period, it seems to me that the rule would say so. It does not, and, in my judgment, that is not an oversight or an omission; it is because either standard or indemnity costs may  be applicable where an offer is accepted after the relevant period, depending on the analysis under CPR 44.3

24 Finally, I am not persuaded that, as a matter of policy, it would be appropriate to import an indemnity costs presumption into r36.10(4) and (5) . A defendant is entitled to accept an offer beyond the period of acceptance. In a complex case such as this, a defendant should be encouraged continuously to evaluate and re-evaluate the claim and its own response to that claim, so that even if the defendant had originally concluded that it was not going to accept the offer, it should always be prepared to change its mind. The CPR should be interpreted in a way that encourages such constant re-evaluation.

25 All those of us involved in civil litigation are conscious of the irony that a well-judged Part 36 offer by one party (whether claimant or defendant) at the outset of proceedings can often make a trial and a fight to the finish more, rather than less, likely, because there will often be instances where, by the time the offeree has belatedly realised that the offer was well-judged, he will have incurred considerable cost, and may feel that he has no option but to go on and fight the case through to the finish in the hope of bettering the offer. Such an outcome is not to be encouraged. There is a risk that, if a defendant belatedly changed its mind as to the acceptability of a claimant’s Part 36 offer, the defendant would be discouraged from formally accepting that offer if it thought that it would have to pay indemnity costs in consequence. It would not be appropriate to construe the CPR in such a way, because that would, in my view, actively discourage late settlements and instead give rise to another reason for the offeree to push on to a trial.

See further the summation by the court in paragraphs 31 and 32:

31 I am unable to accept that proposition. It seems to me that there is no basis for it. As I have said, a party can seek indemnity costs in one of two ways: either because there is a presumption that such costs will apply (such as under CPR 36.14) or because it can demonstrate the necessary evidence of conduct etc. pursuant to CPR 44.3. There is no basis under the CPR, or any authority of which I am aware, which would allow the court to order indemnity costs for any other reason or on any other basis.

 32 Accordingly, Fitzpatrick’s claim for indemnity costs on the basis of either a rebuttable presumption, or a watered-down conduct test, must fail as a matter of principle: in these circumstances, only a case by reference to conduct etc. pursuant to CPR 44.3 could justify such an order. Both parties made detailed submissions on questions of conduct and its relevance to the application for indemnity costs. Accordingly, if I am wrong in my rejection of either Mr Livesey’s primary case, or his secondary case, or if, despite its realistic understanding of the likely outcome, Fitzpatrick maintain an entitlement to indemnity costs by reference to CPR Part 44 , I now set out my views as to the parties’ conduct and the overall justice of the situation.

Heavy reliance is usually placed by claimants, on the County Court judgment in the case of Sutherland v Khan 21st April 2016. District Judge Besford felt able to distinguish the case of Fitzpatrick: he did not however identify any decision which had overruled this case, and was bound to apply it. If District Judge Besford doubted the correctness of Fitzpatrick, his proper course was to apply it and grant permission to appeal: see the decision of the Court of Appeal in the case of Sayce v TNT (UK) Limited [2011] EWCA Civ 1583 at paragraphs 22 and 23, on the application of the doctrine of stare decisis and precedent at common law. The Sutherland decision is both incorrect and was decided in a manner contrary to principle.

An alternative argument, is usually based upon the case of Broadhurst v Tan [2016] EWCA Civ 94 but that case is not in point: that concerns a judgment after trial and the application of rule 36.17, which does expressly provide for an award of indemnity costs.

It is anticipated that when the authorities of Excelsior and Fitzpatrick have been considered, as a fall back position, an award of standard basis costs will often be sought by those representing claimants.

Such an award could be said to be wrong in principle. Although the court retains a discretion, it must be exercised pursuant to the rules, in accordance with the statutory purpose and in a way that accords with the overriding objective.

First, and returning to the starting point, Rule 45.29B makes it clear that pursuant to rule 45.29J only in “exceptional” circumstances will an award in excess of fixed costs be made.

Secondly, the true ratios of both Excelsior and Fitzpatrick noted above, are that there is nothing culpable in a party re-evaluating its case and accepting a part 36 offer late, or out of time. Indeed to do so, runs with the grain of the CPR which requires parties to consider settlement as an alternative to a contested trial (see in particular paragraphs 24 and 25 of the judgment) noted above.

Thirdly, the internal construction of part 36, in particular the way a defendant’s costs are dealt with when a claimant accepts a defendant’s part 36 offer late and pursuant to rule 36.20(12) the claimant is only exposed to costs capped at the level of fixed costs. This is a powerful pointer, for a defendant only to be exposed to a greater quantum of fixed costs, for late settlement.

Fourthly, the claimant’s position in an appropriate case is in any event protected by the rules: under rule 36.13(5) or rule 45.29J, misconduct on the part of the defendant or exceptional circumstances can ground an application for standard or indemnity basis costs.

Money and misery

This post first appeared as an article written for the Family Bar in November 2015.

A fast growing area of practice for the Family Bar, is the provision of advice and representation for unmarried couples or others who find themselves engaged in property disputes under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA). As such proceedings, despite wishful thinking in some quarters are civil proceedings tried in the County Court or Chancery Division, the normal principles of civil costs apply to them. The purpose of this article is to consider some of the issues such cases throw up.

It is the exception, rather than the rule that an award of inter partes costs is made in family proceedings, such as ancillary relief. In those proceedings, the costs are paid out of the pot of assets that the divorcing couple have. In civil cases, a wholly different ethos applies, namely that the loser pays the winner’s costs and stands his or her own costs. In turn, the ways of funding a client’s costs can be more adventurous than the typical privately paid retainer, or increasingly these days, Public Access contract made directly with a lay client in family proceedings.

As TOLATA proceedings are civil proceedings, the statutory prohibition against the use of contingency fee arrangements (damages based agreements) or conditional fee agreements, the two major types of no win, no fee agreements do not apply. It is perfectly lawful and proper for counsel, to agree to represent a client on the basis of a discounted conditional fee agreement, whereby the client agrees to pay eg £250 per hour if the case is won, or say, £150 per hour if the case is lost.

Although many family lawyers would dismiss such arrangements out of hand, the Chancery Bar is quite adept at working on conditional fee arrangements and their website provides some useful precedent agreements: http://www.chba.org.uk/for-members/library/cfas though it would be a brave soul who acts under a pure damages based agreement, given that there are real problems with drafting an enforceable damages based agreement, or recovering any fees from the client should they choose to end the agreement, before a case is lost or won.  It would be an even braver soul, who decided to act for a client in a Public Access matter on any type of no win, no fee arrangement: given the prohibitions on handling client money and the practicalities of enforcing an award of costs, such agreements can only sensibly be made where there is a solicitor at the other end of it.

All barristers in civil proceedings, these days have to be costs experts: and given a particular feature of these cases, is the costs risk, if a case is lost or costs are not recovered in full, it pays to be aware of what the clients arrangements are with the solicitor, and whether the client has the benefit of BTE (before the event) legal expenses insurance, or has purchase ATE (after the event) legal expenses insurance, and what the limit of that cover is. If a client is horribly exposed to costs risks, a more cautionary approach may need to be taken to the case.

One of the key reforms that the implementation of LASPO 2012 and the package known as the Jackson Reforms, was the introduction of a newly formulated principle of proportionality. What this principle will mean in practice is not yet clear: but on its wording, it means that costs can be reasonably incurred, they can be necessarily incurred to bring a case to its conclusion, but notwithstanding reasonableness and necessity, they can still be disproportionate, and if so, will be disallowed by the court. This principle affects both budgeting and the assessment of costs.

Since 1st April 2013, civil claims issued under part 7 of the Civil Procedure Rules 1998, and most TOLATA cases will be issued under part 7 as they will involve fiercely disputed facts, will be subject to a process of costs budgeting. In advance of the first costs and case management conference, the parties must file and serve the horrendous Precedent H, a form, which sets out the budget for the proceedings.

These forms will then be used by the court to manage the costs of the proceedings, in effect serving as a form of “costs capping lite”. It is essential to consult with an instructing solicitor, prior to the form being completed, as to what figures for counsel’s fees will be included in the precedent H: because if those figures prove to be unrealistically low, then any excess fees may not be recoverable from the losing side.

It has been wisely observed, that there are no winners in family proceedings. At the conclusion of a civil case, there will be a winner and there will be a loser, someone whose claim has succeeded if only in part, and someone who has lost. It is at this point, that part 44 of the Civil Procedure Rules 1998 comes into play.

The court has a structured discretion as to how it will deal with the costs of the proceedings. The starting point is as set out in rule 44.2(2): the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, though the court may make a different order.

Pursuant to rule 44.2(4) the court will have regard to all the circumstances, including the conduct of the parties, degrees of partial success and most particularly any admissible offer to settle, of which the most important variety of offer, will be a part 36 offer.

Costs can be awarded on the standard or indemnity basis: the standard basis means such costs are subject to the criteria of reasonableness and proportionality and the burden is on the receiving party to justify those costs: on the indemnity basis, the only criteria is whether the costs are reasonable and the burden of proof lies on the paying party to show they are unreasonable.

Each and every case, should have at least two part 36 offers, one made by the defendant and one made by the claimant, which reflects their realistic case, rather than their best case, or the open case alleged on the pleadings. I would go so far as to say, that a lawyer who does not advise on an appropriate part 36 in good time before a trial, is skirting with professional negligence and failure to advise a client on the risks posed by an opponent’s part 36 offer, certainly is prima facie negligent.

The effect of a well pitched part 36 offer can be devastating in terms of costs consequences, and is of a magnitude of effectiveness, far greater than the familiar Calderbank offer. Part 36 was comprehensively revised and updated in April 2015.

Part 36 has nothing to do with principles of contract law: it is its own self contained procedural code. Part 36 offers can be made in respect of any issue in proceedings: and at any time, before proceedings are started, or in respect of an appeal.

Should a claimant succeed in beating her own part 36 offer at trial, she will receive indemnity costs from a point in time 21 days after the offer was made, interest on those costs, part 36 enhanced interest and an additional amount: a penalty figure of 10% of the damages awarded.

For a defendant, making a part 36 offer, may be the only practical way, they can protect themselves at trial. Should a claimant fail to beat a defendant’s part 36 offer, then notwithstanding a degree of success at trial, she will be ordered to pay the defendant’s costs, from a point in time 21 days after the offer was made.

When drafting part 36 offers, careful consideration must be given to the form, as if a part 36 offer does not comply with the requirements as to its form and content prescribed by rule 36.5, it will not be an effective part 36 offer, and will take effect, if it does at all, as a mere offer to settle.

Acceptance of a part 36 offer made after proceedings have commenced, will serve to automatically stay those proceedings and create a deemed costs order in favour of the party accepting the offer.

It is worth reiterating again, that a claimant who beats her own part 36 offer at trial, will be awarded indemnity costs, and the principle of proportionality will not apply: when costs come to be assessed this can be of the utmost importance.

If a party’s claim for costs is less than £75,000 then in the first instance these will be assessed on paper, by the District Judge. If more, then by a traditional detailed assessment. In either case, in order to maximise recovery of costs, it is a good rule of thumb that if counsel’s fees are more than £5000 for counsel to write a note for the court’s benefit setting out what work was done, and why in order to flesh out the fee notes most clerks bang out: these may in their own way, like Japanese brush paintings, be beautiful in their sparse simplicity, but if lacking in detail might not be regarded as helpful by the District Judge.

Part 36, construction and the doctrine of mistake

For many reasons, the tool of choice to use for the compromise of disputes, either litigated or at the pre-litigation stage is the part 36 offer. But sometimes, the party making the offer may be at cross purposes, with the party seeking to accept the offer, and the two may believe that a dispute has been compromised on quite different terms.

This problem can arise in the context of loose or sloppy drafting in the terminology used in drafting the offer, or more prosaically through the drafter neglecting to insert a crucial decimal point in a proposed settlement figure.

In those circumstances, a dispute over the terms of the settlement is likely to come before the court. It is likely that the court will seek to resolve the dispute, either by recourse to the canons of contractual construction, or by reference to the common law doctrine of mistake.

In this post, I turn to consider the relevant principles of law which will inform the court’s approach.

In terms of construction, the starting point is to note that per C.v.D it is legitimate to borrow from the canons of statutory construction to construe a part 36 compromise to ascertain what the terms of that compromise were. The law has moved on from ICS Ltd.v.West Bromwich Building Society in that Lord Hoffmann’s principles have been expanded, and explained in a series of further cases, before the House of Lords and Supreme Court. The most recent of these is Arnold.v.Britton handed down a few months ago.

Reference can usefully be made to Lord Neuberger’s restatement of principles in paragraphs 14 to 22 of his speech: those principles demonstrate a re-emphasis on the importance of the language used, and count against broad, sweeping constructions which do violence to the language used by the parties.

The principle recognised in paragraph (3) of Lord Hoffman’s restatement of principle in ICS Ltd that previous negotiations must be excluded from construction of a written contract, was reformulated at length in the case of Chartbook Ltd.v.Persimmon Homes Ltd in paragraphs 28 to 41. Such matters remain admissible only for the purposes of estoppel or rectification.

Where mistakes are particularly gross, such as the missing decimal point noted above, the construction to be given to the offer may be clear, and the party seeking to upset the compromise will be thrown back on the doctrine of mistake.

An interesting lacuna in the authorities, is that there appears to be no authority either binding or even on point to support the contention that the court should take the self contained procedural code of Part 36 and import into it wholesale the common law doctrine of mistake.

In fact the balance of authority and argument could be argued to point the other way, that the doctrine of mistake has no application to a part 36 compromise.

Such a conclusion would of course be antithetical to the notion that the court should have some power to save the bacon, of the poor secretary who drafted a part 36 offer and left out the crucial decimal point.

The starting point for an analytical discussion must be Gibbon.v.Manchester City Council. In particular terms it is interesting to note, that in that case, the Claimant’s solicitors plainly made a mistake of law as to the effect and interpretation to be given to part 36. Neither the parties nor the court, even suggested that the common-law doctrine of mistake of law could be deployed to grant relief. Instead the Court’s emphasis was that the provisions of part 36 are a self-contained code, to be read and understood according to its own terms and without important rules derived from the law governing the formation of contracts save where that was clearly intended. This counts against importing the doctrine of mistake into the resolution of disputed part 36 offers.

Casting around for contrary authority, the case of Flynn.v.Scougall merely supports the proposition that an application made to vary a part 36 offer (as contemplated by the rules) which is followed closely by an acceptance should be determined, taking into account the acceptance as a material factor. It is interesting to note, that the case is wholly explicable as an exercise in construction of the relevant rules of part 36 as then in force, and whether the acceptance constituted calling “snap” to render the application otiose.

The case of Warren.v.The Random House Group Ltd is more interesting, even if it only permits an argument to be made by way of analogy. In the statutory scheme set out in the Defamation Act 1996 a procedure exists for offers of amends and acceptance of them: in a statement at paragraph 17 the Court of Appeal expressed obiter dicta, that such a compromise might be capable of upset on traditional common law grounds: but it was not necessary to decide the point. However in that case an entirely different set of concerns were in play: the article 8 and article 10 rights of the parties under the ECHR and the construction of the Parliamentary purpose behind the Act in question.

Thinking through the various strands of authority, it should be noted that the parties are free to use a contractual compromise, but through electing to use part 36 have declined that option. In such circumstances, to all intents and purposes, they have rejected the trappings of contract law and elected for a self contained code. The underlying theme of part 36 running through all the case law on it, and finding emphasis in the Gibbon case has been the emphasis on the public policy of certainty: ensuring that such compromises are water tight and strictly confined within the Rules.

There are no Rules which provide for setting aside the compromise on the basis of mistake: but there are many rules which act to prevent mistakes occurring eg: the requirement to satisfy the form of a part 36 offer, the ability to ask for clarification of it, an unfettered right to withdraw a part 36 offer, a right to seek a variation of it. If the Parliamentary purpose was to include an implied power to set aside compromises for mistake, it sits uneasily with the existence of these rules.

Material that is inadmissible for the purposes of construing the compromise, can be admissible in principle for an action for rectification: or rather the remedy of rectification grounded on a claim of mutual mistake.

A helpful summary of the differing kinds of mistake which collectively make up the doctrine of mistake in the context of contract law is provided by chapter 3 of Chitty on Contracts (32nd edition). Also see Foskett on Compromise (8th edition) from page 43 et seq.

Perhaps the leading case on the doctrine in the context of impeachment of a compromise, remains that of Brennan.v.Bolt Burden. However that case expressly recognises the requirement for there to be a common operative mistake and also the defence of compromise, which severely restricts the operation of the doctrine.

Even if there has been a mistake through infelicitous drafting, although the doctrine of unilateral mistake exists, it imposes a series of very high hurdles on a litigant seeking to be relieved from the consequences of his own mistake.

Per George Wimpey UK Ltd.v.V I Construction Limited see the requirements set out in the judgment of the Court of Appeal from paragraph 35 et seq: in particular not only must the party establish that they made a unilateral mistake about the terms of the compromise, but also that the other party knew about it. Actual knowledge is required. An extended definition in the case law applies. Knowledge in this context is (i) actual knowledge (ii) wilfully shutting one’s eyes to the obvious or (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make.

Conversely (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man and (v) knowledge of circumstances which would put an honest and reasonable man on inquiry would not constitute knowledge.

The case law aptly notes that the true distinction is between honesty and dishonesty: later in the judgment Sedley LJ also makes the point that this must be dishonesty in an arm’s length commercial negotiation, where parties are entitled to put their own interests first: see paragraph 61 of the judgment. The context is even starker where the parties are already engaged in adversarial litigation: it is trite law that no duty of care is owed to one’s opponent in litigation.

In short, should the parties ostensibly settle a dispute, but then fall out over the actual terms of the settlement, there remains some scope to argue for a contrary view of the compromise or to seek to set it aside by reason of the doctrine of mistake, but the extent of the scope on the current authorities will be uncertain.