Part 36 costs sanctions – possible foresight of arguments following the discount rate review

05 Jun 2019

Allan Campbell v Ministry of Defence [2019] – Lambert J 21/5/2019

BLM successfully acted for the Ministry of Defence (MOD) in resisting attempts by the claimant (following late acceptance of the defendant’s Part 36 offer), to argue that the normal costs consequences should not apply. The court decided that the question was not whether the offeree had reasonable grounds not to accept but whether the normal consequences of late acceptance of a Part 36 offer were unjust. In order to depart from the normal costs consequences, there had to be something that took cases outside of the norm. The claimant was unable to meet that high burden and normal consequences applied.

When it would be unjust may be an issue that will become important when the interplay between a changing discount rate and CPR Part 36 falls to be considered.

Background

The claimant was a member of the armed services who sustained psychiatric injury during a flight due to the defendant’s admitted negligence. On 5 January 2018, the defendant made a Part 36 offer of £100,000, with the relevant period expiring on 30 January. That period was extended by agreement until 19 February. The claimant did not accept the Part 36 offer until 13 months later, on 22 March 2019.

The claimant argued that the normal costs consequences should not apply. His argument being that he could not form a view on the defendant Part 36 offer until the prospects of his receiving a commission and/or promotion in the Army were resolved. Until then, he could not decide whether or not to accept the offer.

In rejecting the argument and holding that the normal consequences should apply, the judge stated that the question was not whether the offeree had reasonable grounds not to accept but whether the normal consequences of late acceptance of a Part 36 offer were unjust. To meet that test there had to be something that took the case out of the norm.

The burden on the claimant was a formidable obstacle, otherwise the Part 36 scheme, which looked to limit expenditure and the costs of litigation, would be rendered redundant. The claimant should pay the defendant's costs from the last date of expiry of the offer, namely 19 February 2019. At the time the offer had expired, the claimant's success was not certain, but that was a matter for the claimant's team to weigh up. Legal teams had to undertake that evaluation regularly. Lawyers had to assess a claimant's chances at several instances throughout litigation. That was part and parcel of being a specialised personal injury lawyer. Although there was uncertainty as to the claimant's status before the commission hearing, his team could have weighed up the risk of doing better or worse than the offer. When further information came out in 2018, namely his commission success, no further steps were taken at that point by the claimant regarding the Part 36 offer. If the claimant had genuinely thought that it was a completely speculative exercise then he should have applied for a stay to stop the defendant running up costs. There was no unique feature of the case. It was a genuine offer to settle by the defendant, and not a tactical offer, and it had reflected risks on both sides. It was a substantial hurdle to show injustice, and there was nothing in the instant case that rendered the usual costs order unjust.

One of the cases cited was Downing v Peterborough and Stamford Hospitals NHS Foundation Trust [2014]. That judgment is useful in that the judge, when considering the approach to be taken in stating that it was not enough for the effect to be harsh, and the policy behind Part 36 to encourage settlements had to be recognised and not undermined (similar views expressed by the court of appeal in Briggs). The judge gave examples of situations where it would be unjust as where inaccurate information had been given to or the opponent had been misleading – however it would not be sufficient where an informed guess as to the outcome or a particular judgment call proved to be wrong.

The interplay between a changed discount rate and CPR Part 36

Following Campbell, we provide below some comments on how the interplay between Part 36 offers and a changed discount rate might become a subject to grapple with in periods following the outcome of the current review of the discount rate (and which is due to conclude no later than 5 August 2019). Whether awards at trial or late acceptances, dependent on the age of the offer concerned the costs consequences will be a significant consideration for any claimant and defendant. Negotiations may deal with the issue but if not the cases below may be relevant.

Recalculation

In Marsh v MOJ (costs judgment) Thirlwall LJ, did not allow the claimant the Part 36 benefits of recovering more than her offer. Although the sum recovered was higher than the Part 36 offer, that was only due to the change in the discount rate from 2.5% (when the offer was made) to -0.75% at the time damages were awarded. The claimant recovered £286,000. Her Part 36 offer of £223,500 was made more than two years before. The defendant argued that but for the change in the discount rate the claimant would not have exceeded the offer (the damages converted back to the earlier rate were said to be £217,500). Counsel for the claimant argued that the rate change was no more than the “vicissitudes of litigation” similar to changes in medical evidence that cannot be foreseen, or computation of life expectancy changing due to new research, neither of which would invalidate the usual consequences of Part 36.

The judge did not accept the claimant argument and said “it seems to me that a change in the discount rate is different in kind." Reference was made to Novus Aviation Ltd v Alubraf Arab International Bank [2016] EWHC 1937 (Comm). In that case an offer was made in pounds sterling but damages awarded in US Dollars. Legatt J ruled that the relevant time to make a comparison between a judgment and a Part 36 offer was at the time of judgment as the rules refer to ‘upon judgment being entered’, which means the date when the order containing the court’s judgment is made. The judge concluded it would be unjust for the consequences of Part 36 to follow when the only reason a sum awarded exceeded an offer was because of the dramatic fall in sterling after the EU referendum in June 2016.

The claimant appealed to the Court of Appeal, permission having been granted on paper as it was considered the appeal raised a point of general importance. One of the claimant’s grounds of appeal was that a change in the discount rate was not materially different in kind from other litigation contingencies. Although some steps were taken, the appeal was compromised on the basis that the defendant would pay enhanced interest on damages for the period between the first and second claimant offers. In effect less than the full range of Part 36 sanctions that would apply if the claimant’s appeal succeeded.

The consequence is no appellate authority on the interplay between Part 36 offers and the discount rate. Thirlwall LJ’s judgment remains in place and the only decision on this issue at this time.

The Marsh decision came many years after the uncertainty introduced by cases such as Carver v BAA and also after the rule change aimed at removing that uncertainty (2011). It indicates that the courts may still be prepared to look beyond ‘£A beats £B’ and ‘Marsh’ may be regularly referred to by claimants.

Claimant not able to form a view – unjust for costs consequences

Campbell v MOD is an example of this type of case.

Would a claimant be able to say that the current discount rate review process made it difficult for them to value a case?  The current uncertainties affect claimants as much as defendants. This might manifest itself in an argument that it would be unjust for the usual costs consequences of a late accepted or unbeaten Part 36 offer to apply.

36.17 (5) states:

(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.

In SG (A Child) v Hewitt it was held that the usual costs order would have been unjust due to difficulties in forming a prognosis following brain damage to a small child. The claimant had suffered frontal lobe damage in a road traffic accident when aged six.

The accident was in March 2003 and a pre-litigation Part 36 offer was made in April 2009. The experts were unable to predict the impact of the brain injury until he fully matured. Counsel advised the claimant that it was not possible to value the claim. The claimant solicitors wrote to the defendant to that effect. They did not reject the offer, and the defendant did not withdraw it. The offer was accepted in 2011 and subsequently approved. Initially costs (considered at the approval hearing) followed the automatic costs consequences of Part 36 with the relevant date being 22 April 2009, 21 days after the Part 36 offer.

The Court of Appeal endorsed the approving judge’s conclusion that as both the claimant’s experts and the defendant’s paediatric neurologist advised that there may be significant changes in adolescence, it would have been difficult for those advising the claimant at the time of the Part 36 offer to have advised acceptance if there was a reasonable alternative strategy available which there was (i.e. keeping the offer alive and awaiting further investigations). The Court of Appeal, stressing how fact sensitive such matters were, nevertheless felt the judge (when applying the usual costs consequences of Part 36) had applied incorrect reasoning and it therefore substituted an order that the claimant should recover costs throughout.

An attempt to re-run that argument, in very different circumstances, in Briggs v CEF Holdings Ltd [2018], failed.

In Briggs the claimant accepted a Part 36 offer in June 2015, the offer having been made in 2012, just over three years earlier. He cited uncertainty over the prognosis of his injuries sustained in January 2010; uncertainty which was not largely resolved until receipt of an Orthopaedic report in October 2014. The claimant was initially successful in obtaining an order for costs by reference to the report date and not the expiry of 21 days from the 2012 offer, on the basis that it would be unjust to apply the usual costs rule because the injury had not been resolved and the prognosis had been uncertain until the report was received.

On appeal, in the Court of Appeal it was held that it was important not to undermine the purpose of Part 36 offers. Cases were fact specific, but the risk of uncertainty of prognosis was part of the usual risks of personal injury litigation; one of the purposes of Part 36 was to shift the risk to the offeree if the offeree did not accept the offer. To disapply Part 36 costs consequences the claimant had to demonstrate injustice. It was simply not enough to show that it was difficult to form a view on the likely outcome of the litigation. The uncertainties in litigation and the usual contingencies of litigation risks were insufficient to render it unjust for the usual order to operate. The court referred to ‘SG’ as being an extreme case “the other side of the line.”

What can be concluded is that when an effective Part 36 offer has been made then the court must make the usual orders ‘unless it considers it unjust to do so’ – the burden is on the party at risk to show it would be ‘unjust’ and to do that requires proof of circumstances beyond the usual risks and contingencies of litigation, and not merely that the offeree had reasonable grounds for not accepting the offer. ‘Unjust’ requires more than reasonable grounds not to accept.

So which will it be following the discount rate review – the “Marsh” approach of saying the discount rate is a special case and calculating back to the rate at the time of the Part 36 – or the Campbell and Briggs approach that this is all about a judgment call and getting it wrong does not make the normal costs consequences under Part 36 unjust.  Will the same situation arise in around each long stop review of the rate under the Civil Liability Act?  

Interesting points that will fall to be considered in each case.

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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

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Mark Chetwood

Mark Chetwood

Partner,
Liverpool


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