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17 April 2020
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Part and parcel

Francis Kendall on how Part 36 disputes are an ongoing feature of litigation

Professor Dominic Regan tweeted recently that his course on part 36 had proven his most popular for the tenth straight year. When you look at the recent output of the higher courts on this single section of the CPR, you can see why. Even by its prolific standards, part 36 has generated a lot of case law and other activity of late.

Claiming the maximum interest

Effort to challenge the maximum 10% above base interest on costs awarded to parties who beat their part 36 offers gained little traction in two cases.

In Essex County Council & Ors v Davies & Ors [2019] EWHC 3443 (QB), the defendants/appellants argued that the award of interest on costs at 10% above base after beat a part 36 offer was penal and unreasonably high.

Mr Justice Saini rejected four grounds of appeal, including the argument that it produced a windfall. “There is always a risk that the costs orders which follow under CPR 36.17 will provide an enrichment beyond actual loss. Indeed, the paradigm is the 10% additional sum under CPR 36.17(4)(d)(i) (as was awarded, without appeal, in this case).

“It is the deterrent effect (not just financial recompense) which motivates a court in making these orders. The judge was entitled to make the award which was ultimately based on fairness to the respondents who were faced (as will appear below) with appellants who adopted what he considered was an aggressive scorched-earth approach to this litigation.”

In Kivells Ltd v Torridge District Council [2019] EWHC 3210 (TCC), the claimant easily beat his part 36 offer of £250,000 and argued for the full 10% – saying the council should have accepted the offer, which was nearly half of the what was awarded – while the defendant said it should be no more than 6%. The defendant said the notes in the White Book contained reference to only one decision where the 10% was awarded, and that was in a case where the paying party had not only not accepted the part 36 offer but had failed to do so in the context of advancing a dishonest and unreasonable case.

His Honour Judge Russen QC – sitting as a deputy High Court judge – said this did not mean that 10% could not be awarded where those factors were absent. Although here he awarded 8%, he said: “The essential thrust of CPR 36.17(4)… is to put the rejected offeror into a different, superior class of judgment creditor in relation to the period beginning with the expiry of his offer. And the essential basis for that can be said to be the reflection, in hindsight, that the litigation should by then have been concluded with recognition of his entitlement.”

HHJ Russen said it was clear that the claimant could be awarded interest at a rate which proved to be more than compensatory.

Offer that excluded interest

A purported part 36 offer that excluded interest did not comply with the requirements of the rule, the Court of Appeal ruled in King v City of London Corporation [2019] EWCA Civ 2266. The offer was made in the context of detailed assessment proceedings but that did not change the situation, said Lord Justice Newey.

Rule 36.45(4) states that a part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest. The court upheld the lower courts in concluding that an offer exclusive of interest cannot be a valid part 36 offer. By doing so, it overturned Mr Justice Nicol’s ruling in Horne v Prescot (No 1) Ltd [2019] EWHC 1322 (QB) that at least in the context of detailed assessment proceedings, an offer excluding interest can be an effective part 36 offer.

Lord Justice Newey said there have been several conflicting rulings on the issue at costs judge level too, but the “relatively inflexible” nature of the rule meant that the offer needed to include interest.

Unusually, the other two judges gave concurring rulings. Coulson LJ, the deputy head of civil justice and lead judge in the court on costs issues, emphasised the importance of complying with part 36 in every respect to obtain the benefits of beating an offer.

Arnold LJ said he had not found the issues easy to decide but “reluctantly” agreed with his colleagues. He added: “It seems to me, however, that the issue merits consideration by the Civil Procedure Rules Committee. In my opinion there are arguments in favour of permitting part 36 offers to be made which are exclusive of interest, at least in assessment proceedings if not in the general run of claims. If the committee decides, however, that offers exclusive of interest should not be permitted, then I would suggest that rule 36.5 be amended to say so in terms. At the very least, PD47 paragraph 19 should be revised.”

Be clear what the offer includes

In Ho v Adelekun [2019] EWCA Civ 1988, the Court of Appeal told defendants making part 36 offers in cases that leave the RTA protocol that they must make clear that they are offering to pay fixed costs, rather than the usual wording about costs to be assessed on the standard basis. Newey LJ said the court was told its decision could affect “many other cases”.

The part 36 offer said that the defendant would pay costs in accordance with part 36.13, “such costs to be subject to detailed assessment if not agreed”.

While the reference to detailed assessment was “far from ideal if the appellant intended the fixed costs regime to apply, it was not wholly inapposite”, as the fixed costs regime did involve an assessment of some kind, particularly in relation to disbursements and where the court was satisfied that exceptional circumstances existed. I do not think, therefore, that reference to ‘detailed assessment’ should be taken to imply an intention to displace the fixed costs regime where there are other indications that that was not intended.”

Further, Newey LJ said it was “inherently improbable” that a reasonable recipient of the letter would think the defendant intended to offer conventional rather than fixed costs, given that this would cost them more.

But he cautioned: “For the future, a defendant wishing to make a part 36 offer on the basis that the fixed costs regime will apply would, of course, be well-advised to refer in the offer to CPR 36.20, and not CPR 36.13, and to omit any reference to the costs being ‘assessed’.”

Uplift is 10% or nothing

The Civil Procedure Rule Committee (CPRC) has also got in on the part 36 action, confirming that the 10% uplift on costs for beating an offer is ‘all or nothing’ and judges cannot award less.

At its meeting last November, the committee left in place Mr Justice Stewart’s ruling last year in JLE v Warrington [2019] EWHC 1582 (QB). The issue was brought to the attention of the CPRC’s lacuna sub-committee after Stewart J effectively overruled the decision of Deputy Master Friston – author of Friston on Costs – in White v Wincott [2019] EWHC B6 (Costs).

In JLE, Stewart J – speaking obiter – noted that rule 36.17(4)(d) was “expressly prescriptive”, scaled down the uplift in higher-value cases and did not incorporate any ‘good reasons’ type of exception. “One can see a very good policy reason for the present rule, as I interpret it, namely to discourage further satellite litigation on the appropriate extent of the additional award,” he said. “Further, there would be no points of orientation as to what would be a proper amount of reduction.”

In White, the deputy master recognised it was a difficult point but held that the court has power to award less than the specified 10% uplift on the sum awarded, but that it may not do so simply because it regarded the prescribed amount to be excessive.

The minutes of the CPRC meeting noted: “The ‘all or nothing’ approach lacks flexibility but may be more consistent with the underlying policy of part 36… It was recommended that the CPRC leaves the decision in JLE in place and this was agreed.”

Disclosure of offers on appeal

At the same meeting of the CPRC, the lacuna sub-committee also highlighted the question of rule 52.22 and the disclosure of part 36 offers on appeal. It was raised by Mr Justice Birss, following his decision in Ubbi v Ubbi [2019] EWHC 2333.

Rule 52.22 provides for non-disclosure of part 36 offers on appeal (and on applications for permission to appeal), whether made on appeal or in the court below, “until all questions (other than costs) have been determined”. An exception is if they are relevant to the substance of the appeal.

However, the CPRC heard that where both a merits and costs ruling were appealed, this was often done in a single notice of appeal with a single set of grounds. A single appeal bundle was prepared that included the part 36 material. The CPR are silent on this situation.

The CPRC decided to amend rule 52.22(1) to add “unless the appeal court otherwise orders”. This comes into effect in the April update.

Too many appeals

In the Essex County Council case, Saini J emphasised the observation of the Chancellor of the High Court, Sir Geoffrey Vos, in OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195, in which he said the judge's discretion as to the appropriate rate of enhancement under part 36.14(3) was wide “and I would not expect the Court of Appeal often to be persuaded to interfere with it”.

Saini J said: “Those comments apply with substantial force to this costs appeal.”

Nonetheless, there is no sign of cases about part 36 disappearing any time soon.

This article first appeared in Litigation Funding in April 2020

Francis Kendall is vice-chair of the Association of Costs Lawyers

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