Costs News

27 June 2019
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Part 36 consequences are not ‘all or nothing’, High Court rules

The High Court has upheld a ruling that the court does not need to award automatically all the consequences of beating a part 36 offer and should assess each against the injustice test.

However, in the case before him, Mr Justice Stewart said Master McCloud had wrongly applied the test in deciding not to award the 10% uplift under rule 36.17(4)(d).

The judge also expressed the obiter view that the court could only award 10% and not a lesser amount.

In JLE v Warrington and Halton Hospitals NHS Foundation Trust, the claimant sought £615,751 in costs after winning the substantive action.

She made a part 36 offer to accept costs, inclusive of interest, of £425,000. The offer expired and, at detailed assessment, Master McCloud ordered the defendant to pay £421,089 plus interest of £10,723.

In relation to the rule 36.17(4) consequences, the defendant argued that it would be unjust to award the 10% uplift given the small amount by which the claimant beat her offer – nearly £7,000 – compared to the £43,000 windfall it would provide.

Master McCloud found that the rule 36.17(4)(a)-(d) consequences were severable and each should be judged against whether it would be unjust to impose.

On appeal, Stewart J said there was no authority on the point. He found nothing in the rule to suggest either way whether the test should be applied separately for each of the consequences. This meant the court had jurisdiction to consider it unjust to award some, but not necessarily all, of the consequences.

“That said, it would perhaps be an unusual case where the circumstances of the case, including those particularised in sub-paragraph (5), yield a different result for only some of the orders envisaged in sub-paragraph (4).”

However, he went on to find that Master McCloud erred in principle in not awarding the 10% on each of the three grounds she gave.

The first was the very small margin by which the offer was beaten relative to the much greater size of the bill.

To take this into account risked re-introducing the difficulties caused by the 2008 Carver decision, he said, the consequences of which were reversed by the rule committee on the recommendation of Lord Justice Jackson.

The second was the difficulty for a party to know where to pitch an offer where a bill was reduced significantly.

Stewart J acknowledged that “there may possibly be circumstances where a high bill much reduced on assessment is a valid reason for refusing to make an additional award”, but said the burden on the claimant to show injustice here was “a formidable obstacle”.

He stressed that the lack of a system of disclosure – which helped a party understand the strength of the other side’s case – did not distinguish costs cases from damages cases.

The rules would have said if so, he said, continuing: “On many occasions, part 36 offers in damages cases are made prior to any significant disclosure, or at least before the value of the case can be accurately assessed. The system encourages parties to ‘take a view’ depending on experience and such information as they have, so as to encourage settlement as soon as practicable…

“The master erred in principle in essentially deciding that some difficulty in assessing an offer because the bill was reduced by some 30% could be a reason to find it unjust to make the additional award.

“Further, although in principle the four awards under 36.17(4) can be separated in terms of whether it is unjust to make an award, I do not accept that in these circumstances it is open to the court to say that it would be unjust to make an award under (d) but not under (a)-(c).

“The perceived injustice would then be based on the prescribed amount of the award, which is an impermissible basis.”

The third reason given by Master McCloud was the large size of the 10% “bonus” relative to the margin by which the offer was beaten.

The judge said the master had fallen into error by considering the sum, rather than the making of such an award, unjust.

“The additional award should not be characterised as a ‘bonus’. It is not meant to be compensatory. As the Jackson report said, there is a penal element when the claimant has made an adequate offer.”

In all, “there was nothing unusual about the circumstances so that the high threshold of proving injustice could be properly regarded as met”.

The judge added: “That is important because if this case qualifies for withholding the additional award, that would be a green light to similar arguments in many, many other detailed assessments. It would also be a serious disincentive to encouraging good practice and incentivising parties to make and accept appropriate offers.”

In exercising the discretion afresh, Stewart J considered whether the 10% was “all or nothing”.

As the argument was only made on the day of the hearing, he said it was too late to raise the point, but commented on it as he heard full argument. “Though [my observations] are strictly obiter, they may assist in future cases.”

He 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. Further, there would be no points of orientation as to what would be a proper amount of reduction.”

This was contrary to Deputy Master Friston’s recent decision that he could award less than 10%.

As a result, Stewart J allowed the appeal and awarded the additional amount of 10%.

Robert Marven QC (instructed by Leigh Day) for the appellant, Kevin Latham (instructed by Hill Dickinson) for the respondent.

 

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