COSTS SHOULD NOT NORMALLY BE REDUCED WHEN A CLAIMANT BEATS THEIR OWN PART 36 OFFER: COURT OF APPEAL DECISION

|n Webb -v-Liverpool Women’s NHS Foundation Trust [2016]EWCA Civ 365 the Court of Appeal overturned an “issue based” decision on costs in a case where a claimant had beaten there own Part 36 offer.

It is a sad fact that the provisions of Part 36, intended to promote the settlement of litigation, and thus to minimise costs, have themselves been productive of numerous appeals to this Court, and in consequence substantial costs in what is effectively satellite litigation. This is presumably because Part 36 is highly prescriptive (so that even experienced lawyers may fail to make a compliant offer) and the financial consequences of the application of the provisions of Part 36, or the failure to comply with the requirements of Part 36, may be substantial.”

KEY POINTS

  • A claimant who beat their own Part 36 offer on liability should only be subject to an “issue based” costs order if it is unjust to order the defendant to pay the costs.
  • The court should first determine who, in reality, is the successful party.
  • The burden on a party who has failed to beat a Part 36 offer to show injustice “is a formidable obstacle to the obtaining of a different costs order.”
  • The Court of Appeal overturned the judge’s decision in relation to an “issues based” costs order and ordered that the defendant pay the claimant’s costs, including costs on an indemnity basis from the relevant date of the Part 36 offer.

THE CASE

The claimant brought a claim for clinical negligence. In October 2014 she made a Part 36 offer on liability so that she would recover 65% of the damages claimed. At trial she succeeded in full and recovered 100% of the damages claim.

THE JUDGMENT ON COSTS AT FIRST INSTANCE

At first instance the judge ordered that, despite the Claimant beating her own Part 36 offer, a percentage deduction should be made in relation to the claimant’s costs to reflect the fact that she had not succeeded on one of the main issues.  That judgment was discussed in detail in an earlier post on this blog.

THE JUDGMENT OF THE COURT OF APPEAL
  1. Mr Williams accepted that he had to surmount a high hurdle on his appeal against the Judge’s costs order. The principles are helpfully set out in the judgment of Potter LJ in Fleming v Chief Constable of Sussex [2004] EWCA Civ 643 [2005] 1 Costs LR 1:
“32. It is complained that the judge failed properly to exercise his discretion in the light of the mandatory provisions of CPR Rule 44.3. It has been acknowledged by Mr Bishop for the appellant that, in seeking to overturn the discretion of the judge as to costs, it is incumbent upon him to satisfy the test stated by Chadwick LJ in Johnsey Estates (1990) Ltd v Secretary of State for the Environment[2001] EWCA Civ 6535, namely that the judge “erred in principle, took into account matters which should have been left out of account, left out of account matters which should have been taken into account; or reached a conclusion which is so plainly wrong that it can be described as perverse.” See also Summit Property Ltd v Pitmans (A Firm) [2001] EWCA Civ 2020 (an appeal on costs) per Longmore LJ at paragraphs 16-17 and per Chadwick LJ at paragraphs 26-29. In both cases, this court made clear that the Court of Appeal must exercise self-restraint in substituting its views for the views of the judge who has the feel of the case he has tried, as well as knowledge of its progress and nuances of detail which are not suitable for investigation on an appeal concerning costs.”
  1. I bear these principles in mind.
(a) Costs before the effective date
  1. This is a relatively straightforward issue. I have not found it easy, but have been persuaded that the judge could not properly have deprived the Claimant of her costs relating to the second allegation, essentially for the reasons put forward by the Claimant. Although the two allegations related to separate parts of the Claimant’s mother’s labour, they were part of one event, namely the Claimant’s birth. Her injuries were such as would not in general be caused without negligence in the care of her birth.
  2. There were 3 particulars of negligence in relation to the second allegation. Two of these had been added to the Particulars of Claim by amendment on the first day of the trial, although they arose from the experts’ reports and had been adumbrated earlier, which enabled the Defendant to consent to the amendment. They were rejected by the Judge relatively briefly, in paragraphs 249 to 255 of his substantive judgment, and there could not have been much in the way of costs attributable to them. The judge considered the third particular, that the midwives had exerted excessive traction in the vaginal delivery, at length.
  3. It could not be said, and Mr Mansfield did not suggest, that it had been unreasonable for the Claimant to make and to pursue the second allegation, which was supported by her expert evidence. Although it is not necessary for the conduct of a party to be castigated as unreasonable in order for her to be deprived of all or part of her costs, it is significant that Part 44.2 provided:
“(4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including –

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and

(c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.

(5) The conduct of the parties includes –

(a) …

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

  1. It is not unusual for a claimant to succeed on some, but not all, allegations, particularly in a personal injury case such as the present. In HLB Kidsons v Lloyds Underwriters 2007 EWHC 2699 (Comm), Gloster J, as she then was, said:
“11. There is no automatic rule requiring reduction of a successful party’s costs if he loses on one or more issues. In any litigation, especially complex litigation such as the present case, any winning party is likely to fail on one or more issues in the case. As Simon Brown LJ said in Budgen v Andrew Gardner Partnership [2002] EWCA Civ 1125 at paragraph 35: ‘the court can properly have regard to the fact that in almost every case even the winner is likely to fail on some issues.’ Likewise in Travellers’ Casualty [2006] EWHC 2885 (Comm), Clarke J said at paragraph 12:

‘If the successful Claimant has lost out on a number of issues it may be inappropriate to make separate orders for costs in respect of issues upon which he has failed, unless the points were unreasonably taken. It is a fortunate litigant who wins on every point.'”

  1. In Fox v Foundation Piling [2011] EWCA Civ 790 [2011] 6 Costs LR 961, Jackson LJ said, in a judgment with which the other members of the Court agreed:
“48. In a personal injury action the fact that the claimant has won on some issues and lost on other issues along the way is not normally a reason for depriving the claimant of part of his costs: see Goodwin v Bennett UK Limited [2008] EWCA Civ 1658. For example, the claimant may succeed on some of the pleaded particulars of negligence, but not on others. Indeed the fact that the claimant has deliberately exaggerated his claim may in certain instances not be a good reason for depriving him of part of his costs: see Morgan v UPS [2008] EWCA Civ 1476. …”
  1. I see nothing in this case to take it out of the ordinary or to justify the Claimant being deprived of part of her costs.
(b) Costs after the effective date
  1. The first question is one of the construction of Part 36: to what does the word “costs” refer in 36.14(3)(b)? In the version of Part 36 immediately before that current in April 2015, the words were:
“(b) his costs on the indemnity basis from the date on which the relevant period expired; …”
I think that the meaning of this paragraph was clear: “his costs” meant “all his costs”. The masculine possessive pronoun was deleted when the CPR was made gender neutral, but this could not have been intended to alter the effect of the paragraph or the costs denoted by the word “costs”. On this basis, a successful claimant is entitled to all her costs on an indemnity basis, unless it would be unjust (as provided in 36.14(3)) for her to be awarded those costs.
  1. In Kastor Navigation Co Ltd v Axa Global Risks (UK) Ltd [2004] EWCA Civ 277, the Court of Appeal came to a different view as to the meaning of Part 36 as it then was. The trial judge, Tomlinson J (as he then was) had held that it was necessary first to determine, on the application of Part 44, to what costs the successful claimant was entitled, and then to order the defendant to pay those costs on an indemnity basis unless it was unjust to do so. Rix LJ gave the only substantive judgment. He said:
“134. The relevant part of CPR 36 .21 says:
‘36.21. (1) This rule applies where at trial –
(a) a defendant is held liable for more; …
than the proposals contained in a claimant’s Part 36 offer.
……….

(3) The court may … order that the claimant is entitled to –

(a) his costs on the indemnity basis from the latest date when the defendant could have accepted the offer…
(4) Where this rule applies, the court will make the order referred to in paragraph … (3) unless it considers it unjust to do so….’
135. The owners submitted that ‘his costs’ in CPR 36.21 (3)(a) meant ‘all his costs’. If they were right about this it would not be unjust to give effect to the rule because if the insurers had accepted the offer there would have been no trial.
136. In dealing with the point of construction the judge said:

‘… the rule is concerned with the basis of assessment of such costs as are ordered to be paid not with the basic incidence of costs. It would be surprising if a rule drafted in terms which appeared to focus on the basis of assessment should have been intended to bring about a rebuttable presumption as to the incidence of all costs incurred after a certain date, irrespective of the issue upon which they had been expended and of the relative success of the parties on that issue.’

He went on to say that if he was wrong, he would have decided that it was unjust to award the owners all their costs on an indemnity basis from 1 July 2002.
137. The owners submit that the judge’s construction of the rule was wrong. The rule does not say ‘such costs as he is awarded’ and to restrict the meaning of the rule in this way is to emasculate the beneficial Part 36 regime.
138. We think the judge’s construction of the rule was right for the reason he gave.
139. The judge’s discretion had therefore to be exercised in accordance with the provisions of CPR 44.3.”
  1. It is right that the matters specifically mentioned in CPR 36.14(4) all concern the Part 36 offer. However, they are under the rubric stating:
“(4) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3) above, the court will take into account all the circumstances of the case including – “
The words “all the circumstances of the case” could not be wider, and I do not think it possible to restrict them to the circumstances surrounding the Part 36 offer.
  1. We are of course bound by the ratio of Kastor, unless it is distinguishable. In my judgment it is distinguishable. It was based on provisions of Part 36 and Part 44 that were materially different from the present provisions. There was then an express reference to Part 36 in Part 44, which provided:
“(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including –

(a) the conduct of all of the parties;

(b) whether a party has succeeded on part of his case, even if he has not been wholly successful;

(c) any admissible offer to settle made by a party which is drawn to the court’s attention (whether or not made in accordance with Part 36)… “

  1. Thus the exercise of the discretion under Part 44 took into account the Part 36 offer at that stage. That provision is to be contrasted with the present wording of Part 44, which I have set out above, and which expressly excludes from the court’s consideration any offer to which the costs consequences of Part 36 apply.
  2. The relevant provision of Part 36 was also different. It provided (as set out in the judgment of Rix LJ in Kastor):
“36.21. (1) This rule applies where at trial –

(a) a defendant is held liable for more; …

than the proposals contained in a claimant’s Part 36 offer.

……….

(3) The court may … order that the claimant is entitled to –

(a) his costs on the indemnity basis from the latest date when the defendant could have accepted the offer…

(4) Where this rule applies, the court will make the order referred to in paragraph … (3) unless it considers it unjust to do so….”

Thus there was no reference to “all the circumstances of the case”.
  1. These differences in my judgment require this Court to consider the meaning and effect of Part 36.14 untrammelled by the decision in Kastor. My view as to the meaning of Part 36.14 is supported by the substantial line of authority to the effect that Part 36 is now a self-contained code, see, e.g., Ward LJ in Shovelar v Lane [2011] EWCA Civ 802 [2012] 1 WLR 637 at paragraph 52:
“52. … Part 36 is a separate, self-contained code. It must be applied as such. If the offer is one to which the costs consequences under Part 36 apply, then it cannot be taken into account under Part 44 because, although CPR 44.3(4)(c) requires the court to have regard to “any payment into court or admissible offer to settle”, those words are qualified by the words which follow namely ‘which is not an offer to which costs consequences under Part 36 apply’. Part 36 trumps Part 44.”
  1. In deciding what costs order to make under 36.14, the Court does not first exercise its discretion under Part 44. Its only discretion is that conferred by Part 36 itself. The alternative construction requires the Court first to exercise its discretion under Part 44, on the basis of all the circumstances of the case, and then to exercise its discretion under Part 36, again having regard to all the circumstances of the case. This makes no sense.
  2. It follows from the above, and in particular that Part 36 is a self-contained code, that the discretion under 36.14 relates not only to the basis of assessment of costs, but also to the determination of what costs are to be assessed. I agree with the Judge that Part 36 does not preclude the making of an issue-based or proportionate costs order. However, a successful claimant is to be deprived of all or part of her costs only if the court considers that would be unjust for her to be awarded all or that part of her costs. That decision falls to be made having regard to “all the circumstances of the case”. In exercising its discretion, the Court must take into account that the unsuccessful defendant could have avoided the costs of the trial if it had accepted the claimant’s Part 36 offer, as it could and should have done. The principles were aptly summarised by Briggs J (as he then was) in Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch):
“13. … For present purposes, the principles which I derive from the authorities are as follows:

a) The question is not whether it was reasonable for the claimant to refuse the offer. Rather, the question is whether, having regard to all the circumstances and looking at the matter as it affects both parties, an order that the claimant should pay the costs would be unjust: see Matthews v Metal Improvements Co. Inc [2007] EWCA Civ 215, per Stanley Burnton J (sitting as an additional judge of the Court of Appeal) at paragraph 32.

b) Each case will turn on its own circumstances, but the court should be trying to assess “who in reality is the unsuccessful party and who has been responsible for the fact that costs have been incurred which should not have been.” : seeFactortame v Secretary of State [2002] EWCA Civ 22, per Walker LJ at paragraph 27.

c) The court is not constrained by the list of potentially relevant factors in Part 36.14(4) to have regard only to the circumstances of the making of the offer or the provision or otherwise of relevant information in relation to it. There is no limit to the types of circumstances which may, in a particular case, make it unjust that the ordinary consequences set out in Part 36.14 should follow: see Lilleyman v Lilleyman (judgment on costs) [2012] EWHC 1056 (Ch) at paragraph 16.

d) Nonetheless, the court does not have an unfettered discretion to depart from the ordinary cost consequences set out in Part 36.14. The burden on a claimant who has failed to beat the defendant’s Part 36 offer to show injustice is a formidable obstacle to the obtaining of a different costs order. If that were not so, then the salutary purpose of Part 36, in promoting compromise and the avoidance of unnecessary expenditure of costs and court time, would be undermined.”

  1. I am clear that, for the reasons I have given in relation to the Claimant’s costs before the effective date, it cannot be said that it would be unjust for her to be awarded all her costs. Furthermore, in making his determination, the Judge did not take into account, as he should have, the fact that the Defendant could have avoided all the costs of the trial by accepting the Claimant’s favourable Part 36 offer. The considerations to which I referred apply even more strongly in relation to her costs after the effective date, when the question is not whether it is just for her to be awarded all her costs, but whether it would be unjust for that award to be made.
Conclusion

 

For the reasons I have given, I would allow the appeal; I would set aside the material parts of the Judge’s costs order and order the Defendant to pay all of the Claimant’s costs, such costs to be on the indemnity basis from the effective date.

RELATED POSTS ON PART 36

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