Recent developments with Part 36

Part 36 is the provision that keeps on giving – or taking away…, writes John Appleyard.

Part 36 of the Civil Procure Rules (CPR) 1998 is a Rule which never fails to surprise. Out of a book which totals over 3,070 pages, it accounts for a mere 34 of them – including the Practice Directions. It is, undisputedly, an incredibly small part of the CPR as a whole.

But for what it lacks in size in makes up for in its pedantries. There are around 400 reported cases quoting this small section of the CPR within their headings, the majority of which have occurred over the last eight years since the true force of this little provision was realised in Gibbons v Manchester City Council, a case which cemented the stature of Part 36 as the ‘self-contained’ code that it is today.

Which is why writing about its developments are both a pleasure and a chore. A pleasure as there is always a wealth of useful material available to draw from; but a chore because in the 20th anniversary year of the Wolfe reforms and the birth of CPR itself, it is somewhat disappointing that this troubling little provision can still provide as much uncertainty and risk as it does.

2018 was no different.

Terminology

In Clark v Meerson [2018] EWHC 142 (Ch) the court had to determine the scope of a pre-action settlement agreement which was termed to be ‘the whole of the claim’. The husband and wife were the director and secretary of a company which failed. The liquidator believed that the husband owed £44,000 by way of director’s loan: and the wife £16,100 from dividends that were invalid. The liquidator demanded that both be repaid, and there was four months of correspondence on the amounts in which husband and wife made offers to settle. The liquidator indicated that he would accept a sum to bring the matter to a conclusion, and made a Part 36 offer in the sum of £44,500 to the husband’s solicitor.

The offer was accepted, but the liquidator then issued proceedings to recover various other items, including £16,100 against the wife. Both husband and wife argued that the offer in settlement of the ‘whole of the claim’ should indeed have meant that, but the liquidator argued that it was only against the husband and only in respect of those parts of the claim mentioned in correspondence previously.

The court held that the husband’s claims had been settled in full. The correspondence in the run up to the offer went much further than the loan the liquidator alleged the offer covered. It did not, however, include the claim against the wife, and this was clear on the face of it.

A similar point arose in Bentley Design Consultants Ltd v Sansom [2018] EWHC 2238 (TCC). The case concerned a claim for breach of contract/professional negligence over the advice given in relation to two plots of land. A claim was initially presented in relation to Plot 1 and offers exchanged. An offer was made to settle ‘the whole of the claim’. The offer was not accepted.

Amended particulars were filed sometime thereafter to add the claim in relation to Plot 2, and eventually the defendant accepted the offer arguing that this concluded the claim on behalf of both properties.

In this instance, the court disagreed. While as a matter of principle an offer to settle ‘the whole of the claim’ would include a claim where the scope or value increases, in this instance at the time the offer was made the only particularised claim was that in relation to the first plot. The second plot, the court held, was a distinct and separate claim.

Liability offers, and the consequences thereof

One has to be careful of liability offers. In JMX v Norfolk and Norwich Hospitals NHS Foundation Trust [2018] EWHC 185 (QB) the claimant made a Part 36 offer to accept 90% of liability which expired the day before trial. The claimant succeeded at trial, but the defendant argued that the consequences were that CPR 36.17 should not apply as the offer was not a ‘genuine offer to settle’ on the basis that it was a significant under-evaluation of risk. The court disagreed and the sanctions as set out in CPR 36.17 applied. The court also confirmed, in some respects contrary to Clark v Meerson, that it was not appropriate to consider the correspondence (albeit, in this instance, of a ‘without prejudice’ nature) as it was not fundamental to the issue of whether the offer to settle was a genuine one.

But then there was a twist.

In the same case, but this time at [2018] EWHC 675 (QB), the court then went on to decline to award the claimant an additional amount under CPR 36.17(4)(d) – that is the 10% uplift – on the basis that the case had not been ‘decided’, and could not be ‘decided’ pending the final resolution of ‘all issues in the case’. Therefore, to award the claimant a 10% uplift on liability costs, would effectively preclude the claimant from recovering more in damages at the end of the case – the presumption being that the same provision cannot apply twice.

Acceptance

Tuson v Murphy serves as a stark reminder of just how powerful Part 36 can be. The claimant accepted a Part 36 offer out of time for a fraction of the value of her pleaded claim (c. £350,000 against £1.5m), but the court allowed the defendant their costs from long before the offer was made due to the claimant’s dishonest and misleading conduct in presenting a loss of earnings claim on the basis that she could not work, notwithstanding that in the intervening period she obtained a franchise in a playgroup and ran workshops for a year.

In upholding the claimant’s appeal, it was held that where a Part 36 offer was made and accepted usual consequences should apply. The claimant was therefore entitled to her costs up to the date of the expiry of the offer, as the defendant had intended when the offer was made – particularly when they were aware she operated the playgroup.

Failing to accept a Part 36 offer in time

It is trite law that the late acceptance of a Part 36 offer out of time is insufficient to trigger an award of indemnity costs without some form of unacceptable conduct from the parties.

It is even insufficient, as one can see from the case of Hislop v Perde [2018] EWCA Civ 1726, to justify a departure from the fixed costs provisions of CPR 45.

Hats off therefore to Judge Allan Gore QC, who concluded that the defendant’s ‘bimbling’ in the case of Holmes v West London Mental Health Trust was sufficient to justify a departure from the norm in a case where the claimant’s liability offer was accepted a year late. The circumstances of the case, in the judge’s view, were out of the norm wherein the defendant had unnecessarily prolonged the litigation of a mentally fragile claimant without a good defence to do so.

Withdrawal

In Ballard v Sussex Partnership NHS Foundation Trust [2018] EWHC 370 (QB) the defendant withdrew a Part 36 offer and made a second one. At trial, the claimant failed to beat either. The judge at first instance ordered the claimant to pay the defendant’s costs from the expiry of the first, but was overturned on appeal on the grounds that it must have been the defendant’s intention to pay the claimant’s costs up to the expiry of the second offer – particularly since the second offer specifically stated “for the avoidance of doubt if the claimant fails to obtain a judgment more advantageous than the offer made in this letter the defendant will seek an order that the claimant shall pay both parties’ costs from 1 March 2017”.

On reflection, it seems that it would have been far more sensible for the defendant simply to reduce the Part 36 offer and maintain its protection as per Burrett v Mencap Ltd (14 May 2014) – but then hindsight is a wonderful thing.

John Appleyard is a partner at Browne Jacobson. 

 

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