Appellant victorious in arguing indemnity costs

March 6, 2020March 7, 2020 Anna LockyerLeave a comment

The Court of Appeal determined that poor conduct and a failure to accept an earlier Part 36 offer were grounds on which to award indemnity costs in the case of Lejonvarn v Burgess & Anor [2020] EWCA Civ 114.

The appellant had provided some gratuitous help to her former neighbours in re-designing the landscape of their garden. They had a falling out and the respondent neighbours subsequently brought proceedings against the appellant on the basis that she had been negligent and owed them a duty of care. Three weeks after proceedings had commenced, the appellant made a Part 36 offer in the sum of £25,000, but this was not accepted. Although at trial it was found that the appellant had been negligent, the respondents had failed on the substantive issues and the £25,000 offer was not beaten. The respondents lodged an appeal which caused their costs to spiral as they pursued their case against the appellant. The respondents were unsuccessful at the appeal and the appellant was awarded costs on the standard basis.

The appellant then proceeded to challenge the standard costs award decision and appealed on the basis that this was incorrectly ordered and indemnity basis costs should instead have been applied. At the appeal hearing Coulson LJ considered the background and undertook a thorough review of authorities relating to indemnity costs, opining that:

“No later than one month after the handing down of the judgment by the Court of Appeal…the respondents, having had time to consider the implications of the Court of Appeal judgment, should have realised that the remaining claims were so speculative/weak that they were very likely to fail, and should not be pursued any further.”

Coulson LJ further explored the respondents’ unreasonable pursuit of the case to trial, considering it to be:

“An irrational desire for punishment unlinked to the merits of the claims” and “precisely the sort of conduct which the court is likely to conclude is out of the norm”.

It was determined overall that the first appeal trial judge had incorrectly applied the test to determine indemnity costs and indemnity costs were in fact appropriate in these circumstances from a specific point in time.

The judgment in this case may be of assistance should you need to consider conduct and indemnity costs in a situation where a party beats their own Part 36 offer. Bear in mind however that it is nuanced to the specific facts of the case and the CPR is clear that entitlement to indemnity costs in these circumstances is not automatic.

The outcome of this case was also interesting from a costs management angle as Coulson LJ found that costs assessed on an indemnity basis are not constrained by an approved budget. Please see my blog for further detail.

Anna Lockyer is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at anna.lockyer@clarionsolicitors.com and 0113 288 5619, or the Clarion Costs Team on 0113 246 0622

INTEREST IS NOT PAYABLE ON AN ADDITIONAL AMOUNT AWARDED UNDER CPR 36.17(4)(d)

July 10, 2019June 12, 2019 Matthew RoseLeave a comment

Where the Court awards an “additional amount” under CPR 36.17(4)(d) as a claimant / receiving party beating its own Part 36 offer, the additional amount will not attract “enhanced” interest under CPR 36.17(4)(a).

In FZO -v- Adams & Anor [2019] EWHC 1286 (QB) the court allowed an additional amount under CPR 36.17(4)(d), but held that interest under CPR 36.17(4)(a) – enhanced interest at 10% above base rate – was not payable on that amount. Giving judgment, Mrs Justice Cutts found that the construction of CPR 36.17(4)(d) was that the “additional amount” was not a “sum awarded” and that the words “additional” and “amount” mean that the award is in addition to the enhanced interest at CPR 36.17(4)(a).

It should be noted that CPR 36.17(4) states that where the claimant has beaten their own offer the court “…must, unless it considers it unjust to do so, order that the claimant is entitled to…” and thereafter lists the consequences (enhanced interest, additional amount, etc). This does not appear to accord with the judge’s acceptance of the defendant’s submission that the additional amount is not a “sum awarded”. On the construction of CPR 36.17(4) it seems that those consequences are sums awarded by the court, albeit they are sums which the court is bound to award save where it considers it to be unjust.

Notwithstanding, the second strand of the judge’s reasoning appears wholly sound insofar as the “additional amount” is additional to the other consequences and therefore not itself subject to those consequences.

However, practitioners should be aware that this applies only to interest arising under CPR 36.17(4)(a). As the additional amount is a sum which a party is ordered to pay, and (as above) is a sum which the court orders that party to pay, it is a judgment debt and thus interest will, in the author’s opinion, arise under section 17 of the Judgments Act 1838 at the rate of 8% should payment not be made within the prescribed period (14 days pursuant to CPR 40.11 unless otherwise ordered)

Matthew Rose is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact him at matthew.rose@clarionsolicitors.com and 0113 222 3248. You can contact the Clarion Costs Team on 0113 246 0622.

A PART 36 OFFER WHICH EXCLUDES INTEREST MAY BE VALID

June 26, 2019June 28, 2019 Matthew RoseLeave a comment

A Part 36 offer in detailed assessment proceedings may be valid where it excludes interest under the Judgments Act 1838.

In Horne -v- Prescot (No.1) Ltd [2019] EWHC 1322 (QB) the Court held that a Part 36 offer on costs which excludes interest is a valid Part 36 offer, contrary to Ngassa -v- The Home Office [2018] EWHC B21.

CPR 36.5(4) states that a “part 36 offer… [for] a sum of money will be treated as inclusive of all interest…” In Ngassa it was held that therefore an offer which purported to exclude interest was not a valid Part 36 offer and therefore would not attract the consequences of Part 36.

However, in Horne the judge found that in detailed assessment proceedings, interest accruing under section 17 of the Judgments Act 1838 does not form part of the claim for costs, as it is a statutory entitlement in respect of which the Court is not required to make any finding. Therefore, unlike interest which may form a part of substantive proceedings (for example interest under the Late Payment of Commercial Debts (Interest) Act 1988) which forms part of the claim and must be Ordered by the Court, Judgments Act interest does not form a part of the “claim” for costs, and is not required to be ordered by the Court (though it may be disallowed).

Whilst the judgment in Horne is both legally sound and eminently sensible, as CPR 36 was not drafted with detailed assessment proceedings in mind (indeed until 2013 it was not possible to make a Part 36 offer in costs proceedings and is only now applicable due to a modification to Part 47 specifically applying Part 36 to detailed assessment) practitioners should bear in mind that Horne is a first instance decision and a different court on a different day may find differently. It may be prudent for practitioners to continue to include interest in Part 36 offers on costs until further authority clarifies the position. It is however a useful judgment to deploy where there is any dispute as to the validity of an offer.

CONSEQUENCES OF BEATING A PART 36 OFFER: INJUSTICE

June 12, 2019 Matthew RoseLeave a comment

There have been various cases recently on how the courts consider whether it would be “unjust” to apply the consequences of CPR 36.17.

In White -v- Wincott Galliford Limited [2019] EWHC B6 (Costs) it was held that it would be unjust to allow an additional amount (CPR 47.17(4)(d)) for the whole of a claim where the offer had only related to some of the issues.

In Invista Textiles & Anor -v- Adriana Botes & Ors (costs judgment unreported) it was held that there is a high bar to demonstrate injustice. The ratio of the judgment suggests that the amount by which an offer has been beaten is at least not the only criterion which the Court should consider. Where a defendant / paying party seeks to argue that it would be unjust to allow some of all of the consequences of CPR 36.17 claimants / receiving parties would do well to refer to this authority as an example of the threshold for “injustice” which must be met.

It should also be noted that the court has previously held that the amount of the additional amount itself cannot be taken into account when considering whether it would be “just” to award the consequences of Part 36.17 per Cashman -v- Mid Essex Hospital Services NHS Trust [2015] EWHC 1312 (QB). In that case, the court on appeal held that the assessing officer had erred in refusing to award the additional amount “not because he considered the making of such an award unjust, but because he thought it unjust to make an award of the required amount”.

There is currently some inconsistency in the judicial approach to the application of the test of injustice. In the opinion of the author, the test is a high bar (supported by White and Invista) and the mere fact that the additional amount of 10% may appear high does not of itself render the consequence “unjust”. The consequences of CPR 36.17 are intended to be punitive and the purpose of the exception for “injustice” is not to allow judges to “soften the blow” to a litigant which has failed to accept a Part 36 offer, but to avoid genuine injustice where there are “exceptional” circumstances.

Consequences of beating a Part 36 offer may be varied by the Court

March 5, 2019July 17, 2019 Matthew RoseLeave a comment

***THIS JUDGMENT HAS NOW BEEN SUPERSEDED***

Senior Courts Costs Office extends the principle in JLE v Warrington & Hamilton Hospitals NHS Foundation Trust [2018] EWHC B18 (Costs).

In JLE Master McCLoud held that where a Part 36 offer is beaten at a hearing, the Court has the power to consider the justness of each of the consequences of CPR 36.17 individually. In that case, the Court held that whilst it would not be unjust to allow costs on the indemnity basis or interest at the rate of 10% over base rate, it would be unjust to allow the uplift of 10% (often known as the “penalty payment”) given the amount by which the offer was beaten.

Following judgment in Andrews & Anor -v- Retro Computers & Anor [2019] EWHC B2 (Costs), there was a hearing to determine consequential orders on 5th March 2019.

Prior to the Oral Assessment of the Claimants’ costs, the Claimants had made Part 36 offers in the sum of £40,000. The bill of costs was ultimately assessed in the sum of a little more that £43,000 (inclusive of interest). Accordingly the Claimants submitted that they were entitled to the full range of orders under CPR 36.17. After finding that the Claimants should be entitled to additional interest and costs on the indemnity basis, Maser Friston considered whether or not to allow the “penalty payment” of 10% of the amount of the bill as assessed.

The Deputy Master pointed out that the Claimants had beaten the amount of the assessed bill by “only” 7.5%, and therefore considered that the uplift of 10% would be too high and therefore was minded to disallow the uplift under CPR 36.17(4)(d) on the basis that to do so would be unjust.

The Claimants submitted that pursuant to JLE the court had the power to “deconstruct” CPR 36.17 and to consider the unjustness or otherwise of each consequence individually, and that Master McCloud had held that the consequences of CPR 36.17 were not “all or nothing”. Therefore, they argued, that the Court had a general discretion not only to allow or disallow the penalty uplift, but where it considers that an uplift of 10% would be unjust, the Court may reduce the amount of the penalty uplift to a just level. The Court is therefore not constrained to disallow the penalty uplift in full if it considers that 10% is too high.

Following these submissions, Deputy Master Friston allowed an uplift of 7.5%, commensurate with the proportion by which the Claimants had beaten their offer.

Summary

The Court has the power to vary the percentage level of the uplift proscribed at CPR 36.17(4)(d). The proscribed rate is therefore a cap, not an entitlement, but if the Court finds that to allow the entirety of the 10% uplift would be unjust it is not bound to disallow the uplift entirely.

Every case will be decided on its own merits, but it seems reasonable that where a Claimant has beaten its own offer by less than 10%, the uplift should in principle be allowed in proportion to which the offer has been beaten.

The Claimants were represented by Richard Wilcock of Exchange Chambers, assisted by Matthew Rose of Clarion Solicitors.

An Order for a payment on account in Part 36 settlement

January 17, 2019January 17, 2019 annaramliLeave a comment

We found in Culliford & Anor v Thorpe [2018] EWHC 2532 (Ch) that a payment on account can be made by the Court after the judgement has been made and after the Order has been sealed. Previously, it had been widely understood that a Part 36 agreement, as it is a deemed Order for costs under CPR 44.9(b), provides authority for a party to apply for an Order for a payment on account and the Court can make such an Order upon settlement, as obligated pursuant to CPR 44.2(8).

However, in the High Court case of Finnegan v Frank Spiers [2018] EWHC 3064 (Ch ),a successful professional negligence claim from last year, Mr Justice Birss ruled that the Court does not have the power to make an Order for a payment on account where a claim is settled by way of Part 36, as the agreement does not provide authority to do so.

It was considered and argued by the Claimant Counsel that the decision for a payment on account should be based on the authority under CPR 44.9 for a deemed costs Order. The Part 36 agreement is a deemed costs Order and provides authority for costs to be assessed on the standard basis, outlined under CPR 44.3(2) and which Part 36 indicates. Counsel for the Claimant relied on the rule under CPR 44.2(8) – where an order has been made for costs to be assessed by way of detailed assessment, as they would be here, then an order shall be made for a payment on account.

Presiding over the case, Justice Birss ruled that Part 36 was a self-contained code, as is written within the part. He highlighted that it is clearly not entirely complete given the inclusion of the CPR 44.9; however, as it is a self-contained code, it should follow that it should be treated as such. Part 36 contains its own authority for the consequence of costs following settlement, and as such, there is no reason that CPR 44.2(8) should be followed when looking at whether to make an order for a payment on account. Justice Birss stated that much of CPR 44.2 is not applicable to Part 36 settlement and therefore one could not correctly apply CPR 44.2(8) to the rule. This is because the place for any authority for making a payment on account following Part 36 should be within the Part itself, from which it is absent. Furthermore, the Defendant Counsel argued that CPR 44.9 is in place in order to trigger the detailed assessment proceedings; however, it does not include any other provision of Part 44.2 when triggering the process, therefore highlighting that it should be no different when dealing with Part 36. Justice Birss dismissed the Claimant’s appeal.

The ruling has caused much debate, and was a topic of discussion at the annual Association of Costs Lawyers Conference, in which even the Counsel for the Defendant, Mr Rupert Cohen, agreed with costs judges that perhaps the decision went the wrong way. I am sure that it will not be the last time we see argument over this point and will discuss further any decisions that arise on this blog.

The effect of Payments on Account on Part 36 and Judgment

January 4, 2019 Matthew RoseLeave a comment

The case of Gamal -v- Synergy Lifestyle [2018] EWCA Civ 210 has reinforced the position that a payment on account does not “increase” the value of a paying party’s Part 36 offer when considering whether the offer has been “beaten” for the purpose of CPR 36.17.

Case Summary

The original action between Synergy Lifestyle (the Claimant / Respondent), and Ms Nivin Gamal (the Defendant / Appellant) related to a claim for unpaid invoices. For ease of reading, the parties are referred to throughout as the Claimant and Defendant respectively. There were various issues relating to the fraudulent nature of the invoices, applicability of VAT, payment or a carpet in October 2013, and the level of costs payable as a result, however these have been omitted for the sake of simplicity and ease of reading.

29 October 2013 – Defendant paid the Respondent £6,600

October 2014 – Claim issued for £151,000

24 August 2015 – Defendant’s CPR 36 offer of £15,000

8 February 2016 – Defendant pays £10,000 to the Claimant

10 May 2016 – Judgment for the Claimant in the sum of £14,275.49 (assessed at £30,275.49 less £16,600 already paid by the Defendant in respect of that work) and the Defendant pay the Claimant’s costs.

The Defendant appealed on the basis that she had beaten the CPR 36 offer of £15,000 and that the judge had failed to properly apply CPR 36.17.

Judgment on Appeal

Giving Judgment, Flaux LJ placed great reliance upon the earlier authority of MacLeish -v- Littlestone [2016] EWCA Civ 127. In that case, Briggs LJ had held that a Part 36 offer was made to settle the entirety of the claim, and that admissions made by a defendant do not have the effect of modifying the Part 36 offer such that it applied only to those parts of the claim which remained in dispute (i.e. a Part 36 offer made in respect of the whole of the claim relates to the whole of the claim, whether or not part of that claim is subsequently admitted).

In Gamal, the court extended this principle to apply not only where a payment had been made following admissions but to any payment on account whether or not an admission had been made. The effect of the payment on account was to reduce the amount which the Defendant could ultimately be ordered to pay, and therefore to a corresponding reduction to the Part 36 offer. As such, the Court dismissed the appeal, held that the Part 36 offer had not been beaten, and upheld the award of costs.

Summary

In summary, the judgment reinforces what many would consider to be the “common sense” position. A payment on account is just that; a payment in anticipation of a future liability. It therefore does not have the effect of making a defendant’s offer more attractive or a claimant’s offer less attractive.

The discussion regarding a “reduction” to the Part 36 offer in the judgment may be somewhat confusing, however this is simply because there are two ways of looking at the issue:-

1. The court gave judgment for £23,675.49[1], distinct from the balance of £14,275.49 payable once credit was given for the payments applicable payments on account (i.e. those made after the date of the offer). Looked at in this way, the Defendant had obviously not beaten her own offer.

2. The court gave judgment for £14,275.49 (as a result of the payments on account), however just as the payment on account reduced the judgment sum, it also reduced the level of the Defendant’s Part 36 offer (i.e. the offer of £15,000 became £5,000 once the payment on account was applied). This is the approach the court adopted.

Both of the approaches above arrive at the same conclusion though by different methods.

All practitioners should note that whether a payment is “on account” is open to judicial interpretation however the general presumption is that payments made during the currency of a claim are payments on account unless specifically stated otherwise.

Matthew Rose is a Solicitor and Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact him on 0113 222 3248 or by email at matthew.rose@clarionsolicitors.com.

[1] In fact, the court assessed the value of the work at £30,275.49, which was necessary as the Claimant admitted that the invoices it had submitted were part of a fraud between it and the Defendant. However, the Claimant had already paid £6,600 towards this work in satisfaction of invoices prior to the commencement of proceedings. Therefore, the total value of the work done was found to be £30,275.49 but the total value of the claim against the Defendant was £23,675.49.