FUNDAMENTAL DISHONESTY – YOU HAVE BEEN WARNED (HOPEFULLY)
I recently represented a claimant at trial in relation to a personal injury claim arising out of a road traffic accident.The def...
In Ballard v Sussex Partnership NHS Foundation Trust  EWHC 370 (QB) Mr Justice Foskett had to consider the issue of what costs consequences, if any, should follow from the claimant’s failure to beat a Part 36 offer which had been withdrawn, the defendant having gone on to make a second, lower, offer.
The judge overturned the first instance decision that the claimant should be liable for the defendant’s costs from the date of the expiry of the first offer. The precise terms and wording of the defendant’s second offer were important and the trial judge had misdirected himself in failing to pay them sufficient regard.
Although the outcome was favourable to the claimant, the case remains an important reminder to litigants that even once a Part 36 offer has been withdrawn, it might still give rise to costs consequences.
The full judgment is available at http://www.bailii.org/ew/cases/EWHC/QB/2018/370.html
(i) The claimant sought damages from the defendant for personal injury sustained in the course of her employment. The defendant admitted liability.
(ii) The defendant made a Part 36 offer in the sum of £50,000 dated 25th January 2016.
(iii) The offer of £50,000 was not accepted and was withdrawn by the defendant on 8th February 2017.
(iv) On the same date, the defendant made a revised Part 36 offer in the sum of £30,000.
(v) At trial, on 2nd and 3rd March 2017, the Claimant recovered damages in the sum of £23,315.13.
There was no dispute that the claimant should be liable for the defendant’s costs following the expiry of the February 2017 offer (essentially, the costs of the trial). However, at first instance, the judge ordered the claimant pay the defendant’s costs from the expiry of the January 2016 offer until the commencement of the trial.
The “Second Offer”
The court considered the specific wording of the defendant’s second offer (bold type – my emphasis), which the judge at first instance found to be of no relevance:
10. Two letters from Kennedys dated 8 February 2017 were sent by fax and electronically to the Claimant's solicitors. The first referred to the first offer and said that Kennedys had "instructions to withdraw the offer" and also said that they had "instructions to reject your client's Part 36 offer of £72,000 net." The second letter (which contained "the second offer") was in these terms:
"We write further to our [other] letter today and hereby given the Claimant notice that the Defendant offers to pay compensation as set out in this letter in settlement of the whole of her claim. This is a Part 36 Offer and all previous offers in this matter are withdrawn. This offer is intended to have the consequences of Part 36. The Defendant's offer is open for acceptance for 21 days from the date you are served with this letter, which we calculate to be until 4.00pm on 01.03.17. This offer can only be withdrawn or altered to be less advantageous to the Claimant before 01.03.17 with the permission of the Court.
The offer is gross of CRU benefits. The date for payment for the purpose of Section 9(1)(b) of the Social Security (Recovery of Benefits) Act (the 1997 Act) is the date of this offer. The CRU Certificate is valid until 15.02.17 and shows £819.43 payable in respect of Employment and Support Allowance. We enclose copy Certificate.
The gross amount of compensation that the Defendant offers to pay is £30,000. It includes all interest accruing up to 01.03.17, CRU benefits (£819.43) and interim payment (£nil).
If the Claimant accepts the Defendant's offer by 01.03.17, the Defendant will:
1. Pay the net amount of £29,180.57 within 14 days of the date of acceptance or (in cases requiring an order for payment) the date of the order for payment;
2. Pay to the Department of Works & Pensions ("the DWP") recoverable benefits (if any), including deductible benefits (if any), paid to the Claimant up to the date of this offer; and
3. Pay the Claimant's reasonable costs up until 01.03.17 or the date of acceptance of the Defendant's offer, whichever is the earlier, such costs to be agreed or assessed on the standard basis in accordance with CPR Part 36.10. In addition, if approval is required by the Civil Procedure Rules, the Defendant will pay the Claimant's reasonable costs of obtaining approval of the settlement.
For the avoidance of doubt, if the Claimant fails to obtain a Judgment more advantageous than the offer made in this letter then the Defendant will seek an Order that the Claimant should pay both Parties' costs from 01.03.17."
The claimant appealed the original judgment on the basis that any costs offer against her should only have run from the date of the expiry of the second offer. The appeal was allowed.
12. It follows from the result recorded above (see paragraph 4) that the Claimant failed to beat the extant Part 36 offer (namely, the second offer) made by the Defendant. She also fell far short of beating the first offer which, of course, had been withdrawn in the circumstances referred to above.
13. It was not in issue that the Claimant would have to pay the Defendant's costs after 1 March – in other words, the costs of the trial – nor was it in issue that the Claimant was entitled to her costs up until the expiry of the first offer. The issue was who should be responsible for the costs between the expiry of the first offer and the commencement of the trial. The Defendant argued that, although it was withdrawn on 8 February 2017, the court was entitled to take into account the existence of the first offer which, if accepted, would have saved the costs on both sides from 16 February 2016. The Claimant, through Mr Heap, argued that the terms of the second offer made it clear that "[for] the avoidance of doubt", if she failed to obtain a judgment that was more advantageous than the offer made in the letter, then the only adverse consequence would be that the Defendant would seek an order that she should pay both parties' costs from 1 March 2017. The letter was silent about the costs from 16 February 2016 and the letter, reasonably interpreted, meant that her costs until the expiry of the second offer would be met even if she failed to better the offer.
14. The Judge heard argument on the issue from Mr Heap and Mr Loxton during a telephone hearing and he gave an ex tempore ruling. His conclusion was summarised in the final paragraph of the transcript of the ruling as follows:
"I cannot see the second offer has any relevance. The withdrawal of the first offer is relevant only to the extent that the automatic provisions of Part 36 no longer apply but, if an offer had been made without prejudice save as to costs which was not expected to be Part 36 and had been made for example before the proceedings had been issued, then that would be an important factor that the Court could take into account. In my judgment, although tactically the Claimant may well have been right not to accept the original offer and to hold out for more, that tactic unfortunately, with the benefit of hindsight, has not succeeded and the consequences, in my judgment, must follow. In my judgement the correct exercise of my discretion is to award the Defendant the costs from the date that the original Part 36 offer expired, which I think is the 16th February 2016 and the Claimant to have her costs up until that time or whatever the appropriate period is."
15. Mr Heap contends that the Judge misled himself by saying that the second offer had no relevance. Mr Loxton has sought to argue that "it is clear that what he was saying was not that the [second offer] was completely irrelevant, only that it was an irrelevant factor in deciding whether to exercise his discretion to award the [Defendant] its costs from 16 February 2016 to 1 March 2017." He submits that it is clear from the foregoing paragraph of the transcript that the Judge "weighed up the [second offer], in the sense that he did not ignore it, but considered that it had carried no weight in the balancing act of deciding what costs order to make."
16. Whilst it could be said that the distinction between saying that the second offer was "irrelevant" and the way Mr Loxton seeks to characterise the Judge's decision is merely a matter of emphasis, I do not consider that the interpretation of the passage in the ruling for which Mr Loxton contends is correct. It would require a re-writing of the Judge's words. The Judge said unequivocally that he did not see that the second offer had any relevance and this reflects a provisional view he had expressed during the argument that he did not "quite see what the [second offer] adds to the equation."
17. The first issue is whether he was right so to regard it. If he was wrong, then it would mean that he ignored a potentially relevant factor and that would require the setting aside of the exercise of his discretion and the substitution of the view of this court.
18. In relation to the question of whether the second offer was relevant, I am assuming that it was drawn to the Judge's attention by the Defendant to demonstrate that there was an unwithdrawn Part 36 offer that the Claimant had failed to beat. Strictly speaking, it was not for the Claimant to draw it to the attention of the court because the "without prejudice" privilege was that of the offeror, namely, the Defendant. However, once it had been deployed by the Defendant, it was, of course, available for comment by the Claimant.
19. Since it was drawn to the attention of the Judge, I do not see how it could be regarded as irrelevant. It had the effect of the more or less automatic right of the Defendant to its costs of the trial: CPR 36.17(3)(a). Whatever the relevance of the first offer, it could not have that effect: CPR 36.17(7)(a).
20. The potential relevance of the first offer is derived from Part 44.2(4)(c) which provides as follows:
"(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including –
(c) any payment into court or 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."
21. In Fox v Foundation Piling Ltd  EWCA Civ 790, Jackson LJ, with whom Ward and Moore-Bick LJJ agreed, said two things of relevance to the current issue at  and  respectively:
(1) "Pankhurst v White …was a personal injuries action in which MacDuff J held that the claimant's Part 36 offer retained its potency under Part 36 despite having been withdrawn. The case went to the Court of Appeal, but not on that issue. There were special features in Pankhurst and also that case was governed by the old version of Part 36 before the April 2007 amendments. In my view, Pankhurst is not authority for the proposition that a party which withdraws its Part 36 offer under what is now rule 36.3 (6) can reap the benefits of rule 36.14." 
(2) "A Part 36 offer which is subsequently withdrawn ceases to attract the consequences set out in rule 36.14. Such an offer then constitutes an "admissible offer to settle" within rule 44.3 (4)(c)." 
22. My attention has been drawn to a decision of His Honour Judge Hacon in Uwug Ltd & Anor v Ball  EWHC 74 (IPEC) where he said, relying on CPR 44.2(4)(c), that "the usual consequences of a claimant failing to obtain a judgment more advantageous than the defendant's Part 36 offer do not apply where the offer has been withdrawn … [but] it does not follow that [the defendant's] first Part 36 offer [should be treated] as if it never happened." That first offer had been withdrawn.
23. There is, therefore, a tension between the proposition that an offeror who withdraws a Part 36 offer cannot "reap the benefits" of what is now r.36.17 (and thus, in the present situation, result in the almost inevitable result that all the costs incurred after the expiry of the offer should be paid by the Claimant) and the proposition that such an offer is still "relevant" on the issue of costs.
24. Given what was said in Fox v Foundation Piling Ltd, the Judge (rightly) accepted that the first offer was potentially relevant on the issue of costs. In the paragraph of his ruling immediately before the paragraph quoted in paragraph 14 above, his thinking is revealed as follows:
"The first Part 36 offer is an offer which falls within [CPR r.44.2(4)(c)] and therefore Mr Loxton asks the Court to make an order reflecting that. Mr Heap opposes it on the grounds … that by withdrawing the original offer, and offering a less advantageous offer, somehow or other it would be unjust for the Court to exercise its discretion as Mr Loxton seeks. I simply cannot understand that argument. In my judgment the Claimant received a generous offer of £50,000 and that offer was on the table and could have been accepted for nearly a year with the costs consequences of Part 36. That it was not is not the Defendant's fault and is a factor that the Court ought to pay strong regard to."
25. Having reviewed the transcript of the telephone call, it is clear that Mr Heap was, as part of his submissions, suggesting that the Defendant was putting the Claimant under unjustifiable pressure shortly before the trial for tactical reasons and that it would be unfair for the Claimant to be held liable for the costs from 16 February 2016. That appears to be the point upon which the Judge was focusing. However, Mr Heap did also say on two occasions during his submissions that the terms of the second offer (which was the only extant Part 36 offer) were such that the Claimant and her advisers were led to believe that if she failed to beat the offer, the only adverse consequence was that she would be liable for the costs after 21 days from the date of the letter – in other words, the costs of the trial. He submitted that this is what the second offer said.
26. He did not refer specifically to the final paragraph of the letter beginning with the words "for the avoidance of doubt", but that would plainly have been before the Judge for the Judge to read.
27. Mr Heap's argument before me was that whatever might have been in doubt about the impact or otherwise of the first offer after it had been withdrawn, it was resolved by the final paragraph of the letter. Not merely was the consequence that the Claimant would ordinarily be responsible for the costs after 21 days if she failed to better the offer pursuant to r. 36.17, but that was made crystal clear in the letter. The letter did not go on to say "and in that situation we will also be inviting the court to order the Claimant to pay the Defendant's costs from 16 February 2016" or words to that effect.
28. Mr Loxton submitted that the effect of this submission was effectively to be setting up some kind of estoppel and that it was necessary for the Claimant to demonstrate some detriment in reliance upon the statement in the letter. I do not, with respect, think there is anything in that point. A party is entitled to take the terms of an offer from a reputable and experienced firm such as Kennedys at face value, certainly in an area (such as clinical negligence) where it has considerable expertise. I do not know whether the argument that found favour with the Judge was the product of an afterthought or whether it had always been the intention to mount such an argument if the Claimant failed to beat the second offer. However, I do not consider that it is fair to the Claimant to send a detailed letter to her solicitors, apparently spelling out the consequences of failing to beat the Part 36 offer and then to argue that something different was intended, particularly where, as here, the consequence of the additional argument would probably diminish the Claimant's net return from the litigation very considerably.
29. The Judge was obviously very heavily influenced by the fact that the Claimant could have saved a great deal of expense by accepting the first offer. It is undoubtedly true that such expense would have been saved, but I do not consider it was right to regard the second offer as "irrelevant" with the consequence, if the judge so treated it, that the precise terms of the offer were also regarded as irrelevant. In my judgment, the Defendant cannot escape from the precise terms of the final paragraph of the second offer and as a result it is really the first offer that becomes irrelevant.
30. Whilst I differ from an experienced Judge in this field with some hesitation, I am satisfied that he misdirected himself about the relevance of the second offer and that, accordingly, he paid less attention to its precise terms than should have been paid.
31. The appeal will, therefore, be allowed and the Claimant will be entitled to her costs up to and including 1 March 2017, but that she should pay the Defendant's costs of the trial.
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