England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		09 October 2012

SIR RAYMOND JACK:

1. On 22 May 2009 a road accident occurred when the defendant turned across the path of the claimant's motorcycle. The claimant suffered severe injuries. An order was made that liability for the accident should be tried before issues as to damages. On 27 July 2012 I handed down my judgment holding that the accident was caused by the negligence of the defendant and that it was not contributed to by the fault of the claimant. It had been thought that an order could be agreed as to the consequences of the judgment, but the parties were unable to agree on the amount of the payment to be made on account of costs. The defendant therefore took the position that Rule 36.13(2) of the CPR had the effect that the court should not make any order as to costs until the whole case had been decided. At the conclusion of argument following the handing down as to whether I should make an order for costs I stated that I had concluded that I should not. I said that I would give my reasons subsequently, which I do now.
2. Part 36 of the CPR is headed 'Offers to settle', and Rule 36.13 is headed 'Restriction on disclosure of a Part 36 offer'. Rule 36.13 provides:

"(1) A Part 36 offer will be treated as 'without prejudice except as to costs'.

(2) The fact that a Part 36 offer has been made must not be communicated to the trial judge or to the judge (if any) allocated in advance to conduct the trial until the case has been decided.

(3) Paragraph (2) does not apply –

(a) where the defence of tender before claim has been raised;

(b) where proceedings have been stayed under rule 36.11 following acceptance of a Part 36 offer; or

(c) where the offeror and the offeree agree in writing that it should not apply."

3. It was submitted for the defendant in written submissions as supplemented orally that in a situation arising from a split trial such as the present situation, if there was no Part 36 offer, the court might be told that there was no Part 36 offer (and the court could then go on to consider costs), but that where there was an issue as to Part 36 the court could not be told whether there was a Part 36 offer (and the court was therefore unable to consider costs). It was submitted for the claimant that the words in Rule 36.13(2) 'until the case has been decided' should be construed to include the situation where the first part of a split trial had been concluded, and so the court here should consider the position as to costs. It was nonetheless accepted on behalf of the claimant that, in accordance with the decision of the Court of Appeal in HSS – to which I will come, where there was an offer to settle the whole case the court must wait until the final outcome to see how the outcome compared with the offer before dealing with costs.
4. The present Part 36 came into effect on 6 April 2007. I will refer to Part 36 as it stood prior to that date 'the previous rules'. The most important change was probably the abolition of payments into court. The previous rules provided that offers made in accordance with their requirements should be called either Part 36 payments or Part 36 offers: Rule 36.2(1). An offer to settle a money claim had to be made by way of payment into court if it was to be within the previous rules: Rule 36(3)(1). A Part 36 offer might relate to a whole claim or to part of it or to any issue that arises in it, and might be limited to accepting liability up to a specified proportion (which would include an issue as to contributory negligence): Rule 36.5(2) and (4). Rule 36.19 was headed 'Restriction on disclosure of a Part 36 offer or a Part 36 payment'. It was follows:

" 36.19

(1) A Part 36 offer will be treated as "without prejudice except as to costs".

(2) The fact that a Part 36 payment has been made shall not be communicated to the trial judge until all questions of liability and the amount of money to be awarded have been decided.

(3) Paragraph (2) does not apply –

(a) where the defence of tender before claim has been raised;

(b) where the proceedings have been stayed under Rule 36.15 following acceptance of a Part 36 offer or Part 36 payment; or

(c) where –

(i) the issue of liability has been determined before any assessment of the money claimed; and

(ii) the fact that there has or has not been a Part 36 payment may be relevant to the question of the costs of the issue of liability."

5. The Court of Appeal considered the effect of the previous Rule 36.19 in HSS Hire Services Group plc v BMB Builders Merchants Ltd [2005] EWCA Civ 626, [2005] 1 WLR 3158. The case concerned a licence agreement which the claimant licensee alleged had been repudiated by the defendant licensor. The claimant succeeded at the trial of liability. The defendant had made a payment into court. The judge was told of the payment but not of the amount. He ordered the defendant to pay the costs of the liability trial because they had spent money on the issue and had won. In giving a judgment with which the other members of the court agreed Waller LJ stated:

"28. In defending the judge's approach and in answer to the question as to what apart from paying into court the defendants could do to protect themselves against an order for costs on the liability issue, Mr Dunning QC robustly argued, it was open to them to concede liability, and if they chose not to do so then liability for costs followed if they lost the issue. If that approach is right it seems to discourage the arguing of preliminary points.

29. The contrary approach is that parties should be encouraged to make Part 36 payments in and/or offers; they should also be encouraged to try preliminary points if that could lead to the saving of costs overall. If payments in are to be totally ignored at the conclusion of the trial of a preliminary issue, that will discourage applying for the trial of the same, and may even discourage Part 36 offers where preliminary issues have been ordered. The proper approach at the conclusion of a trial of a preliminary issue where there has been a Part 36 payment in or a Part 36 offer, should therefore normally be to adjourn the question of costs pending the resolution of all the issues including damages, at which stage the quantum of the Part 36 offer can be revealed and the discretion in relation to costs exercised in the knowledge of it.

30. I have no doubt that the provisions of Part 36 and of Part 44 encourage the latter approach. Mr Dunning strove manfully to argue that the provisions allowed the judge to take the view he did. He argued (1) even where there had been a payment in, there was no rule which expressly prevented the judge dealing with the costs of the trial of the issue of liability or which required him to reserve the question of costs until after the issue of damages had been resolved; (2) the modern approach was to encourage stage based orders; (3) it was the defendants who wanted a split trial and the claimants resisted it; (4) the defendants could have admitted liability but chose to fight it; (5) the claimants were entirely successful; (6) it was a case where the dispute was about what was said, and the evidence of HSS had been entirely accepted, and the witnesses of the defendants had been severely criticised  – Mr Harrison was described as "disingenuous" and Mr Sowton as "totally unreliable", and reference was made to CPR 44.3 (4) under which it was material to take into account the conduct of the parties; (7) it is the judge who has heard the issue who is based placed to deal with the costs. Thus he argued that the judge having been correctly informed of the fact that there had been a payment in as he was entitled to be under CPR 36.19 (3)(c) , was equally entitled to hold that it was immaterial.

31. CPR 36.19 is an important provision and some time was spent debating precisely what it meant. It provides as follows:-

..........

33. The following points need consideration. Why is it provided that the fact that there has been a Part 36 payment is something that 36.19(3)(c) allows to be revealed to the trial judge where the issue of liability has been determined before the assessment of the money claimed? Why does (c)(ii) contemplate both that the fact that a payment has been made or the fact that one has not been made may be relevant to costs? Is what is contemplated as being disclosable to the trial judge simply the fact of payment in or would it be proper to disclose the actual amount? How does the provision fit with the obligation (the word in CPR 44.3 (4) is "must") to take into account any payment into court or an admissible offer to settle?

34. At one moment it was being suggested in argument that at the end of a trial on liability it would be appropriate under Part 36.19(3)(c) to disclose both the fact of a payment in and the quantum thereof so that a judge could exercise his discretion in relation to the award of costs on the preliminary issue taking the view, for example, that the amount paid in was on any view too low. In that way it could be argued he could properly fulfil his obligation under 44.3(4) at that stage. Indeed Mr Dunning went so far as to offer to show us the terms of the payment in so that if we took the view the judge had erred we could exercise the discretion afresh.

35. In my view Part 36.19 does not allow for the disclosure of the amount of a payment in. On its language it allows simply the disclosure of the fact that there has been one or the fact that there has not. The consequences of that being the correct interpretation of Part 36.19 seem to me to be as follows. If the court is told that there has been no payment in, then the court is free to exercise its discretion to award costs in relation to the preliminary issue and there is no difficulty with Part 44.3(4)(c). If however it is told that there has been a payment in, then, in any but perhaps the most exceptional case, I find it very difficult to think that there could be circumstances where if the issue of damages remains to be decided, the judge can do otherwise than to reserve the question of costs until after the determination of that issue.

36. The points that Mr Dunning makes, for example in relation to the conduct of the witnesses, can be made at the later stage but until the court knows how generous or otherwise the payment in was, it would not, as I see it, normally be fair to exercise a discretion in relation to costs. In any event because the court was not allowed to know the quantum, it could not act as required under Part 44.3(4), at that stage.

37. In my view, accordingly, the judge was not entitled to deal with costs in the way he did. He should have reserved the same, pending determination of quantum, and his order should be reversed to reflect that finding."

6. This was a case where there had been a payment into court. Until it was known how the payment compared with the final judgment no decision as to costs could be made. It was important for the court to know that there had been a payment into court because it would then know that no order as to costs should be made at that stage. Equally it would be important for a court to know that no payment in had been made because then it could exercise its discretion as to the costs of the liability trial in that knowledge. I should proceed on the basis that when the present Rule 36.13 was formulated the Civil Procedure Rule Committee had the decision in HSS in mind.
7. The differences between the present rule 36.13 and the previous rule 36.19 are as follows:

i) The present Rule 36.13(2) covers all types of Part 36 offer, whether of money to settle a money claim or not. The previous Rule 36.19(2) only applied to Part 36 payments, i.e. payments into court. It did not apply to offers related to issues such as contributory negligence. So, if HSS had been a case involving contributory negligence and if an offer to accept a particular percentage had been made, the previous rule would have been no bar to the court being told about it when the issue of the costs of the liability trial arose. The court could then have dealt with costs provided that there was not also a payment into court. In paragraph 29 of his judgment in HSS Waller LJ set out what he called 'the contrary approach' which he stated, in paragraph 30, Parts 36 and 44 encouraged. He stated as part of paragraph 29:

"The proper approach at the conclusion of a trial of a preliminary issue where there has been a Part 36 payment in or a Part 36 offer, should therefore normally be to adjourn the question of costs pending the resolution of all issues including damages, at which stage the quantum of the Part 36 offer can be revealed and the discretion in relation to costs exercised in the knowledge of it."

It might be questioned whether he there had in mind the situation where the sole offer was as to contributory negligence.

ii) The reference to 'the judge (if any) allocated in advance to conduct the trial' has been added. This may be intended to protect, in particular, the position of designated judges in civil trial centres. But that is simply a surmise.

iii) The words 'until all questions of liability and the amount of money to be awarded have been decided' have been replaced by the words 'until the case has been decided'. Prima facie this is simply a shorter way of saying the same thing. However a change was required because the present rule applies to all types of offer and any type of claim whereas the previous rule applied only where there had been a payment into court against a money claim and the previous wording was appropriate to that. I will return to the claimant's submission as to the meaning to be given to the present wording.

iv) The exception formerly provided by Rule 36.19(3)(c) has gone. This must be because the Rule Committee took the view that it was unnecessary and inappropriate. The Committee thus thought that in all situations save those covered by Rule 36.13(a), (b) or (c) a trial judge should not be informed of Part 36 offers 'until the case has been decided'.

v) Rule 36.13(3)(c) is new, and enables the parties to agree to disapply rule 36.13(2) with the formality of writing.

8. I was referred to two cases in which the present Rule 36.13 was considered.
9. The claim in AB v CD [2011] EWHC 602 was for the infringement of a patent. There had been a split trial with liability being tried first. In the course of his judgment Henderson J stated:

"13. Where there is a split trial (which I understand to be the usual practice in intellectual property cases where infringement is alleged) the question arises whether disclosure of (a) the existence, and (b) the terms, of any Part 36 offer should be made to the court after it has ruled on liability in favour of the claimant, with the consequence that a further trial on quantum will take place (unless, of course, the parties are able to settle the issue of quantum in the meantime, which I believe to be in practice the most usual outcome).

14. A literal reading of CPR Rule 36.13(2) would suggest that even the existence of a Part 36 offer must not be communicated to the trial judge until the second stage of the case has been decided, subject only to the three exceptions contained in paragraph (3), of which the only material one for present purposes is "where the offeror and the offeree agree in writing that it should not apply". That this is indeed the correct construction of the rule appears to be confirmed by contrasting it with the previous version of the rule, which dealt expressly with the case of a split trial and permitted disclosure of the fact (but not the terms) of a Part 36 offer where the issue of liability had been determined on a split trial and where the existence of the offer might be relevant to the costs of that issue."

10. Henderson J then set out the previous Rule 36.19. He also quoted paragraph 35 of the judgment of Waller LJ in HSS. He continued:

"15. It is also relevant to note that the prohibition on disclosure in Rule 36.19(2) was directory, not compulsory, with the result that upon breach the court had a discretion whether to continue to hear the case: see Garratt v Saxby [2004] EWCA Civ 341, [2004] 1 WLR 2152, at paragraphs [15] to [20]. I have no doubt that the same principles would apply to a breach of the prohibition now contained in Rule 36.13(2).

17. It is easy to understand why the old Rule 36.19(2) and (3) had to be recast when the 2007 amendments to Part 36 were introduced, because those paragraphs applied only to Part 36 payments which were abolished. Thereafter the single concept of a Part 36 offer included monetary as well as non-monetary offers to settle. However, it is less easy to understand why the express provision relating to split trials was removed, and no explanation is offered by the editors of the White Book in the notes to the 2010 edition at paragraph 36.13.1 (volume I, page 1047). The notes merely say this:

'The position where there has been a split trial is not specifically addressed as it was under the forerunner of this provision … and absent agreement under the present r.36.13(3)(c) a strictly literal interpretation of the phrase "until the case has been decided" would result in an embargo which might well result in the court being denied information material to deciding what order as to costs if any was appropriate at the split trial stage.'

18. It seems to me that there is a real problem here. If the existence of a Part 36 offer cannot be disclosed, except where the parties agree, until the conclusion of the second stage of a split trial, such agreement is unlikely to be forthcoming in any case where the disclosure might prejudice the position on costs of either the offeror or the offeree at the conclusion of the liability stage. It would seem to follow that in nearly all split trial cases where a Part 36 offer has been made all questions of costs would have to be reserved to the conclusion of the second stage, because it will be in the interests of at least one party to refuse consent to its disclosure at the liability stage. But it will often be desirable in principle, and in the wider interests of justice, for the costs of the liability hearing to be dealt with at its conclusion. Very substantial costs may well have been incurred, it will probably be clear that one party has succeeded, and the general philosophy of the CPR is to encourage the determination and payment of costs on a "pay as you go" basis. Furthermore, the Part 36 offer may relate only to the costs of the liability stage; and even if it does not, it is relatively uncommon for trials on quantum to proceed to a hearing. Why, then, should the court be compelled to deal with the costs of the liability hearing in ignorance of the fact that a Part 36 offer has been made, and in ignorance of the terms of the offer, unless the relevant parties all agree? Further, if the court is asked to reserve the costs, it will almost inevitably conclude that the reason for the request is the existence of a relevant Part 36 offer, thereby undermining the apparent policy of Rule 36.13(2).

19. In the present case I fortunately do not have to resolve these questions, because each side wishes me to look at its own Part 36 offer at this stage. They have therefore agreed that I should do so, and that if the case progresses to a trial on quantum the trial judge should be someone other than me.

20. Since it is unnecessary for me to resolve the problems to which I have drawn attention, and since I have not heard full argument on them, I think it would be unwise for me to say much more about them. I will merely hazard the suggestion (perhaps foreshadowed in the notes in the White Book) that a possible solution might be to focus on the words "until the case has been decided" in Rule 36.13(2), which are much less specific than the wording of the old Rule 36.19(2) ("until all questions of liability and the amount of money to be awarded have been decided"). It may be that in appropriate circumstances the new wording should be construed as referring to the conclusion of the first part of a split trial. But even then the difficulty would remain that the court may only be told about the existence of the Part 36 offer, so the question of costs would in practice still have to be reserved for the reasons given by the Court of Appeal in the HSS Group case.

11. The second case is Ted Baker plc v Axa Insurance UK plc 2012] EWHC 1779. Here Eder J. had determined a number of preliminary issues in favour of the claimants. There were outstanding issues relating to liability. In the course of his judgment dealing with whether he should make an order for costs at this point in favour of the claimant he said:

16. As to the scope and effect of CPR Part 36.13 it seems to me that two points are relatively clear. First, the prohibition in CPR Part 31.13 (2) applies only to a Part 36 offer. I t follows that an offer which is not a Part 36 offer is not caught by the prohibition. I did not understand the parties to suggest otherwise although I should mention that there was some debate during the hearing whether a party who had made an offer of settlement "without prejudice save as to costs" which was not a CPR Part 36 offer could at any stage unilaterally waive the privilege that would ordinarily attach to such offer and voluntarily communicate both the fact and terms of such offer to the court. In principle, I see no reason why that should not be so. However, it is unnecessary to resolve that debate in the present case because it was not suggested by either the defendants or the claimants that any offer that might have been made was of such a type.

17. Second, although CPR Part 36.13 (2) prohibits the fact of any CPR Part 36 offer being communicated to the court in the circumstances there specified, it does not on its language appear to prohibit the fact that a CPR Part 36 offer has not been made being communicated to the court. Again, I did not understand the parties to suggest otherwise although this may seem somewhat odd if only because if that is right and the court is not told that a CPR Part 36 has not been made then the inference would seem to be that a CPR Part 36 offer must have been made; and this would appear to undermine the prohibition in CPR Part 36.13. Be that as it may, Mr Cogley QC informed the court (without objection from Mr Nicholson QC) that the court could and should proceed on the basis that no CPR Part 36 offer has been made specifically in relation to the preliminary issues.

18. In any event, I am still ignorant as to whether any more general CPR Part 36 offer has been made. What is the proper approach in such circumstances?

19. It seems to me (as it did to Henderson J. in AB v CD) that there is a "real problem" here. In my view, there is an urgent need for CPR 36.13 to be reviewed and possibly reformulated in order to deal in particular with the question of "split trials" and the kind of difficulties which have arisen in the present case. However, in the meantime I have to grapple with the rule in its present form. The view tentatively expressed by Henderson J. was that in appropriate circumstances the new wording should be construed as referring to the conclusion of the first part of a split trial so that once that part has ended, it would be permissible to communicate the fact of any Part 36 offer to the court. That interpretation of CPR Part 36.13 (2) has obvious attractions and one which is, I suppose, an interpretation consistent, or at least more consistent, with the overriding objective.

20. Such an approach was urged by Mr Nicholson QC. In particular, he submitted that it cannot have been the intention of the Rules Committee when recasting the old Rule 36.19 to narrow the circumstances in which the fact of a CPR Part 36 offer has been made; and indeed it was his submission that the intention was to the contrary i.e. to widen such circumstances. Thus, Mr Nicholson QC submitted that in a case such as the present i.e. when the court determines only some preliminary issues and the issue of liability generally is yet to be determined, the fact of any CPR Part 36 offer could not have been communicated to the court under the former Rule 36.19 because none of the exceptions in the then subparagraph 3 (c) would apply. In particular, subparagraph 3(c)(i) on its face only applied when the "issue of liability" had been determined and ex hypothesi such liability has not yet been determined.

21. Mr Nicholson QC submitted that one of the reasons for the change of wording in the new CPR Part 36.13 must have been to deal with that situation and, in effect, to permit the fact of any CPR Part 36 offer to be communicated to the court after the determination of some preliminary issues but before the determination of liability generally. In particular, he submitted that the words "until the case has been decided" in the present CPR Part 36.13(2) are different from and much less specific than the wording of the old Rule 36.19(2) ("until all questions of liability and the amount of money to be awarded have been decided") – a point which obviously impressed Henderson J. However, for my part, it seems to me that the interpretation which Henderson J. tentatively suggested and urged here by Mr Nicholson would stretch the present wording beyond its proper limit.

22. In the event, it seems to me unnecessary to decide this issue i.e. the scope and effect of CPR Part 36.13 (2) and I propose to proceed on the assumption in favour of the claimants that the prohibition applies in the present case.

12. The issue between the parties in the present case is as to the construction of the words in Rule 36.13(2) 'until the case has been decided'. The claimant relied on the tentative suggestion made paragraph 20 of the judgment in AB that they might be construed to include the conclusion of a trial of liability. The defendant relied on the doubt expressed as to that in paragraph 21 of the judgment in Ted Baker. I am satisfied that the words have a clear meaning. It is clear that 'the case' is used in the sense of 'the action' or 'the proceedings'. The reference to 'the case' cannot be construed as referring to part of a case. The Rule Committee must have had the split trial situation in mind because it was raised by the previous Rule 36.19(3)(c), which the Committee removed. If the present Rule 36.13(2) had been intended to refer to liability being decided as well as the case being decided, different wording would have been used. That wording would have had to distinguish between offers which related to the whole case (normally expressed in terms of money to settle the case) which should not be disclosed following the trial of liability, and offers which related solely to liability which might be disclosed.
13. I reach that conclusion with regret because if the only offer or offers related to the percentage of contributory negligence I would be in a position to deal with the costs of liability, and I consider that there would be good policy reasons for my doing so. It also seems to me that judges commonly carry on their business in the knowledge that offers of settlement may have been made, sometimes that they are very likely to have been made, and that knowledge does not affect their judgment. The danger comes when the judge knows what the offer is.
14. I have set out the previous rule and considered it and the authorities to which I was referred in some detail because having conducted the exercise it may throw some light on the present position overall. The point of decision however is a short one as to the construction of Rule 36.13(2). By reason of the rule I could not be told the position as to Part 36 offers, and because of that I could not deal with costs.