English and Welsh Courts - Miscellaneous

In the Romford County Court

		27th June 2011

1. This is an appeal by the defendant against an order for costs made by the District Judge on an assessment of damages hearing on 3^rd February 2011. For convenience I will refer to the parties in this judgment as claimant and defendant.
2. One may be forgiven for wondering how a simple rear end shunt in which liability was never disputed could lead to an appeal over costs in which the defendant's insurers think it worth instructing leading Counsel to appear and the claimant's case is argued by junior Counsel of unusual seniority. But such is the volume of low value personal injury litigation that the decision in this case may have a significant impact both on both parties' insurers and their respective solicitors.
3. In this area a measure of certainty or at least reasonable predictability over the proper approach to settlement negotiations and the consequences of settlement is strongly to be encouraged. That is what this appeal is really about and I hope this judgment may offer some practical guidance to those who in the current financial climate may increasingly find the use of the courts to resolve their disputes a less than happy experience. In this case I have had the benefit of skeletons and oral argument from Counsel on both sides which was of the highest quality and for which I am extremely grateful.

Appeal out of time

4. The notice of appeal was given some two days outside the 21 day period with the grounds of appeal following fourteen days later. Permission to appeal was opposed by the claimant. Having considered and accepted the witness statement of Christopher Crook and the factors set out in CPR 3.9, I have no doubt that this was a proper case to extend the time for appeal.

Permission to appeal

5. Since the amount awarded by the District Judge was significantly less that the amount offered by the Defendant in settlement a few days before the actual issue of proceedings the question of costs was very much a live issue between the parties.
6. There are three issues which arise in this appeal.

(a) was the offer to settle letter sent by the Defendant on 20^th August 2010 an offer to settle as defined by Part 36 of the Civil Procedure Rules with the consequences specified in CPR 36(10) ?

(b) if it was not, was it nonetheless an admissible offer to settle which the District Judge ought to have taken into account in exercising his discretion as to costs under Part 44 ?

(c) finally was the decision of the District Judge to give no weight to the letter one which fell outside the generous ambit of a judge's discretion when deciding matters of costs.

7. The defendant submitted that the appeal or at least grounds one and two raise important issues of principle which arise before any consideration of the wide ambit of the discretion given to the District Judge when considering what order for costs is appropriate in any particular case.
8. The claimant submitted firstly that this was still a decision over costs and relied upon the passage from the judgment of Wilson J (as he then was) in SCT Finance v Bolton [2002] EWCA Civ 56 at para 2:

"This is an appeal brought with leave of the single Lord Justice from the county court in relation to costs. As such, it is overcast, from start to finish by the heavy burden faced by any Appellant in establishing that the judge's decision falls outside the discretion in relation to costs conferred upon him under rule 44.3 (1) of the Civil Procedure Rules 1998. For reasons of general policy, namely that it is undesirable for further costs to be incurred arguing about costs this court discourages such appeals by interpreting such discretion very widely.'

The claimant also relied upon the judgment of Arden LJ in Schofield –v- Schofield [2010] EWCA Civ 1387 at para 6:

' … in general permission to appeal should not be given where the hearing of a full appeal would be disproportionate to the benefit to be achieved by success on the appeal, even if there is otherwise a sufficient prospect of success to justify the grant of permission.'

9. For those reasons the claimant submitted that permission to appeal ought not to be granted since the appeal had no realistic prospect of success, alternatively that it would be disproportionate to grant permission since the net gain to the Defendant if he were to succeed completely would only be of the order of £3,000.
10. Against that the Defendant could have referred me to the more recent decision of the Court of Appeal in Morgan v Spirit Group Limited [2011] EWCA Civ 68 in which the Court of Appeal had no difficulty in overturning what appeared to be a simple exercise of the discretion of the trial judge to award a stated amount in respect of the partly successful claimant's costs under Rule 44(3)(6)(b) on the grounds that he had made an error of principle. Although that decision has not received universal academic acclaim it is nonetheless binding on me.
11. I was satisfied that the appeal raised at least one important issue of principle which could have material significance to a wider class of cases. I was also satisfied that the Defendant had a real prospect of success and that given that both parties were present and fully prepared to argue the appeal it would not be disproportionate to allow the matter to proceed. I therefore granted permission to appeal.

Chronology

12. In order to understand what this case is all about a brief chronology will assist.

(1). 10^th September 2009 - Accident

(2). 15^th September 2009 - Letter of claim claimant's solicitors to defendant's insurers

(3). 9^th July 2010 - Claimant's solicitors serve medical report on defendant's insurers and make a Part 36 offer to settle claim for £4273 plus Rule 36.10 costs.

(4). 1^st August 2010 – Claimant's solicitors extend time for acceptance of the Part 36 offer by a further seven days from service of this letter

(5). 10^th August 2010 - Claimant's solicitors send proceedings to Romford County Court for issue

(6). 20^th August - Letter defendant's insurers to claimant's solicitors headed WITHOUT PREJUDICE SAVE AS TO COSTS – PART 36 OFFER offering to settle for £3523 plus "predictive costs"

(7). 27^th August 2010 - Proceedings issued by Romford County Court

(8). 23^rd September 2010 - Request for entry of judgment in default

(9). 25^th October 2010 - Judgment in default entered

(10).15^th November 2010 - Directions for disposal hearing

(11). 12^th January 2011 – Claimant's solicitors second Part 36 offer to settle claim for £3723 plus Rule 36.10 costs

(12). 3^rd February 2011 - Disposal hearing general damages assessed at £2,900, special damages at £516.40 – total including interest £3441.81.

The first ground of appeal – Was the letter of 20^th August a valid Part 36 offer ?

13. In order to understand what this appeal is about it is necessary to set out the exact wording of the letter of 20^th August 2010. The material parts read as follows (I have added paragraph numbering for ease of reference):

WITHOUT PREJUDICE SAVE AS TO COSTS – PART 36 OFFER

SENT BY RECORDED DELIVEREY AND FAXED

1. We formally offer to your client the sum of £3523 in full and final settlement of the whole of his claim.

2. In addition, we will pay predictive costs incurred up until 21 days after the date on which you receive this letter.

3. [T]he offer shall be open for acceptance until 21 days after the date you receive this letter.

4. Please let us know your client's decision within that period. If your client's acceptance is not received within this time scale we may withdraw or change the terms of the offer. Also if your client's acceptance is received after 21 days, costs consequences will attach.

5. Your client will, therefore, receive the net sum of £3523 and costs in the event of acceptance.

6. This offer is based on the assumption that this claimant has recovered (or will recover) as per the prognosis contained in the medical report. If this proves not to be the case then we await a signed statement of truth from your client. If, post litigation you disclose such a statement which increases the recovery time we will raise conduct issues with the court and seek recovery of additional costs.

7. We await hearing from you once you have taken your client's instructions. In the event that our offer is not acceptable then please can you explain why and let us have your valuation of damages in order that we consider our position ?(sic). We should remind you at this point that litigation should be the last resort, as per the Pre Action protocol 2.16 and the Practice Direction (Pre- Action Conduct).

14. The first objection to the letter of 20^th August 2010 was that the offer was in fact a time limited offer. The importance of this point appears from judgment of Rix LJ in C v. D [2011] EWCA Civ 646 at paragraphs 39 to 42 and the conclusion at paragraph 42 :

" Be that as it may, in my judgment the new Part 36 regime cannot accommodate a time limited offer. The essence of a Part 36 offer is that it lies on the table until formally withdrawn. Only an offer which has not been withdrawn down to the commencement of trial is capable of having the scheme's costs consequences set out in rule 36.14. A part 36 offer can be accepted at any time unless withdrawn. Therefore the scheme seeks to encourage offers which are not time limited. The scheme nevertheless permits flexibility in permitting offers to be amended and withdrawn. The process however is strictly regulated in the interests of clarity and certainty."

15. The argument that this was a time limited offer found favour with the District Judge. No cases were cited to him in argument on this point although at the time of the disposal hearing Warren J had recently given judgment in the case of C v D and another [2010] EWHC 2940 on the proper approach to construction of Part 36 offers and his judgment could be said to strongly support the decision of the District Judge. However this decision has even more recently be overruled by the Court of Appeal on 19^th April 2011. This is therefore the latest and binding authority.
16. The Court of Appeal has confirmed in C v. D that the proper approach is to look at the document as a whole and to apply the test formulated by Lord Hoffmann in Manni Investment Co Ltd v. Eagle Star Life Assurance Co Ltd [1997] AC 749 and Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 WLR 896 (see paragraphs 55 and 74 of the judgment).
17. Applying that test I find that there are three crucial passages in the letter which point clearly in favour of the offer period not being time limited in the way that the District Judge decided that it was.

(a) the letter is clearly headed PART 36 OFFER

(b) in paragraph 2 it clearly states "the offer shall be open for acceptance until 21 days after the date you receive this letter."

(c) paragraph 4 of the letter clearly envisages the offer being accepted after the expiry of the 21 day period. These words would make no sense if the offer were in fact time limited.

18. In my judgment reading the letter as a whole and applying the approach set out in C v. D I find that the District Judge was clearly wrong in rejecting the letter as a Part 36 offer on the ground that it was time limited.
19. However the claimant has a second and more powerful objection to the letter standing as a valid Part 36 offer and that is that the letter fails to comply with Rule 36(2)(b) in that it does not state on its face that it is intended to have the consequences of section 1 of Part 36.
20. The claimant goes further and says that not only did it fail to state on its face that it was intended to have the consequences of section 1 of Part 36 it actually was intended on its face to have costs consequences specified in the letter which were incompatible with rule 36.10 which is part of section 1 of Part 36.
21. What the letter says is this:

"2. In addition, we will pay predictive costs incurred up until 21 days after the date on which you receive this letter."

22. So far as material Rule 36 10 states:

(1) ….. where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings up to the date on which notice of acceptance was served on the offeror.

…

(3) Costs under paragraphs (1) and (2) of this rule will be assessed on the standard basis if the amount of costs is not agreed.

23. The first point is that the phrase "predictive costs" does not appear anywhere in the costs provisions of the CPR. Mr Browne in his argument for the defendant invited the court to ignore this paragraph altogether as otiose on the ground that a Part 36 offer automatically carries the costs consequences of rule 36 10. I am quite unable to accept that submission. In my judgment the paragraph is intended to have and to convey the consequences intended by the defendant. Applying the ICS canons of construction to the phrase "predictive costs" this is clearly a reference to the fixed recoverable costs regime which applies to Road Traffic Accident claims and which is set out at Part 45 II of the CPR. Those provisions cover the costs which will be allowed in costs only proceedings under the procedure set out in rule 44.12A.
24. Rule 44.12A reads as follows:

This rule sets out a procedure which may be followed where –

(a) the parties to a dispute have reached an agreement on all issues (including which party is to pay the costs) which is made or confirmed in writing; but they have failed to agree the amount of those costs; and

(c) no proceedings have been started (my emphasis)

25. In this case the 21 day period started to run on 23^rd August 2011. The claimant had sent his proceedings to the court on 10^th August, and the court had issued the proceedings on 27^rd August. Had this been a true Part 36 offer the claimant would have been entitled to accept that offer after issue and entitled to an order for summary assessment of his costs under Rule 36(10). The fixed recoverable costs regime would not have applied to that assessment since proceedings had been started.
26. It must follow that Mr Marven is correct in his submission that the defendant's insurers were attempting to achieve the protection of Part 36 without at the same time accepting the burden of the costs consequences of Rule 36(10). Their offer as to costs was materially different to Rule 36(10) and less favourable to the claimant. Crucially it was made at a time when the defendant's insurers were on notice that proceedings might be issued at any moment. This also explains why the defendant's letter failed to state on its face that it was intended to have the consequences of Section 1 of Part 36. In terms it did not intend to have those consequences.
27. Mr Marven also relies upon the decision of the Court of Appeal in Mitchell v. James [2004] 1 WLR 158. In that case 14 years after the commencement of proceedings the claimant purported to make a Part 36 offer which provided that each party should bear their own costs. The Court of Appeal held that this could not be a Part 36 offer since the proposed costs consequences were inconsistent with those specified in Part 36. In my judgment that decision is indistinguishable from the present case. For those reasons the letter cannot stand as a valid Part 36 offer.

The second ground of appeal – Was the District Judge correct in refusing to treat the letter as an admissible offer ?

28. It is clear from paragraphs E to G of page 10 and in particular the concluding sentence of paragraph F of the transcript that the District Judge, having concluded that the letter of 20^th August was not a valid Part 36 offer, went on to hold that he was not going to take it into account at all in deciding what costs order to make. That conclusion cannot be sustained for three reasons.
29. First of all there is the clear wording of Rule 36.1. (2) as follows:

"Nothing in this section prevents a party from making an offer to settle in whatever way he chooses, but if the offer is not made in accordance with rule 36.2 it will not have the consequences specified in rules 36.10, 36.11 and 36.14. "

30. Second there is the wording of rule 44.3(4), the material parts of which are as follows:

"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 the parties

…

(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. (my emphasis)

31. Thirdly and as an example of the application of these principles there is the decision of Underhill J in Huntley v. Simmonds [2009] EWHC 406. The judge in that case was faced with a purported Part 36 offer which failed for a number of technical defects. Nonetheless he held that the defects had not caused any prejudice to the offeree who could have sought clarification of the offer under rule 36.8. It was not disputed that the offer the offer was an admissible offer within the terms of CPR 44.3.(4)(c) and the judge exercised his discretion to make an order which was virtually identical with the order which would have followed under Rule 36.10.
32. In my judgment the District Judge was plainly wrong in refusing to take account of the letter of 20^th August which the claimant properly conceded was on its face an admissible offer to settle which the defendant was entitled to make. The fact that the Defendant tried to make a Part 36 offer and failed simply deprived him of the guaranteed protection of Rule 36.10. It does not prevent him from seeking to take advantage of rule 44.3(4)(c).
33. Having decided that the District Judge has failed to have regard to rule 44.3(4) (c) I now have to consider the claimant's final argument which is that his decision to disregard the offer is nonetheless one which fell within the wide ambit of discretion afforded to him under the costs rules. In my judgment that argument cannot be correct. This was an important error of principle on the part of the District Judge. Had he applied the correct test he could not have failed to give significant weight to the admissible offer made by the defendant which the claimant had failed to beat. It is therefore unnecessary for me to consider the third ground of appeal any further.
34. Once an appellate court has decided that a judge has failed to take into account a relevant factor in exercising his discretion it falls to the appellate court itself to exercise that discretion itself provided that it has all the necessary material before it to do so. Fortunately I do have that material and the perhaps dubious advantage of nearly thirty years judicial experience of summary and detailed assessment both as a District and Circuit Judge
35. I have been provided with all the admissible offers which were made in this case. On the facts although the offers are couched in global terms it is proper to infer that the claimant's initial offer of 9^th July 2010 was made up of special damages of £523 as claimed in the schedule of special damages plus £3750 for general damages. By reasonable inference the defendant's counter offer of 20^th August 2010 was made up of £523 for special damages and £3,000 for general damages so at that stage the parties were £750 apart.
36. , But the defendant's counter offer specifically contained in paragraph 7 an offer to negotiate further. That did not produce any response from the claimant's solicitors for nearly four months until their part 36 offer of 12^th January 2011, just over three weeks before the assessment hearing, in which by reasonable inference the claimant indicated a willingness to accept £3,200 for general damages and the previous figure for special damages. Whether this period of silence was due to inertia on the part of his solicitors or a refusal by the claimant to take a realistic view of his recoverable general damages makes no difference to the defendant. He was entitled to expect timely co-operation from the other side and did not receive it.
37. I can see no proper reason why the claimant failed to respond to the defendant's offer of negotiation and no reason why a proper review of the estimate of the claimant's damages would not have come up with the figure of £.3,200 in the middle of September 2010 instead of waiting until the middle of January 2011 by which time both parties had incurred significant further costs..
38. Thereafter I can see no reason why the defendant's insurers faced with such a narrow gap between the parties would not have taken a commercial decision to settle for a figure at or a very little below £3200 in order to avoid running the risk of incurring a potential further liability of around £1,000 for the claimant's costs and at least £1,000 for their own costs and counsel's fees.
39. Up to 23^rd August the conduct of this litigation by the claimant's solicitors is beyond criticism and any fault lies clearly with the defendant's insurers firstly in their tardy response to the claimant's opening Part 36 offer and secondly in seeking to hold on to the fixed costs regime beyond the appropriate time. Thereafter the claimant's failure to respond to an offer to negotiate until a mere three weeks before the disposal hearing is not only lamentable, it is a clear breach of the duty contained in Rule 1.3 to assist the court in furthering the overriding objective. This is a case which could and should have been settled by the end of September 2010. Once proceedings have started the argument that solicitors will not be properly paid for time spent in negotiation is wholly misconceived. The requirement to conduct proper settlement negotiations is implicit in Rule 1.3 and such time is not just reasonably spent, it is necessarily spent.
40. In my judgment the defendant is entitled to ask the court to give proper weight under rule 44.3(4)(a) and (c) first to the claimant's conduct of negotiations and second to their letter of 20^th August and to the fact that ultimately the court awarded only £2,900 for general damages as compared to their offer of £3,000.
41. Giving proper weight to that offer I approach the matter of summary assessment in this way. The claimant's costs schedule very helpfully gives dates for the various items of work done. In the light of the defendant's offer, costs incurred by the claimant's solicitors from around 23^rd September have been unreasonably incurred. From 23^rd September to the disposal hearing 3.7 hours has been spent which could have been avoided and Counsel fees would not have been incurred. Against that I should allow I hour for the further negotiation and settlement which should have taken place so the costs payable by the defendant will be reduced by 2.7 hours @ £161 per hour = £434 ( I have ignored the pence) plus Counsel's fees of £690 making a total reduction exclusive of VAT of £1024.
42. I turn finally to consider the defendant's claim that the claimant should pay his costs after 15^th September 2010. It is true that the defendant has made an admissible offer to settle which in terms of damages was one which the claimant has failed to beat. However the defendant, or more correctly his insurers, is equally at fault in not making a proper Part 36 offer. Has a timely offer been made before issue then, in the absence of any exceptional circumstances under rule 45.12, on a summary assessment the claimant would have been highly unlikely to have recovered more than his fixed recoverable costs and disbursements as set out in rules 45.9 and 45.10.
43. In terms of costs the defendant's offer of fixed recoverable costs under rule 45.9(1) amounted to £800 plus 20% of £2900 (£580) = £1380 for profit costs. This is significantly less favourable than the profit costs to which I have held that the claimant is entitled. In those circumstances I am not able to accept that the claimant should pay the defendant's costs all of which were in fact incurred after issue. In my judgment the proper conclusion is that the claimant should not have to pay any part of the defendant's costs.
44. So far as the costs of the appeal are concerned each party has succeeded on some points and not on others. My conclusion therefore is that the fair order is that each party should bear its own costs of the appeal.
45. By my mathematics the amount of cost payable by the defendant to the claimant is reduced from £4,738.42 by £1024 plus VAT of £204.80 = £1228.80 which makes a revised payable figure of £ 3509.62. I invite the parties to check the calculations and in necessary make written submissions by 4 p.m. 20^th June. Subject to those submissions judgment will formally be pronounced at 10 a.m. on 27^th June. The order will be in the form of the draft attached. Neither party is required to attend.

Conclusion

46. If this sad story has any moral it is first that the use of form N242A will enable insurers and solicitors to make offers which enjoy the protection of Part 36 and to concentrate the mind so that offers do have the foreseeable consequences which are intended.
47. Second although a BAILII search reveals not a single mention in any judgment of the Court of Appeal of CPR rule 1.3 over the past six years it is a rule which continues to resonate loud and clear in the county court and one which in the current and foreseeable future of ever diminishing court resources available to be devoted to civil cases, may lead to unpleasant costs consequences for those who do not observe the spirit of the overriding objective as clearly set out in Rule 1.1(2). In particular parties cannot expect that delay in responding to offers of settlement is going to remain a costs neutral course of action.

His Honour Judge Platt.

In the Romford County Court

Case Number 5RM11179

Between

Bavni Shah

Appellant/Defendant

-and-

Ricardo Elliot

Respondent/Claimant

Before His Honour Judge Platt sitting at Romford

Upon hearing Counsel for the parties

It is ordered that.

1. The Defendant do have permission to appeal out of time

2. The Defendant's appeal against the order for costs made by the District Judge on 3^rd February 2011 is allowed and the order for costs is set aside.

3. The Defendant do pay the Claimant's costs of the action summarily assessed at £3509.62 within fourteen days.

4. Each party shall bear his own costs of this appeal.

27^th June 2011.