Late acceptance of a Defendant’s Part 36 offer – costs consequences.

Late acceptance of a Defendant’s Part 36 offer – costs consequences.

Court of Appeal overturns costs penalty imposed on Claimant and confirmed rigidity of Part 36 agreement

 

Tuson v Murphy [2018] EWCA Civ 1461 (22 June 2018)

The Court of Appeal has overturned a decision to penalise the Claimant accused of dishonesty who had been made to pay not only the usual costs for late acceptance of a Part 36 offer, but also the costs preceding the Part 36 offer. The Court held that the Defendant had known of all relevant matters when they made the offer and therefore there was no good reason for departing from the normal principles. If the Defendant had wanted different principles to apply they could have made a different type of offer that took the Claimant’s conduct into account.

The background to this case was a claim brought by Anna Tuson after she fell from her horse during a lesson at the Defendant’s riding school and broke her right arm. She subsequently developed Obsessive Compulsive Disorder which two psychiatrists attributed to the accident.

Liability was agreed with a 15% reduction for contributory negligence but the quantum of the claim was in dispute.

Three years after the accident the Claimant gave up her work as a schoolteacher and her claim was initially valued at over £1.5m on the basis that she would be unable to work again.

In November 2013 the Claimant obtained a franchise in a playgroup organisation and ran her first session two months later. However, she has failed to mention this new venture to the Psychiatrist or the Employment Expert. She also has failed to mention this within her first witness statement which was served in April 2014 or within a schedule of loss which was served in July 2014 and was signed with a statement of truth and included a substantial claim for future loss of earnings.

By September 2014 the Claimant had ceased the playgroup activity and the franchise was transferred in January 2015. In June 2015 the Defendant found out about the playgroup. They informed the Claimant’s Solicitors regarding the same. In September 2015 the Claimant filed a third witness statement where she said that the aims of buying the franchise were to create a playgroup for her son and help her with her OCD and that she did not intend to, and did not in fact, make any money from it.

A week after receipt of this witness statement the Defendant’s Solicitors made a Part 36 offer of £352,060.00 (valuing the claim at over £400,000.00 given the contributory negligence deduction) which was accepted by the Claimant, albeit some 54 days after the expiry of the offer’s “relevant period”.

In the first instance judgment, Judge Harris had found that the Defendant had been misled. On this basis he had ruled that the “normal” costs order following late acceptance of a part 36 offer would be unjust and therefore he made an order that the Claimant pay the Defendant’s costs from 1st April 2014, the date on which the Claimant had began to mislead the Defendant.

On appeal, Lord Justice Bean said: “The Defendant’s Insurers, through their very experienced Solicitors, made the unconditional Part 36 offer in full knowledge of the Claimant’s material non-disclosure, and knowing that acceptance within 21 days would (by virtue of CPR 36.13(1)) give the Claimant her costs to date as of right.” He added that it was “too broad a brush” to say that the decision about costs was entirely a matter of discretion, even in a case where a party might have behaved dishonestly.

“The Claimant’s modest attempts to run a playgroup do not amount to evidence that the Claimant’s disability was fabricated”, said Lord Justice Bean.

He referred to the case of Summers v Fairclough Homes Ltd “where the dishonesty of the Claimant was on a scale far greater than in the present case” and noted that in the Summers case the Supreme Court emphasised the importance of the Defendant’s ability to make an offer on special terms as to costs.

Lord Justice Bean concluded: Even though the Claimant’s material non-disclosure can properly be described as dishonest, and was certainly misleading, I regard the judge’s exercise of his discretion as flawed.” As such, he allowed the appeal. The Defendant was required to pay the Claimant’s costs up to the expiry of the “relevant period” (8 October 2015), and the Claimant was ordered to pay just the extra costs incurred by her delayed acceptance of the Part 36 offer.

Summary : whilst this case does not create any new law, it clarifies the courts’ limit of discretion in departing from Part 36 cost consequence rules and emphasises the point that parties should proceed with caution when making/accepting Part 36 offers as the rules governing them are very strictly adhered to, even in cases of dishonesty.

3rd July 2018

Tanya Bland, Law Costing Ltd