A salutary reminder of Part 36 cost consequences – MRA v The Education Fellowship Limited [2022] EWHC 1069 (QB)

Articles, News | Tue 10th May, 2022

The Claimant, with ASD and ADHD diagnoses, claimed for damages for historic child abuse by a teacher employed by the Defendant. The teacher was prosecuted and sentenced to prison.

The judgment concerns the cost consequences following from the Claimant’s acceptance of a Part 36 offer of £80,000 on 2nd April 2020, the offer having been made on 19th January 2018, almost 26 months’ after its expiry.

The court reminded itself of CPR Rule 36.13(1)-(6) which confirms that the offeree must pay the offeror’s costs for the period after the expiry of the relevant offer period, unless it would be unjust to make such an order. The factors which the court must take into account are listed in CPR 36.17(5) as well as ‘all the circumstances of the case’. These include the terms of the Part 36 Offer, the stage of proceedings when it was made, how close it was to trial, the information available to the parties when the offer was made, the conduct of the parties, and whether the offer was a genuine attempt to settle proceedings.

The court had to determine whether it was unjust to make the usual order for the Defendant’s costs to be paid, as this would significantly deplete the Claimant’s damages.

The thrust of the Claimant’s argument was that it would be unjust to apply the usual rule because there were uncertainties about the Claimant’s prognosis, and the Defendants’ solicitors acknowledged that in correspondence in January 2019. Thus any prognosis was uncertain so it was not possible to advise if the offer should be accepted or whether the court would be in a position to approve a settlement. The Claimant also drew the court’s attention to correspondence in February 2018, prior to the offer expiring, requesting that time for acceptance be extended – there was no response to this request.

The Defendant argued that the correct test was whether it was unjust to apply the usual cost consequences, not whether it was reasonable or not to accept/reject an offer (see also Matthews v Metal Improvements Co Inc [2007] EWCA Civ 215). The offer was for £80,000 on a case where the statement of value was limited to £100,000 and it was evident, the Defendant argued, it was made on the basis of the Claimant’s PTSD prognosis not improving and was generous for what was considered to be ‘moderate-severe’ PTSD by the experts.

The court was reminded by Defendants’ counsel that the impact of the deduction of the costs was not a factor in the rules for the court to take into account. Whist a judge’s ‘heart’ may not wish to make an order causing a Claimant to lose the bulk of their damages to costs, this should not affect their ‘head’ in making the order as required by the rules.

Uncertainty of prognosis was not held to be sufficient to make the usual order unjust, as this would have potential consequence of delaying settlements in many cases for claimants to wait for a high degree of clarity – this would defeat one of the purposes of the Part 36 costs regime. Uncertainty of prognosis is a common feature of personal injury cases. Nor would this prevent a court approving an award, as Judges and Masters are experienced in dealing with the realities of litigation and injury quantification.

Master McCloud agreed with Defendant counsel’s ‘head’ vs ‘heart’ metaphor: she concluded the very essence of the rule means that a claimant’s damages will be reduced and that is not unjust per se. The degree of reduction caused and impact thereof is not a factor for the court to consider. Master McCloud concluded that detailed assessment exists to ensure excessive sums are not deducted, and that is the correct safeguard for claimants. It would also not be beneficial to effectively discourage insurers from making generous offers to resolve cases at early stages if there were no or limited costs protection obtained in doing so.

This case serves as an important reminder of the consequences of accepting Part 36 offers out of time and the high test a claimant must surpass to demonstrate injustice of applying the rules as intended. This case asserts that:

  • Whether it was ‘reasonable’ to reject or not accept an offer in time is not the relevant test.
  • Uncertainty of prognosis, distinct from uncertainty of diagnosis, will not prevent a court from approving a settlement for a child/protected party.
  • The impact of the deduction on the Claimant’s damages is not a factor to consider in CPR 36.17(5).

An important side note is the separate argument, raised by Claimant counsel, that the Defendant can only set off its costs in circumstances where there has been a judgment or order for damages. This was said to have a discriminatory impact on protected parties or minors as these cases required the court to approve damages and state on the Order the sum of said damages. This point was not fully argued by either side, so the judgment does not fully grapple with this issue.

In addition, when approving a sum for a child/protected party the court should have regard for how much the Claimant will actually receive after any deductions – thus there does appear to be a tension in applying CPR 36.13 for cases involving a child and protected parties and causing potential injustice. Moreover, the court must consider ‘all the circumstances of the case’, it is difficult to see how this cannot include consideration of how much a vulnerable claimant is going to receive as compensation is not an important facet of that analysis.

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