Civil Procedure Rules Committee balance the scales of justice
Defendant’s Part 36 offers are to regain their effectiveness
Civil Procedure Rules Committee balance the scales of justice
Defendant’s Part 36 offers are to regain their effectiveness
The Civil Procedure Rules on the effect of Qualified One-Way Costs Shifting (QOCS) states at CPR44.14(i):
“…orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.”
The initial interpretation of this rule was that defendants could set their costs off against the claimant’s damages, interest, and costs. Therefore, if the claimant received damages of £10,000 and costs of £15,000, but the defendant obtained a costs order in its favour of £20,000 then the defendant could set off its costs against both the claimant’s damages and costs, resulting in a payment made to the claimant of only £5,000.
However, this principle has been gradually overturned by various decisions which have resulted in the Civil Procedure Rules Committee bringing into force new rules for claims that are issued on or after 6 April 2023.
The three main cases which caused these amendments are as follows:
Ho -v- Adelekun (2021)
The Supreme Court determined that the wording of CPR44.14(i) meant that any cost order in the defendant’s favour could only be set off against the claimant’s damages and interest and not against the claimant’s costs. On the example above, this means that the defendant can set off its costs of £20,000 against the claimant’s damages of £10,000, but not against the claimant’s costs of £15,000 and so the defendant will have to pay the claimant £15,000 for their costs. This decision therefore protects the position of claimant’s solicitors, rather than claimants themselves.
Chappel -v- Mrozek (2022)
The claimant was injured in a road traffic accident and the defendant made an early Part 36 offer of £250,000, which was not accepted but neither was it withdrawn. The claimant eventually accepted this offer some 21 months later and the parties agreed, in accordance with the normal CPR Part 36 wording, that the defendant would be responsible for the claimant’s costs until the 21-day period had expired and thereafter the claimant was to pay the defendant’s costs. The defendant’s costs totalled some £152,000 and so they sought to set them off against the claimant’s damages, which would have resulted in them paying £98,000 damages to the claimant rather than £250,000.
However, the claimant argued that the QOCS provisions in CPR44.14 only provide for enforcement of costs against claimants by defendants by way of set off against ‘any orders for damages and interest made in favour of the claimant’. The claimant argued that acceptance of a Part 36 offer was not an ‘order for damages and interest’ and therefore the agreed costs liability could not be set off against the settlement sum. In addition, they argued, as a result of the case of Ho above, it also could not be set off against the claimant’s costs.
The court agreed that acceptance of a Part 36 offer was not an ‘order for damages and interest’ and so the defendant had to pay the claimant the full settlement sum of £250,000 and could not recover any of its costs from either the claimant’s damages or the claimant’s costs.
Harrison -v- University Hospitals of Derby & Burton NHS Foundation Trust (2022)
The claimant brought a claim for clinical negligence against the defendant following the perforation of her uterus and bowel during surgery. The defendant made a Part 36 offer of £421,362.88 which stated that it included any deductible benefits and so the claimant would require the court’s permission to accept the offer outside the standard 21-day period as deductible benefits were continuing to accrue.
The claimant, some two years later, indicated that she wished to accept the offer and the court gave her permission to do after reducing the sum payable to the claimant to take into account the deductible benefits that had accrued during the two-year period of delay. The court also ordered the claimant to pay the defendant’s costs after the expiry of the 21-day acceptance period. However, it also ordered that the defendant could not enforce this cost entitlement pursuant to CPR44.14(i).
This issue was appealed to the Court of Appeal. The defendant argued that it should be permitted to enforce its cost entitlement because the order made by the judge was an ‘order for damages’ per CPR44.14(i). However, the Court of Appeal rejected this argument, finding that the order should not be classified as ‘an order for damages and interest’. This was on the basis that the order did not result after any assessment of the value of the claim, and it should not make a difference as to whether or not CPR44.14(i) applied if a claimant required permission to accept the Part 36 offer, either because it was a provisional damages settlement, an order to make periodical payments, the claimant lacked capacity or there were deductible benefits. It was therefore re-affirmed that acceptance of a Part 36 offer was not an order for damages within CPR 44.14.
The above decisions therefore meant that a defendant had no prospect of recovering costs from a claimant when a claim settled by way of a Part 36 offer or Tomlin order (not an order for damages) and so it required a defendant to either settle by way of a consent order or proceed to trial, and for the claimant to fail to beat a defendant’s Part 36 offer, for the defendant to be able to recover its costs. The same problem applied to an interim costs order arising out of an application made in the defendant’s favour, as this order also could not be enforced unless the main action was settled by consent order or at trial.
Civil Procedure Rules Committee
As a result of a public consultation exercise, the Rules Committee decided that for claims where proceedings are issued on or after 6 April 2023, CPR44.14 is to be amended to state:
‘… orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders or agreements to pay or settle a claim for damages, costs and interest made in favour of the claimant.’
The amended rule also states that where enforcement is permitted against any order for costs made in favour of the claimant, then rule 44.12 will apply, which states that where a party entitled to costs is also liable to pay costs, the court can set off the defendant’s costs against the claimant’s costs, and the defendant to pay the balance.
The Rules Committee, by making these changes, if the case is issued on or after 6 April 2023, has:
- Restored the effectiveness of a defendant’s Part 36 offer, as if the claimant accepts such an offer outside of the standard 21 day period, then the defendant will be entitled to set off its costs for the period between the expiry of the 21 day period and acceptance of the offer, against the claimant’s damages, interest and costs.
- Restored the defendant’s ability to recover costs awarded in its favour at interim applications.
- Encouraged claimant solicitors to issue as many claims as they can before 6 April 2023.
