Civil litigation brief

The Court of Appeal held, clearly, in D(A Patient) V Metal Improvements Co Inc, [2007] EWCA Civ 215, that the risks associated with Part 36 offers and payments into court fall as much upon claimants under a disability as they do a claimant who is not a patient.

Stanley Burnton J stated: ''¦ the incidence of costs in the present case is not affected by the fact that the claimant is a patient. In principle, a defendant in proceedings brought on behalf of a patient is entitled to the same costs protection from his Part 36 offer or payment as a defendant against whom a claim is brought by a competent claimant.' (Paragraph 28).

The facts in D

The claimant had suffered personal injuries which led to him being under a disability due to psychiatric problems. He suffered from cancer (unrelated to the accident) and the medical evidence gave him a 70 per cent chance of a 10-year survival. The agreed medical evidence was that the claimant's psychiatric symptoms would resolve after five years with appropriate treatment.

On the face of it, the cancer would have little effect on the value of the claim. When the claimant served a schedule of damages it was served on the basis of normal life expectancy. However in June 2005 a lymph node was detected and in August 2005 a biopsy was taken of the lymph mode. In the same month the defendant made a payment into court of £520,000. At this stage the defendant was unaware of the existence of the lymph mode.

The 21-day period for acceptance expired without acceptance or any request that the time for acceptance be extended. The claimant's advisers took the view that on a full life expectancy the payment into court was insufficient. The payment into court was, eventually, rejected by the claimant.

However later medical evidence showed that the claimant had a reduced life expectancy. This led the claimant's advisers to review the payment into court and they advised it should be accepted. The defendant agreed to late acceptance, subject to issues of costs.

The only issue in dispute at the hearing in relation to approval was who was responsible for the costs 21 days after the payment into court. At first instance the Deputy District Judge awarded the claimant all his costs. She held that it had been reasonable for the claimant to, initially, reject the payment into court, the reasons for not accepting were proper and valid and the claimant should have all the costs.

The proper criteria to be applied

The old CPR 36.20 provided that where the claimant fails to better a Part 36 payment or fails to obtain a judgment that is more advantageous than a defendant's Part 36 offer, then: 'Unless it considers it unjust to do so, the court will order the claimant to pay any costs incurred by the defendant after the latest date on which the payment or offer could have been accepted without needing the permission of the court.'

The Court of Appeal made a number of observations:

• It was only if the court could conclude that it was unjust to order the claimant to pay the costs in question that it could depart from the usual order.
• The Deputy District Judge in the current case appeared to have answered the question as to whether it was unjust to make the usual order by considering whether it had been reasonable for the claimant to have rejected the payment in when made and later to accept it: 'But that consideration, while it may be relevant to the question whether it would be unjust to make the usual costs order, cannot be identified with it. Moreover, she could not sensibly have decided the question of unjustness by reference solely to the claimant's adviser's assessment of the offer. She would also have to consider the reasonableness of the defendant's assessment of the value of the claim.'
• However, the defendant's assessment was not before the judge. The judge's primary function on an approval hearing is to determine whether, at the date of the hearing, it is in the interests of the claimant to accept the payment. The advice prepared by the claimant's advisers for submission to the court is not disclosed to the defendant and they cannot be expected to comment on or criticise it. Conversely, the defendant cannot be required to justify its own assessment of the claim at the date of the approval hearing, nor should they be required to justify the assessment they made when they made the Part 36 payment.
• Further, the judge's approach was based on a misunderstanding of the function of a Part 36 payment or offer. The defendant is entitled to make a conservative payment into court in the hope that events or evidence will favour it. For instance that an expert will advise favourably or that the judge will assess damages modestly. Conversely there is nothing wrong with a competent claimant rejecting a Part 36 payment in the hope that at trial the judge will take a generous view as to damages. Both parties run risks as to costs.
• The judge at first instance in this case erred in that she failed to identify any fact that rendered it unjust to make the usual order for costs. There was nothing to justify depriving the defendant of the protection against costs conferred by their Part 36 payment. Furthermore she wrongly identified the question whether it was unjust to make the usual order with the question of whether the claimant's advisers had acted reasonably: ''¦ neither party submitted that the other had acted unreasonably. Essentially what has happened is that events have justified the defendant's assessment of the total value of the claim and falsified the claimant's assessment. Changes in circumstances between the date of a Part 36 payment and trial are contingencies inherent in litigation. They cannot of themselves normally justify a conclusion that the defendant should be deprived of the benefit of his payment. It follows that there was no reason to depart from the normal rule.'

Did the claimants have any remedy?

The Court of Appeal observed that the claimant's solicitors could have protected his position. Once they knew that a biopsy was being undertaken they could, and should, have asked for an extension of time to consider the Part 36 payment until the results of the biopsy were known. The parties should have agreed a stay of proceedings until that time. The rejection of the Part 36 payment when the claimant's prognosis was uncertain was a further reason why the usual order is the correct order for costs: 'The result might have been different if the claimant's solicitors had requested, and the defendant's solicitors had refused, a stay until the results of the biopsy were known.'

Under the new rules

The D case took place under the old Part 36. It is interesting to make a comparison with the new rules.

• The defendant would now make a Part 36 offer rather than a payment into court.
• The rules dealing with the costs consequences of failing to beat a Part 36 offer are similar, the court will 'unless it considers it unjust to do so' order the claimant to pay the defendant's costs from the last day on which the payment in could be accepted 'the relevant period' under the new rules.
• Further, under the new rules the court can also order (again unless it considers it unjust to do so) the claimant to pay interest on the defendant's costs.
• The defendant could have, without permission of the court, withdrawn or reduced the Part 36 offer after the end of the 'relevant period' (but would thereby lose protection as to costs).
• The rules expressly state that the 'relevant period' is 21 days after the offer is made, 'or such longer period as the parties agree'.

Was it unjust to make the usual costs order?

Both the old and new Part 36 rules expand upon the considerations that a court can take into account in deciding whether to make the 'usual orders' as to costs for failing to beat a Part 36 offer. Curiously these were not considered in the D case but can be found in the new CPR 36.14 (3) (and the old 36.21.(5)). These state (in virtually identical terms) that when considering whether to impose the costs orders for failing to beat a Part 36 offer (and payment in under the old rules): ''¦ the court will take into account all the circumstances of the case including '“

(a) the terms of any Part 36 offer;

(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made.

(c) the information available to the parties at the time when the Part 36 offer was made; and

(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.'

It is doubtful whether consideration of these rules would have made any difference to the result in the D case. However the latter rule, in particular, highlights the duty of the parties to co-operate. The D case has expanded this slightly, the Court of Appeal making it clear that the parties should have agreed a stay of the matter until prognosis was certain.