Civil litigation brief

In the case of Carver v BAA Plc [2008] EWCA Civ 412 the Court of Appeal made important observations about the nature of Part 36 offers. This decision may, in particular, remove a lot of certainty about the effect of offers by defendants in particular.

The facts

Carver was a personal injury action involving a ligament injury to the claimant's ankle. Liability was admitted. In June 2006 the defendant made a payment into court of £4,000 which (taking into account an interim payment already made) had a value of £4,520.00. This offer was rejected and the claimant's solicitors put in a further schedule of losses which increased the special damages claimed to over £19,000.

However, following the joint meeting of medical experts the claimant filed a further revised schedule which put special damages back to £2,700.00.

Negotiations

One important aspect of this case was the position of the parties in relation to settlement. The position was that the defendant was refusing to increase the offer and the claimant refused to accept the payment into court. However the defendant was pressing the claimant to put forward a figure for settlement, as the Court of Appeal observed:

''¦ the defendant's solicitors repeated their view that the parties had a duty to use all efforts to attempt to settle the claim and to avoid wasting the court's valuable time, complaining again that no proposals whatever had been received from the claimant. The defendant's solicitors wrote:

'In so far as our client's payment into court is concerned, how far apart are we? Surely you must have valued your client's claim now and have some idea as to how much she seeks to recover '“ perhaps you would enlighten us. What value does your client place on general damages?'

The defendant then made an offer of £20,000 inclusive of interest, damages and costs. This offer was not accepted by the claimant and the action proceeded to trial.

The trial

At trial it was asserted that general damages had a value in the £5,500 region. However the court awarded £3,500 for general damages and total damages, with interest, amounted to £4,686.26. This award (taking into account the interest at the date of payment in and the date of the trial) beat the payment in by £51.00.

The prospective costs

There was a major issue after the trial as to who, in effect, was the 'winner'. The claimant's costs (including success) fee were in excess of £80,000.00 and the claimant argued that the payment into court had been beaten. The defendant argued that, in Part 36 terms the defendant was the winner. The defendant relied on CPR Part 44 to submit that the claimant's conduct should be taken into account to determine the appropriate order for costs.

The view of the judge at first instance

The judge held that, in practical terms, the defendant was the successful party in the litigation. He awarded the costs from 27 June 2006 to the defendant on the standard basis. Because of the existence of a pre-action offer he made no order for the claimant's costs between November 2005 and June 2006.

The rule change

After the payment into court but before trial the entire Part 36 system had changed, moving from payments into court to written offers. The costs consequences of Part 36 applies, under CPR 36.14 when 'a claimant fails to obtain a judgment more advantageous than a defendant's Part 36 offer;' which replaced the words 'failed to better' in the previous rules.

The effect of the rule change

The Court of Appeal held that the new rule introduced a change of practice. The term 'more advantageous' was an 'open-ended' phrase. It permitted a more wide-ranging review of all the facts and circumstances of the case in deciding whether the judgment, which is the fruit of the litigation, was worth the fight.

Ward LJ observed:

'The answer [to the question of whether the result was more advantageous] must, in my judgment, take account of the modern approach to litigation.

'The Civil Procedure Rules, and Part 36 in particular, encourage both sides to make offers to settle. Compromise is seen as an object worthy of promotion for compromise is better than contest, both for the litigants concerned, for the court and for the administration of justice as a whole. Litigation is time consuming and it comes at a cost, emotional as well as financial. Those are, therefore, appropriate factors to take into account in deciding whether the battle was worth it. Money is not the sole governing criterion.'

The trial judge was, therefore, correct in looking at the case broadly. He was entitled to take into account that the extra £51 gained was more than off set by the irrecoverable costs incurred by the claimant in attempting to contest the case for as long as she did.

'He was entitled to take into account the added stress to her as she waited for the trial and the stress of the trial process itself. No reasonable litigant would have embarked upon this campaign for a gain of £51.'

The Court of Appeal held that the decision not to award costs for the earlier period would not be overturned on appeal, it was a reasonable offer and not derisory, it met with no response and there was no counter offer. The claim became an exaggerated claim (through no fault of the claimant herself) and this exaggerated claim was withdrawn late in the day. The process of negotiations 'bordered on the farcical'.

'This was a small claim in which the defendants admitted liability within months of the accident. To have incurred about £80,000 in costs to contest a claim under £5,000 fills one with despair.'

Commentary

It is difficult to overestimate the importance of this decision. The old principle of beating the payment into court by a penny and being safe no longer applies, the court can take into account much wider factors. The Court of Appeal recognised that it involved a departure from the previous approach to monetary claims which provided 'clarity' in that the rule was absolute. However the change in wording had a significant effect.

There is little doubt that this judgment is going to lead, for a period at least, to a new industry in relation to arguments about costs. In virtually every case where the defendant has made an offer which the claimant has failed to beat there will be an argument as to whether the claimant has, in fact, had a 'more advantageous' result given that a trial has taken place. Claimants can expect an argument at the end of most cases, particularly those of lower value.

Lessons to be learned

It is clear that trial judge and Court of Appeal felt that the fundamental error of the claimant in the Carver case was the failure to enter into any meaningful negotiations. The claimant failed to make her own offer or to respond to the defendant's invitation to value the case.

It would be a pity if the Carver decision was used to justify defendants making inadequate offers, particularly in low value personal injury cases. ºThere is no doubt that a defendant could employ a Carver-type argument in relation to virtually every low value case. There is equally no doubt that anyone representing a defendant will be bound to make submissions at the end of any trial or disposal (indeed they could be negligent not to take the point). This is now going to be a fact of life. The onus is clearly on the claimant to be more proactive, value the claim and make a reasoned and reasonable Part 36 offer of their own. Further the claimant's lawyers must give careful advice in relation to any Part 36 offer made by the defendant.

Can it work both ways?

Claimants and defendants should be aware that the Part 36 rules work could work both ways. CPR 36.14(1)(b) states that the Part 36 consequences apply when:

'(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant's Part 36 offer.'

Following the logic of Carver there are arguments that a claimant's Part 36 offer that has been narrowly beaten at trial by the defendant could still have the usual costs consequences. If the defendant had accepted the offer the claimant would have been saved the anxiety of the trial and the time and costs involved.

The need to negotiate

One matter that Carver does emphasise is the duty on both parties to negotiate. Further it is clear that, at the end of a trial, the court can examine the history of negotiations. The earnest attempts of the defendant to extract a figure for settlement, and the claimant's failure to respond, play a major part in the decision of both courts. The prudent litigator must be aware of this and ensure that the court will be satisfied that they have made every reasonable effort to settle the matter.