Consideration of the wording between “old” and “new” Part 36 requirements when offer accepted out of time

Gemma Purser v Robert Hibbs & Anor [2015] EWHC 1792 (QB)

Before Judge Moloney QC sitting as a Judge of the High Court the Defendant had made an application within a personal injury action pursuant to the former Part 36 Rule 10(5) to deal with the late acceptance of a Part 36 offer.

The case was a road traffic accident which took place on 13 November 2010 wherein liability was admitted and expert evidence assembled well before proceedings were actually commenced; surveillance was undertaken by the Defendant insurers over two periods pre-commencement (June 2012 and January/February 2013) the evidence disclosed nothing suspicious or discreditable.

The Defendant made a Part 36 offer in the sum of £95,000.00 23 July 2013 which was not accepted within the relevant period  though the offer remained open for acceptance and was accepted at the end of 2014.

Proceedings had been issued November 2013 with a Defence served in April 2014; immediately thereafter the Defendant’s insurers directed a third period of surveillance  which took place between April – June 2014. The evidence revealed the Claimant to be, in the words of Moloney J, “a person of full physical ability”.

The Claimant sought an interim payment on account and at this stage 24 October 2014, the Defendant decided to disclose the surveillance evidence and within a fortnight of disclosure the Claimant accepted the Part 36 offer.

Both parties accepted that the Defendant was entitled to costs from the date of the expiry in accordance with Sub rule (5)(b)  however issues arose under (5)(a) which provided “unless the court orders otherwise The Claimant will be entitled to costs up to the date period for acceptance of the Part 36 offer expired”; and the Defendant sought to dis-apply the presumption that the Claimant should have costs and sought an order that the Claimant should pay the Defendant’s costs of the earlier period or at least some intermediate order such as no order for costs of that period.

The Judge considered the test to be applied when considering the issue pointing out that the “old” rule 36.10 gave no express guidance to be applied by the court in deciding “whether or not to order otherwise” and that the “new” equivalent rule – 36.13(5) differed in the wording namely:

(5) Where paragraph (4) (b) applies but the parties cannot agree the liability for costs, the court must, unless it considers it unjust to do so, order that—

(a) the claimant be awarded costs up to the date on which the relevant period expired; and

(b) the offeree do pay the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance. Emphasis added.

The Judge further referred to the fact that sub rule (6) provided “In considering whether it would be unjust to make the orders specified in paragraph (5), the court must take into account all the circumstances of the case including the matters listed in rule 36.17(5)”.

The Judge accepted that it might be considered that the variation in wording was intended to “signal a change of approach by the courts to how to deal with this question” but referred to the case of Lumb v Hampsey [2011] EWHC 2808 QB where Lang J under the old rule, 36.10 directed herself to apply a test which was, Moloney J considered, “indistinguishable” from the test now recommended i.e. the application of a test of injustice whilst having regard to the criteria set out in 36.14 (Other effects of acceptance of a Part 36 offer) and 36.17 (Costs consequences following judgment).

Moloney J was satisfied that the new rule had not materially changed the proper approach to this issue.

In light of the Defendant’s application it was necessary for the Judge to find as “a fact on the balance of probabilities that the claim was dishonestly exaggerated to a considerable extent and for a considerable period” and then having reached that factual conclusion apply it in reaching a conclusion as to the injustice of applying the ordinary 36.10 costs consequences to late acceptance of the Part 36.

The Judge reflected that the Claimant had promptly, on service of the surveillance evidence, accepted the offer which was lower than the maximum of her claim but remained “a substantial sum and carried with it the hope, if not a certainty, of costs”

The Judge stated he was not persuaded that on the balance of probabilities that the Claimant’s deceit had extended to the period before the Part 36 offer was made stating that the burden and standard of proof on this issue was “on the Defendant” pointing out that Fraud was a “serious allegation” one requiring “correspondingly weighty proof” the Judge stated that he did not consider that a case based merely on inference was sufficiently strong therefore the burden of proof in relation to the pre Part 36 offer was not satisfied.

The Judge concluded that the Defendant had not persuaded him  that it would  be unjust to the Defendant to dis-apply the normal order, that it should bear the Claimant’s costs of the period before the Part 36 offer setting out two reasons for this namely (i) the defendant’s failure to persuade the Judge that deceit pre dated the offer and (ii) the Defendant could have greatly reinforced its position and protected itself against risk of liability for costs by adopting the course recommended in Summers v Fairclough Homes Limited, a case of an exaggerated disability with the Judge quoting from the case headnote as follows:

“A defendant could protect his position by making an offer outside the framework of Part 36 to settle the genuine part of the claim on terms that the claimant pay his costs with regard to the fraudulent parts of the claim on an indemnity basis”.

The Judge further found that Summers and Fairclough urged him to do what he would have wished to do anyway, which was to “punish and stigmatise the recent deceit” by directing that the Defendant’s costs post expiry of acceptance of Part 36 offer to be assessed if not agreed on the indemnity basis and further that the Claimant do pay interest on those costs at the judgment rate of 8% from the date of accrual of those costs.

The Judge went on the order that the Defendant’s costs of the surveillance undertaken post Part 36 should be paid by the Claimant on the indemnity basis directing, under CPR 44.2 that such costs should be allowed notwithstanding the same were not included in the Defendant’s Precedent H/Costs Budget.

The Judge’s closing comments with regard to the issue of surveillance and reference to the same in budgets is of interest and worthy of repeating below:

“The status of surveillance evidence is anomalous in relation to the costs case management and costs budgeting rules. Those rules do not make any express provision for what we are to do about the costs of surveillance evidence. They are obviously a special case. Most litigation is conducted on a “cards on the table” basis, and the costs budgeting system provides for each side to declare to the other in advance and to declare to the court what it proposes to spend so that the cost budgeting process can take place. Of course, some degree of cunning is required in the administration of surveillance, for entirely legitimate and understandable reasons, particularly given the appalling level of insurance fraud of which the judges become increasingly aware the longer they sit in that field. The court would not, I think, wish to do anything to discourage the judicious use of surveillance evidence or to alert actual or prospective fraudsters to the likelihood of it. For my part, therefore, I differ from the note in the current White Book which suggests that some allowance should be made in budgets for surveillance, though, of course, there is nothing to stop a Defendant doing that if it wishes to do so. I am quite satisfied that the facts of this case, showing that the surveillance was reasonably conducted and did, indeed, disclose deceit, demonstrate a good reason for allowing those costs and for doing so despite the fact that the matters were not referred to at any time in the costs budgets. In the absence of any such express rule, I do not consider it sits in the mouth of a fraudulent or deceitful Claimant to object to paying for the reasonable costs of the very work that has exposed their deceit, let alone to object on so technical and undeserving a basis as reliance on cost budgeting. After all, on the facts of this case, that as I have found them, the Claimant knew perfectly well, at least in 2014, that she might be under surveillance. That was why she chose to hobble about and engage in pretence while at home. There is no question of her acting under a misapprehension at that time as to the likely costs of her litigation or considering she was not going to be exposed to surveillance because no provision had been made for it in the budget.”