In this article...

• Late acceptance of Part 36 Offers
• Costs capping
• Double recovery again

Costs have been the hot topic in the courts over the last month.

Late acceptance of Part 36 Offers

Should the Defendant bear the full costs where the Claimant is granted permission to accept a part 36 offer out of time?

It is common ground under CPR 36.20 that if a Claimant rejects a Part 36 offer and fails to beat it at a later stage, then the Claimant will be responsible for costs incurred by the Defendant from the date that the period for accepting the offer expired unless the court considers that this would be unjust to the Claimant. But what does unjust mean? It is not uncommon for Claimant’s lawyers to argue that an offer is premature and/or that they are in no position to advise on it.

The Court of Appeal case of Matthews v Metal Improvements Co Inc. [2007] EWCA Civ 215, concerned an appeal against a costs order whereby the Defendant was ordered to pay all the of Claimant’s costs after permission to accept a Part 36 offer out of time was granted to the Claimant.

The Claimant rejected the Defendant’s part 36 offer in September 2005 on the basis that the sum was insufficient as he had expert evidence suggesting that he had a full life expectancy. New evidence emerged at a later stage which indicated that in fact he had a reduced life expectancy. His solicitors re-considered the terms of the Part 36 offer made by the Defendant and advised acceptance of it. The Claimant was granted permission to accept the Part 36 payment, which the Defendant was still willing to make, out of time. The Defendant argued that in accordance with CPR 36.20, it should not be liable for costs from the date that the period for accepting the offer expired. The first instance court made a costs order requiring the Defendant to pay all of the Claimant’s costs, depriving it of the costs protection that usually accompanies Part 36 payments into court. The Judge’s reasoning for this order was that the Claimant’s initial rejection of the offer had been reasonable at the time. The Defendant appealed.

On appeal

Reversing the decision of the court at first instance and awarding the Defendant its costs from the date of expiry of the offer, the Court of Appeal confirmed that the question to address when considering whether or not to make the usual order for costs (i.e. the usual rule that the Claimant should pay the Defendant’s costs from the last date on which he could have accepted the offer), is whether it would be unjust to do so, not whether the party’s original decision not to accept the offer was reasonable at the time. The Court of Appeal also went on to expressly clarify that the function of a Part 36 payment is to place the costs risk on the offeree in circumstances where he does not beat the payment “as a result of the contingencies of litigation”.

This is good news for Defendants who make any Part 36 payments into court on a costs protective basis. Matthews dealt with tough circumstances for the Claimant arising from unforeseeable circumstances reducing life expectancy and hence the value of the claim. It is clear that Part 36.20 will be applied strictly.

Costs capping

Somewhat ironically, the time and cost involved in a judge determining the amount of a reasonable costs cap (i.e. a limit on the costs that can be claimed at the conclusion of a matter) was one of the reasons the Court of Appeal upheld a first instance decision to refuse to impose a cap despite the judge noting his unease “about the remarkably high level of costs incurred”.

Willis v Nicolson [2007] EWCA Civ 199 concerned a road traffic accident which left the Claimant with serious life-long injuries. On three occasions during the proceedings, the Claimant provided costs estimates including the level of likely future costs. The first estimate of 19 October 2005 indicated that the total costs for the whole action would be up to £250,000. This estimate had increased to £564,189 by 19 June 2006 and to £959,342 just 6 weeks later. The substantial increase from the original estimate on 19 June 2006 led to the Defendant making an application for a costs capping order which was dismissed. The Defendant appealed.

Further guidance needed

On dismissing the Defendant’s appeal the Court of Appeal expressed concerns about getting the timing right in circumstances where a costs cap is imposed so that a case can be conducted and planned appropriately in light of the cap.

Lord Justice Buxton indicated that costs capping is an area where further guidance on the matter needs to come from the Civil Procedure Rules Committee following “extensive consultation” rather than the courts. Whilst the Court of Appeal made it clear that the issue of costs capping is in serious need of review it is unclear whether there is any appetite for such a review on the part of the Rules Committee and whether any guidance on the issue will be forthcoming.

Double recovery again

Following Crofton (reported last month), the issue of double recovery has come before the Courts again in the case of Horton v Evans and another [2007] EWHC 315; [2007] All ER (D) 97 (Mar). The decision favours medical insurers rather than Defendants.

Where the Claimant holds a medical insurance policy that requires the insurers to pay his medical expenses and the policy contains a right of subrogation and/or re-imbursement of the expenses paid, the Claimant will still be entitled to recover those medical expenses from the Defendant. The sums recovered will be held by the Claimant for the medical insurers thus ensuring there is no double recovery on the part of the Claimant.

This case confirms the accepted position that Defendants are unlikely to avoid payment of a Claimant’s medical expenses in situations where the Claimant holds medical insurance, as most policies are likely to contain a right to re-imbursement.

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