In Tuson v Murphy  EWCA Civ 1491, the Court of Appeal overturned a costs order made against the Claimant, who had been ordered to pay a proportion of the Defendant's pre-Part 36 offer costs when she accepted the offer after the relevant period had expired.
It was held that applying the default costs rule under CPR 36.13(5) was highly unlikely to be unjust to the Defendant, who had made an unconditional Part 36 offer with the knowledge that the Claimant's credibility was questionable and her evidence as to her ability to work following the accident was misleading.
In his latest article, James Manning summarises the key findings and highlights the alternative tactics the Defendant could have adopted in this case.
Summary of Facts
On 19 August 2010 Ms Tuson ("T") fell from a horse during a riding lesson at Ms Murphy's riding school ("M"). T sustained a broken arm and subsequently developed Obsessive Compulsion Disorder ("OCD").
Liability was admitted on behalf of M with T agreeing a 15% reduction for contributory negligence. T alleged that she was unable to return to work as a consequence of the accident and the pleaded value of her claim exceeded £1.5 million.
Sequence of Post-Accident Events
- November 2013 - T acquired a playgroup franchise;
- April 2014 – T failed to disclose in her witness evidence that she was a franchisee. T was also interviewed by her employment expert and, again, failed to disclose this fact;
- May 2014 – T was interviewed by M's employment expert and did not reveal she was a franchisee;
- June 2014 – T was examined by D's psychiatric expert and did not mention she was a franchisee;
- July 2014 – T's schedule of loss is served and included a substantial claim for future loss of earnings;
- September/October 2014 – T effectively ceased to operate the franchise;
- January 2015 – T transferred the franchise;
- April 2015 – M's solicitors establish that T had obtained and operated a franchise the previous year;
- June 2015 – M's solicitors notify T's solicitors that they know that T acquired and operated a franchise;
- Early September 2015 – T's supplementary witness statement is served, in which she explained that she obtained the franchise to combat or control her OCD and the franchise failed because she could not cope due to her OCD;
- Mid-September 2015 – M's solicitors made a Part 36 offer to settle the whole of T's claim in the sum of £352,060 gross; and
- December 2015 – T accepted M's Part 36 offer.
HHJ Harris ordered that M pay T's costs up to 1 April 2014 and T pay M's costs thereafter. The rationale underpinning the costs order, which was in essence a retrospective, punitive costs order imposed upon T, was that it would be unjust to M for a default costs order to be made under CPR 36.13(5) because T would not be punished in any way for misleading M as to the severity of her disability and ability to resume work after her accident.
On appeal, the Court found that:
- CPR Part 36 is a "self-contained code";
- The Court does not have unfettered discretion to depart from the default costs rule under CPR 36.13(5). It must take into account all the circumstances of the case, including matters set out in CPR 36.17(5), which includes "the information available to the parties at the time when the Part 36 offer was made";
- At the time M made an unconditional Part 36 offer to T in settlement of the whole of her claim, M knew that T had concealed the fact that she had become a franchisee after the accident;
- Had T accepted the M's Part 36 offer before the relevant period had expired, she would have been entitled to her costs to date under CPR 36.13(1). M would have had no right or ability to seek an alternative costs order;
- In circumstances where a Claimant accepts a Defendant's Part 36 offer after the relevant period has expired, "if nothing emerges from the facts to show that the defendant's assessment of the risks and benefits involved in making the offer he has made is in some significant way upset or contradicted or misinformed, it is highly unlikely to be unjust to apply the default rule" – Titua Plc (in liquidation) v Rawlinson & Hunter (a firm)  EWHC 3480 (QB);
- There were no significant changes to T's case between the date M made the Part 36 offer and the date of T's acceptance; and
- It was open to M to make a Calderbank offer, rather than a Part 36 offer, setting out specific terms in relation to the issue of costs i.e. M could have offered to settle the genuine elements of T's claim and simultaneously offered to settle the issue of costs on the basis that T pay M's costs of the dishonest or exaggerated elements of her claim on an indemnity basis – Summers v Fairclough Homes Ltd  1 WLR 2004.
The appeal was allowed and it was ordered that M pay T's costs up to 8 October 2015 with T paying M's costs from 8 October to 1 December 2015.
Persuading the Court to depart from the default costs rule under CPR 36.13(5) when a Claimant accepts a Part 36 offer after the relevant period has expired represents a formidable barrier for Defendants.
Careful consideration must be given as to the form and wording of the offer(s) where a Defendant has direct knowledge that elements of a Claimant's claim are tainted by dishonesty/exaggeration but elects to make an offer to settle that seeks to (i) impose conditions, limits or restrictions on a Claimant's costs and (ii) secure a costs order against a Claimant in respect of the dishonest/exaggerated elements of the claim.
As well as a conditional Calderbank offer, which was the approach recommended in Summers and endorsed in this case, a Part 36 offer can be made in relation to "a part of claim or an issue that arises from it" – CPR 36.5(d). Therefore M, rather than making a Part 36 offer to settle the whole of T's claim, could have made a Part 36 offer in respect of the genuine element(s) of T's claim and invited her to abandon the dishonest/exaggerated element(s). A Claimant who accepts a Defendant's conditional/issues-based Part 36 offer and discontinues the remainder of the claim within the relevant period will only be entitled to costs of the successful part of the claim, unless the Court orders otherwise – CPR 36.13(2).
Since the relevant period of M's Part 36 offer had expired, M could have, prior to T serving notice of acceptance, changed the terms of the Part 36 offer without the permission of the Court by reduced the sum offered to T in settlement of her claim – CPR 36.9 (1) and (4)(a). M would have still benefited from the costs protection of the "original" Part 36 offer that was advanced mid-September 2015 if T accepted or failed to beat the reduced/less advantageous Part 36 offer at trial - Burrett v Mencap  EW Misc B50(CC). It is, however, important to note that the CPR 36.17(3) costs benefits are lost if a Claimant beats a Defendant's reduced/less advantageous Part 36 offer at trial – CPR 36.17(7)(b).
Finally, M could have, again prior to T serving notice of acceptance, withdrawn the Part 36 offer without the permission of the Court under CPR 36.9 (1) and (4)(a), though it must be borne in mind that the CPR 36.17(3) costs benefits are lost entirely in these circumstances - CPR 36.17(7)(a).
If you would like to discuss this topic in more detail please contact James Manning