Part 36 – Stick, Twist…. or Stay?

The case of Allen Campbell v Ministry of Defence [2019] EWHC 2121 (QB) provides useful guidance on the appropriate way to respond to a Part 36 offer when you are unsure of the value of the claim (and therefore the merits of the offer), in order to avoid the costs consequences of late acceptance.

The Facts of the Case

The Claimant, a member of the armed forces, developed a fear of flying following an incident of pilot negligence, which caused the aircraft in which he was travelling to plummet 4,400 feet. The MOD accepted liability for the Claimant's injury, subject to proof on causation and the extent of his loss. Proceedings were issued in January 2016.

On 5 January 2018, the MOD made a Part 36 offer of £100,000. The 21 day relevant period was extended by agreement to the 19 February 2018, but a further 7 day extension was refused.

On 22 March 2019, over 13 months after the extended relevant period had expired, the Claimant accepted the offer.

The issue before the Court was whether under CPR 36.13 (5) the Claimant should be awarded his costs to the expiry of the relevant period on 19 February 2018 only, with him bearing the Defendant's costs thereafter, or whether some other order should be made on the grounds that the usual rule would be unjust to the Claimant.

Legal Framework

CPR 36.13 (4) (b) provides that, where a Part 36 offer is accepted after expiry of the relevant period, unless the parties can reach agreement, then liability for costs must be determined by the Court.

CPR 36.13 (5) provides that, unless the Court considers it unjust, the Court must order that the offeree be awarded costs up until the date on which the relevant period expired, but the offeree should bear the offeror's costs from the date of expiry of the relevant period to the date of acceptance. The burden to prove injustice is on the offeree.

In considering whether the normal rule results in an unjust outcome, the Court must take into account all of the circumstances of the case under CPR 36.13 (6) and the matters set out in CPR 36.17 (5), which are:

1. the terms of the Part 36 offer;

    

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

    

3. the information available to the parties at the time when the Part 36 offer was made;

    

4. the conduct of the parties in the provision of information for the purposes of enabling the offer to be made or evaluated; and

    

5. whether the offer was a genuine attempt to settle the proceedings.

 The Claimant's Position

The Claimant argued that the normal rule would be unjust as, during the period for acceptance of the offer, the Claimant was not able to fully quantify his claim. This was because the Claimant's loss of earnings claim depended on the outcome of the Claimant's ongoing application for promotion, which the Claimant argued could have been affected by his fear of flying.

The Claimant became aware of the outcome of his application in October 2018 and of his new posting in December 2018, but it was not clear until January 2019 that his fear of flying was not an obstacle to his promotion. The Claimant argued that he could not consider the merits of the MOD's Part 36 offer until this time.

The Claimant accepted he had not sought a stay of proceedings pending the outcome of his application for promotion, but he argued that the Defendant would have been better placed to know whether his application for promotion was going to be successful.

The MOD's Position

The MOD argued that it was common in personal injury litigation for offers of settlement to be made before the evidence in the case is complete. Such offers required judgment on both sides as to the likely outcome at trial.

This case had no unusual features which took it out of the norm and the Claimant should have assessed the merits of the offer against the expected outcome at trial.  Rather than await the outcome of his application for promotion, the Claimant could have obtained expert evidence on his future career prospects.

Alternatively, if the Claimant really believed that he could not obtain sensible advice on the merits of the offer, then he should have sought a stay to prevent the parties from continuing to incur costs in the interim.

Decision

The Court concluded that:

1. Whilst the evidence concerning the Claimant's prospects of promotion was incomplete, it was the job of the Claimant's advisors to weigh up the merits of the offer and advise accordingly;

    

2. If the Claimant's career prospects were so uncertain that this was not possible, then the Claimant should have applied for a stay pending the outcome of his application for promotion. This would have prevented the Defendant from incurring further costs after the expiry of the relevant period.

    

3. Even after the outcome of the Claimant's application for promotion was known in October 2018, the Claimant did not immediately revisit the merits of the Part 36 offer and waited a further 6 months before accepting it.

    

4. The decision on the Claimant's promotion was made by another body which did not report back its decision to the MOD. As such the MOD was not privy to any information that placed it in a better position to value the claim.

    

5. Consequently, the Court did not consider it unjust to make the usual order, which reflected the late acceptance of the Part 36 offer. The offer was considered a genuine attempt to settle which deserved careful attention from the Claimant. The Claimant received his costs until expiry of the relevant period, but was ordered to pay the MOD's costs from then until acceptance of the offer.

 Practical Tips

1. Starting with the obvious: on receipt of a Part 36 offer (or any offer), parties and their solicitors must give careful consideration to the value of the offer against the likely outcome at trial.

    

2. If the offer is made at a time when the merits of the offer are unclear, consider what steps are necessary to enable a proper assessment. For instance:

    

   1. Is expert evidence required?

       

   2. Are you awaiting disclosure of specific documents from your opponent?

       

   3. Do you require a response from your opponent on a specific point or argument?  

3. If the step required is something that can be done quickly, then an extension to the relevant period may be sufficient and a stay can be avoided. 

    

4. If more time is required, consider agreeing a stay of proceedings pending receipt of the necessary information, making it clear that this is the reason why a stay is needed.  

    

5. If the matter is pre-action, the parties may wish to agree an informal stay to prevent unnecessary costs being incurred, pending investigations by the offeree.