UK Court of Appeal Confirms Rigidity of Part 36 Convention

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Decision clarifies the court’s limit of discretion in departing from Part 36 cost consequence rules, even if a party behaved dishonestly.

The Court of Appeal has overturned a decision at first instance in which a claimant accused of dishonesty was punished by way having to pay not only the usual costs for late acceptance of a Part 36 offer, but also the costs preceding the Part 36 offer. In Tuson v Murphy [2018] EWCA Civ 1461, the Court of Appeal found that the judge’s exercise of discretion had been flawed and the usual Part 36 cost consequences were bound to be applied, despite the claimant’s material non-disclosure.

Background

Tuson centred on a personal injury claim in connection with a horse riding accident suffered by the claimant at the defendant’s riding school. The defendant accepted liability, but disputed the quantum of the claim. The defendant made a Part 36 offer which was accepted by the claimant, albeit some 54 days after the expiry of the offer’s “relevant period”.

In such circumstances, the rules regarding Part 36 cost consequences require the defendant to pay the claimant’s costs up to the expiry of the “relevant period” (in this case, 8 October 2015) and the claimant to pay the defendant’s costs from the expiry of the “relevant period” to the date of acceptance (in this case, 1 December 2015). That is unless the court considers such orders to be unjust.

His Honour Judge Charles Harris QC (the “judge”) found that the claimant had misled the defendant during the earlier stages of the claim by failing to disclose the fact that she had worked for a certain period following the accident. The judge was asked to determine if the claimant’s alleged dishonest conduct rendered the usual cost consequences “unjust”, and should therefore be disapplied.

At first instance, the judge found that applying the usual Part 36 rules would be unjust because the claimant would not have been sanctioned in any way for presenting her case on a misleading basis. He therefore ruled that the defendant pay the claimant’s costs up to the date on which the claimant commenced to mislead the defendant (1 April 2014), and that the claimant pay the defendant’s costs from that point forward (1 April 2014 to 1 December 2015).

The Court of Appeal’s Ruling

Although the Court of Appeal ruled that the judge was entitled to find the claimant’s conduct as dishonest and misleading, it overturned the judge’s decision to sanction her on costs.

The Court of Appeal’s decision largely hinged on the fact that, by the time that the defendant made the Part 36 offer, the defendant was aware of the true state of affairs and had nonetheless chosen to make the Part 36 offer. The court found that the situation might be different if the defendant’s assessment of the value of the claim at the time of making the Part 36 offer had been undermined by subsequent events and/or the discovery of additional or unknown facts. However, in this instance, there was no justification for finding that the application of the usual Part 36 rules was unjust and so should be disapplied. As such, the defendant was required to pay the claimant’s costs up to the expiry of the relevant period (8 October 2015), and the claimant was ordered to pay the defendant’s costs from 8 October 2015 to 1 December 2015.

Implications

The decision does not create any new law, but serves to emphasise the rigidity of the rules governing Part 36 offers and the cost consequences that follow, as well as the relative limitation on judges’ discretion on costs if Part 36 offers apply. Part 36 offers are an extremely useful tool in litigation but this case serves to emphasise that parties should proceed with caution when making (or accepting) Part 36 offers as the rules governing them are very strictly adhered to, even in cases of dishonesty.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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