Part 36 Offers and Genuine Attempts to Settle Proceedings

In: Bulletin Published: Saturday 17 February 2018

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Foskett J hands down judgment in JMX (A Child) v Norfolk and Norwich Hospitals NHS Foundation Trust [2018] EWHC 185 (QB) (‘JMX’), discussing the application of CPR r.36.17(5)(e) ‘genuine attempt to settle the proceedings’ consideration in weighing up whether it would be unjust to impose normal Part 36 cost consequences.

Where a party (the ‘Offeror’) makes a Part 36 Offer which is not accepted by the other side (the ‘Offeree’) within the ‘relevant period’ under CPR r.36.3 (g) and r.36.5(1)(c), and the Offeror achieves a qualifying result at trial (‘more advantageous’ or ‘at least as advantageous’, as the case may be, as defined by CPR r.36.17), the Court must impose the prescribed costs consequences in favour of the Offeror and against the Offeree, ‘unless it considers it unjust to do so’. CPR r.36.17 (5) provides that ‘in considering whether it would be unjust to make the orders…the court must take into account all the circumstances of the case including…’ five express considerations:

‘(a) the terms of any Part 36 offer;

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

(c) the information available to the parties at the time when the Part 36 offer was made;

(d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and

(e) whether the offer was a genuine attempt to settle the proceedings.’

The recently handed down case of JMX involved discussion on the recently introduced[1] fifth consideration, (e) ‘whether the offer was a genuine attempt to settle the proceedings’

JMX Facts

The facts of JMX can be stated briefly. The claimant brought a clinical negligence claim against the defendant. The claimant, offeror, made a Part 36 offer to the defendant, offeree, timed to expire 1 working day before the trial commenced, offering to accept 90% of the value of his claim (‘the damages to be agreed or assessed in due course’ paragraph 3). When the ‘relevant period’ expired, the offer remained unaccepted and the trial went ahead, and the claimant won on liability (see JMX v Norfolk and Norwich Hospitals NHS Foundation Trust [2017] EWHC 3082 (QB); ‘damages fall to be agreed or assessed in due course’ paragraph 1 of JMX). Consequentially, as the claimant had obtained an outcome ‘…at least as advantageous to the claimant as the proposals contained in the claimant’s Part 36 Offer’ under CPR r.36.17(1)(b), the claimant claimed to be entitled to the normal Part 36 costs consequences as prescribed by CPR r.36.17(4).

Subject to the considerations referred to in CPR r.36.17(5),  those cost consequences were:

(i) the claimant should be entitled to his costs after the expiration of the relevant period on the indemnity basis ( rule 36.17(4)(b));

(ii) interest should be payable on those costs at a rate not exceeding 10% above base rate (rule 36.17(4)(c)); and

(iii) the recovery by the claimant of an additional amount to be determined after the damages have been assessed pursuant to r.36.17(4)(d)  .

The defendant resisted.

History of Court’s Approach to ‘Tactical Offers’

Before turning to the arguments, Foskett J started by noting the perceived mischief that CPR r.36.17(5)(e) was introduced to meet. It was, as summarised by the White Book:

‘… to deal with the problem of claimants making very high settlement offers (often as much as 95 per cent of the value of the claim) not in a genuine attempt to settle the claim but to place the defendant at risk of indemnity costs pursuant to r.36.17(4).’

Foskett J then traced the history of the court's approach to what became known as "tactical offers", namely, offers designed only to secure the additional benefits of the earlier iterations of rule 36.17 and were not true offers of settlement, noting the commentary in the White Book:

‘While 100 per cent offers do not work, in Huck v Robson [2002] EWCA Civ 398; [2003] 1 W.L.R. 1340; [2002] 3 All E.R. 263, CA, the majority of the Court of Appeal allowed the claimant's appeal and made orders under what is now r.36.17(4)  in a personal injury claim where the claimant had made a 95 per cent offer. While allowing the appeal, the Court of Appeal recognised the potential for abuse, holding that, if the offer was "merely a tactical step designed to secure the benefits of [Pt 36]", the court would not give effect to it (Tuckey LJ at para.71; see also Schiemann LJ at para.81). As Norris J observed in Wharton v Bancroft [2012] EWHC 91 (Ch), 30 January 2012, unrep., all Part 36 offers are tactical. The Huck test was not therefore easy to apply. It was these considerations, and a concern that Huck was insufficient to check the potential for abuse, now exacerbated by the "additional amount" awarded to claimants pursuant to r.36.17(4)(d), that led the Rule Committee to introduce the new para. (5)(e). The focus of the additional enquiry is as to whether the offer was a genuine offer to settle, and not on whether it was or was not "tactical". In approaching para. (5)(e), it is important to remember that the default rules in r r.36.17(3) to (4) are only to be departed from where such orders would be unjust and that (as explained above) the offeree faces a "formidable obstacle" in obtaining a different order. It is suggested that para. (5)(e) will be a useful consideration in cases where claimants have made very high Part 36 offers but that judges are likely to resist attempts to call evidence or obtain disclosure on the point, preferring instead to take a broad brush view largely informed by their own assessment of the strength of the case that they have just tried and therefore the extent to which the offer appeared to be a genuine attempt to settle. Of course, there is nothing inherently wrong with very high claimant offers in extremely strong cases, but it may be prudent in such cases for claimants to explain in their offer letters why such a small discount is being offered for settlement.’

Defendant’s Arguments for Why Offer was not a Genuine Attempt to Settle

In JMX, the defendant offeree argued that the offer was not a genuine attempt to settle the case because it did not reflect any realistic assessment of the risks of the litigation. Reliance was placed on the fact that the letter making the offer did not explain why only a 10% discount was being offered for settlement, something the White Book commentary suggested would be prudent. The defendant sought to demonstrate how the claimant offeror's team ought to have viewed the strengths (or, more accurately, the weaknesses) of the claimant’s case, seeking to demonstrate that an assessment of the risks as being only 10% was a significant under-evaluation of the litigation risk and, accordingly, such an offer could not have been a genuine attempt to settle.

Discussion

Foskett J said, at paragraphs 12 to 14:

‘Whilst it is unwise ever to say "never", I do consider this kind of argument to be one which could hardly ever succeed. How one side perceives the risks in a piece of litigation (whether in the clinical negligence sphere or any other sphere) will almost invariably be different from the way the other side perceives them. Quite often in my experience as a practitioner and, more particularly, as a mediator, a settlement of a case was achieved when there were widely differing views of the risks on both sides. Settlement did not require a meeting of minds on the nature of the litigation risks of each side. Quite how a judge can successfully embark on the kind of exercise I am being invited to embark upon is very difficult to see. [Counsel for the claimant] is right to say that it is almost akin to embarking on a mini-trial in the post-trial situation in order to determine how the case should have looked to the offeror before the offer was made. To my mind, this is an exercise which ordinarily should not be carried out and I am sure that most judges would not regard it is a welcome process, preferring the broad brush approach referred to in the note in the White Book.

I see absolutely no reason to embark on this process in this case. [Counsel for the defendant] submits that clinical negligence cases are "notoriously hazardous" and they "can seldom be regarded as 'open and shut'." He says that "litigation risk" in clinical negligence cases "is often regarded as being in excess of the sometimes 'conventional' 10%." I am not sure, with respect, that I can fully accept that formulation both from my own experience as a former practitioner in the field and in other capacities. There are 'open and shut' cases and I have observed in another case (Surrey v Barnet and Chase Farm Hospitals NHS Trust [2016] EWHC 1598 (QB), [103]) that the [National Health Service Resolution] (formerly the NHSLA) admits liability commendably early in cases where it is obviously right to do so and where there is plainly no defence. All cases do carry some risk, quite frequently associated with the way a witness, whether expert or otherwise, is likely to "perform". That may often be difficult to assess, but experienced practitioners can usually reach an informed view on such an issue.

When an offer to accept 90% is made in a case such as this, I would regard it as a case where the Claimant's team regard the claim as very strong, but is prepared to offer a modest discount to secure absolute certainty of obtaining substantial compensation. That is what [counsel for the claimant] says prompted the offer in this case and I have no reason to doubt that that was so.‘

As to the notion that unexplained offers might warrant a conclusion that the offer is not a genuine attempt to settle the matter, Foskett J said, at paragraph 14:

‘Whilst, of course, it is open to the offeror to explain this kind of thinking in the letter making the offer if it is thought helpful, I do wonder whether in most cases it would assist. I can see the letter prompting a reply (sometimes expressed in language that does not help the settlement process) and it may be thought better simply to leave it to the recipient of the offer to assess the offer as it stands.’

Foskett J expressed concern about the likely adverse consequences of acceding to the defendant’s analysis, namely a chilling effect to offers of 90%, at paragraph 15:

‘If I was to accede to [counsel for the defendant’s] submissions, it could have the effect that a 90% settlement in the clinical negligence sphere is hardly ever agreed. In my capacity as Judge in charge of the Queen's Bench Division Civil List, I see a great many settlements in this area of litigation (and in serious personal injury claims not arising from clinical negligence) when I am asked to approve the settlement. I have not, of course, kept any kind of record, but my perception is that a wide variety of "percentage settlements" on liability/causation are agreed and approved by the court, including "90% settlements" from time to time. I can certainly recall several in my own practice in my last few years at the Bar. As I have said, if I were to accede to [counsel for the defendant’s] submissions, I can see that no one will ever offer to accept 90% and the [National Health Service Resolution] will never agree to it.’

Moreover,  discount of 10% is not simply to be categorized as a ‘token discount’; Foskett J said, at paragraph 16:

‘…10% is not a token discount, particularly at a time when the level of damages in serious cases is very significant. I do not know what the likely value of the Claimant's claim is in this case, but it is likely to run into several million pounds on a traditional lump-sum basis. 10% of such a sum will itself be a not insignificant sum that would have been saved for the public purse had the offer been accepted. Equally, of course, most of the costs of a 5-day trial would have been saved.’

Application to the Facts in JMX

Applying this approach to the facts in JMX, Foskett J concluded, at paragraph 17, that:

‘In my view, this was properly to be regarded as a genuine offer of settlement and I do not consider that it militates against ordering the normal consequences for the Claimant having achieved more than his Part 36 offer….’

Two Further Points Made

Foskett J made two further points. For convenience, these will be taken in reverse order. The first point to note, is the considerable concern he expressed about disclosure to the Court of likely ‘without prejudice’ material, generated by both sides in negotiations and meetings (though no objection had been taken by either party  to such disclosure). Firstly, Foskett J had found none of the material of assistance, and secondly, he was concerned that such 'open house' disclosure risked endangering the recognized utility of the ‘without prejudice’ cloak, if this developed into a practice. He said, at paragraph 18:

‘…I would take this opportunity to reassert that the content of these discussions, provided they are genuinely aimed at settlement, are ordinarily privileged. I did not find what I was told about what was said and by whom to be of any value at all and, for my part, would think that in most cases it would not assist deciding whether an offer was a genuine offer of settlement. A failure to negotiate at all can undoubtedly affect the exercise by the court of aspects of its discretion (see, for example, OMV Petrom SA v Glencore International AG [2017] 1 WLR 3465), but the content of privileged discussions should generally remain privileged: the purpose of the privilege is to enable all cards to be put on the table. A general 'open house' subsequently about what was said and by whom during those discussions could endanger the long-recognised utility of the "without prejudice" negotiating process. That can be in no-one's interests.’

The other, second point to note, was Foskett J's comments against automatically construing the imposition of the normal Part 36 costs consequences, as condemnation of the offeree's litigation conduct. He said, at paragraph 17:

‘An order of the kind sought by the Claimant does not necessarily carry any condemnation by the court of the Defendant's position. Part 36 was drafted in a way that provides an incentive to a defendant to view seriously and, where appropriate, to accept a claimant's Part 36 offer. The decision not to do so may be perfectly understandable and reasonable even if, in due course, it turns out to have been the wrong one. It is simply a reflection of the litigation risk that each party has to evaluate.’

SIMON HILL © 2018

BARRISTER

33 BEDFORD ROW 

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.

[1] Paragraph 5 (e) was added with effect from 6.4.15.