UK: Part 36 Offers And Refusal To Mediate

Last Updated: 20 July 2012
Article by Mary Edis

The following two quotes from Lord Justice Rix (in Rolf v De Guerin [2011] EWCA Civ 78 and Epsom College v Pierse Contracting Southern Limited [2011] EWCA Civ 144 respectively) neatly encapsulate the present concerns about costs in litigation:

"This is an appeal solely about costs. It is also a sad case about lost opportunities for mediation. It demonstrates, in a particular class of dispute, how wasteful and destructive litigation can be."

"I am concerned about the costs which have arisen in this case..... I am also concerned that this is another case in which the existence of a conditional fee agreement has made it practically impossible to obtain a settlement."

Defendants, of course, are only too aware of the costs risks of litigation. Even at a reasonably early stage the claimant's costs can include CFA uplifts, front loaded experts' fees and ATE insurance premiums; costs regularly spiral well beyond the damages claimed. Settlement options must invariably be considered but defendants do need to have confidence in the cost consequences of any offer that they may make. Although Part 36 is intended to be a self-contained and predictable framework within which parties can negotiate, as the continuing stream of first instance and Court of Appeal decisions on Part 36 illustrate, this is not always the case.

In the recent High Court decision of Norman Lee Thewlis v Groupama Insurance Company Limited [2012] EWHC, despite the heading and body of an offer letter referring to Part 36, the fact that it said the offer was open for 21 days and "thereafter it can only be accepted if we agree the liability for costs or the court gives permission" was fatal. A Part 36 offer can be accepted at any time, even after the expiry of the relevant period, unless the offeror has served notice of withdrawal (CPR 36.9(2)); a letter suggesting otherwise is an invalid Part 36 offer. (See also French v Groupama Insurance Company Limited [2011] EWCA Civ 1119).

Part 36 offers accepted after expiry of the relevant period

If a claimant accepts a defendant's Part 36 offer late and the parties cannot agree costs the usual rule is that the claimant will receive his costs up until the expiry of the relevant period and thereafter the claimant will have to pay the defendant's costs up until the date of acceptance (designed to encourage the claimant to accept the offer in good time)(CPR 36.10(5)). However, the defendant cannot always assume they will obtain these costs. The court can make a different order if following the usual rule would be unjust.

In Lumb v Hampsey [2011] EWHC 2808 the usual rule was followed. The claimant (a protected party) argued that it was not in a position to accept the offer at the time because during the relevant period, amongst other things, his advisers were unable to value his claim as he was in neurological rehabilitation and they wanted to wait and see how his treatment progressed. It was also argued that the expert evidence which would have been needed for the approval of the Court of Protection was incomplete. These arguments were rejected and it was not considered that it would be unjust to depart from the usual rule on costs. The Court of Appeal decision in this case is awaited.

A similar outcome occurred in the case of SG (a minor by his mother and litigation friend Mrs AG) v N K Hewitt (High Court, 02.12.11.) The claimant had sustained a traumatic brain injury as a result of a road traffic accident in March 2003, when he was six. Liability was not in dispute. In April 2009, the defendant made a Part 36 offer. The claimant spent a further two years and three months compiling supplementary evidence from their existing experts and undertaking substantial preparatory work on the case. The offer was then accepted, in August 2011. The claimant sought to argue that, on the medical evidence available at the time of the offer, it was not possible to advise on acceptance of the offer, or commend it to the court for approval. The defendant argued that it was not appropriate to vary the usual order merely because the value of the claim was uncertain - the losing party should pay, and there was no rule which states that cost consequences should only follow once a case is capable of being quantified. The court accepted that, when the offer was submitted, it would have been impossible for the claimant to determine whether it should be accepted. However this was not a sufficient reason to justify departure from the normal costs order. Whilst the claimant had done nothing wrong in completing further investigations, the defendant was entitled to invoke the function and purpose of Part 36. (For more information on this case, please click here to read our previous update).

By contrast in another recent first instance decision, the memorably titled PGF II SA v OMFS Co [2012] WL 14891 (a building case) the claimant had accepted the defendant's Part 36 offer on the day before trial following a previously unpleaded point being raised that day in the defendant's skeleton argument, which threatened the claimant's case on liability. The judge decided that despite the late proposed amendment he would have made the usual order that the claimant pay the defendant's costs incurred after the expiry of the relevant period because the newly pleaded point could have been picked up by them earlier when considering their case on liability. However in fact he made no order as to costs for that period because he decided that the defendant had unreasonably refused to take part in mediation.

Refusal to take part in mediation relevant to the court's discretion on costs

This point was also raised by the Court of Appeal in Rolf v De Guerin [2011] (see above). This was a small domestic building claim in which the bulk of the claim was dismissed except in relation to one defect for which Mrs Rolf was awarded £2,500, considerably less than originally claimed (at its highest £92,515) and less than her own Part 36 offers. Effectively the defendant had won and wanted his costs. However, Mrs Rolf's solicitors had invited Mr Guerin to participate in mediation several times. He had refused on the basis that he wanted his "day in court". This refusal was considered to be unreasonable behaviour for the purposes of CPR 44(5) and the appropriate order was no order as to costs.

Lord Justice Rix referred to Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 (a clinical negligence claim) in which the Court of Appeal had given consideration to the circumstances in which it might be said that a party had acted unreasonably in refusing ADR. The question of whether there was a reasonable prospect that mediation would have been successful is one of a number of factors to be considered.

Refusal of mediation on the grounds that all the expert evidence required to value the claim is not available at the time may not be reasonable. As the judge in PGF put it: "The rationale behind the Halsey decision is the saving of costs and this is achieved (or at least attempted) by the parties being prepared to compromise without necessarily having as complete a picture of the other parties' case as would be available at trial."

Parties cannot be forced to mediate, especially when, for example, as in Halsey, the defendant has a good defence and the costs of mediation were disproportionately high when compared to the value of the claim. However, it is now standard both in clinical negligence and personal injury cases for the court to give a direction regarding ADR and both parties need to be prepared to justify rejection of ADR at the conclusion of a trial should the judge consider that it would have been appropriate when considering what costs order to make.

Key points for defendants

  • Care must be taken with the wording of offers, which must comply with the provisions of Part 36 in order to attract its costs consequences
  • Late acceptance of a Part 36 offer by the claimant will usually mean that the claimant will have to pay the costs after the expiry of the relevant period, but the court has discretion to make a different order if that would be unjust
  • Refusal to mediate may be conduct to be taken into account when the court exercises its discretion on costs
  • Defendants may wish to consider suggesting mediation at the same time as making a Part 36 offer; unreasonable refusal by the claimant could in some circumstances alter the final costs order even if the claimant succeeds
  • Defendants should be aware that unreasonable refusal to mediate may be used against them by the claimant on costs arguments

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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