UK: Court Of Appeal Considers Dishonesty And Part 36 Interplay

Last Updated: 13 July 2018
Article by Clyde & Co LLP

Most Read Contributor in UK, November 2018

Tuson v Murphy [2018] EWCA Civ 1461



The Court of Appeal has found that a Defendant's Part 36 offer made in the knowledge of a Claimant's material non-disclosure did not alter the costs consequences. The Court of Appeal overturned a first instance decision which penalised a Claimant who had been accused of dishonesty, yet accepted a Part 36 offer of settlement from the Defendant

The High Court ordered that not only should the Claimant pay the Defendant's costs between the offer being made and the late acceptance, as usual under Part 36, but also that the Claimant's alleged dishonesty about the consequences of the accident, meant she should pay the Defendant's costs from the date the dishonesty commenced. This represented approximately 18 months' worth of the Defendant's costs, and was a departure from the usual application of Part 36.

The Court of Appeal allowed the Claimant's appeal against the additional 18 month period, stating that the Part 36 offer had been made by the Defendant in full knowledge of the alleged non-disclosure, and that the usual costs position should apply.

The Claimant was ordered to pay the costs resulting from the late acceptance of the offer.

Background

The Claimant sustained an injury in August 2010, and broke her right arm. Liability was admitted. She gave up work as a schoolteacher in September 2012 and issued proceedings in August 2013.

The claim was initially valued at £1.5million. In 2013, the Claimant obtained a playgroup franchise, and ran the first session in January 2014.

In April 2014, the Claimant served a witness statement which failed to mention the franchise. Additional statements and reports from third parties served subsequently failed to address the franchise as well. The Claimant's Schedule of Loss, served in July, included a substantial claim for future loss of earnings based on the opinion of an expert who had not been told of the franchise.

The franchise was transferred in January 2015, activity having ceased in September 2014. The Defendant was by this time aware, but the Claimant did not seek to disclose this information until a third witness statement in September 2015. The Defendant's solicitors had made the Claimant's solicitors aware of their knowledge in June 2015.

The Claimant admitted that she should have raised the matter but denied that she had been deceitful about her health. A week later, the Defendant made a Part 36 offer. On 1 December 2005, the Claimant accepted the Part 36 offer, and following a failure to agree costs, the matter went before HHJ Harris for a ruling on costs.

HHJ Harris ordered that "the Defendant to pay the Claimant's costs only up to 1st April 2014 and ordered the Claimant to pay the Defendant's costs thereafter".

Appeal

The Claimant argued that the offer had been made by way of Part 36, and had been made in full knowledge of the Claimant's non-disclosure and the costs consequences of making such an offer. The Defendant had the opportunity to make a Calderbank offer which could specify the exact consequences of acceptance.

The Defendant "submitted that the insurers were entitled to choose this option in the interests of greater certainty, and that once the 21 day period had expired the Claimant's dishonesty rendered her liable to an adverse costs order in the exercise of the judge's discretion."

Allowing the appeal, Lord Justice Bean stated that he agreed with the decision of Tiuta PLC (in liquidation) v Rawlinson & Hunter (a firm) [2016] EWHC 3480 (QB) that there is a difference between:

"a) a case where the facts known to the defendant's advisers at the time of the Part 36 offer do not change significantly during the period before the delayed acceptance; and

b) a case where the defendant's advisers' assessment at the time of making the Part 36 offer of the true value of the case, based on the facts then known to them, is upset or undermined by subsequent events or subsequently discovered facts."

What can we learn?

  • The claim commenced prior to the introduction of section 57 of the Criminal Justice and Courts Act. It is entirely possible that had the option to plead section 57 been open to the Defendant upon learning of the Claimant's non-disclosure, then they may well have done so and been successful
  • This claim can also be distinguished from Hayward v Zurich Insurance in which the Supreme Court unanimously decided that where an insurer suspects fraud but has nevertheless chosen to settle a claim, it would be entitled to set aside the settlement under the tort of deceit. Hayward established that such as settlement could be set aside if the defendant subsequently discovers proof that the claim was in fact fraudulent
  • As stated by the Court of Appeal, the Defendant in Tuson made the Part 36 offer was aware of the alleged dishonest behaviour, but had settled the claim on a value they were satisfied that the claim was worth. Hayward is distinguishable on the basis that the deceitful conduct there "was intended to influence the mind of the insurers, not necessarily by causing them to believe him, but by causing them to value his litigation claim more highly than it was worth..."

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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