Pankhurst v Lee White Motor Insurers Bureau [2010] EWCA Civ 1445

Case No A2/2010/0573[2010] EWCA Civ 1445IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN’S BENCH DIVISION
MR JUSTICE MACDUFF
HQ05X01706
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 15/12/2010
Before
THE CHANCELLOR OF THE HIGH COURTLORD JUSTICE LEVESONLORD JUSTICE JACKSON
Between
JAMES PANKHURSTAppellantLEE WHITERespondentMOTOR INSURERS BUREAURespondent
Mr Gerard McDermott QC (instructed by Stewarts Law LLP) for AppellantMr Richard Methuen QC and Mr Harry Steinberg (instructed by Berrymans Lace Mawer LLP) for RespondentHearing Hearing dates : Thursday 25 th November 2010
JudgmentLord Justice Jackson :
[1]This judgment is in six parts, namely: Part 1. Introduction Part 2. The Facts Part 3. The Appeal to the Court of Appeal Part 4. Ground 1. Did the Judge err in Failing to Award Interest on the Damages for Future Loss? Part 5. Ground 2. Did the Judge err in Failing to Award Interest on Costs? Part 6. Conclusion.

Part 1. Introduction

[2]This is an appeal by a claimant who contends that he has received insufficient awards of interest under the Civil Procedure Rules Part 36, having obtained a larger amount of damages at trial than he had previously offered to accept in settlement.[3]In this judgment I shall refer to the Motor Insurers Bureau, which is second defendant and respondent to the appeal, as “MIB”. I shall refer to the Access to Justice Act 1999 as “the Access to Justice Act”. I shall refer to the Civil Procedure Rules Part 36 as “Part 36”.[4]Part 36 underwent substantial amendment with effect from 6th April 2007. Prior to that date, rule 36.21 provided as follows: “36.21 –(1) This rule applies where at trial – (a) a defendant is held liable for more; or (b) the judgment against a defendant is more advantageous to the claimant, than the proposals contained in a claimant’s Part 36 offer (including a Part 36 offer made under rule 36.2A).(2) The court may order interest on the whole or part of any sum of money (excluding interest) awarded to the claimant at a rate not exceeding 10% above the base ratefor some or all of the period starting with the latest date on which the defendant could have accepted the offer without needing the permission of the court.(3) The court may also order that the claimant is entitled to – (a) his costs on the indemnity basis from the latest date when the defendant could have accepted the offer without needing the permission of the court; and (b) interest on those costs at a rate not exceeding 10% above base rate.(4) Where this rule applies the court will make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so.(5) In considering whether it would be unjust to make the orders referred to in (2) and (3) above, the court will take into account all the circumstances of the case including – (a) the terms of any Part 36 offer; (b) the stage in the proceedings when any Part 36 offer or Part 36 payment was made; (c) the information available to the parties at the time when the Part 36 offer or Part 36 payment was made; and (d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer or payment into court to be made or evaluated.(6) Where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest may not exceed 10% above base rate.” (a) a defendant is held liable for more; or (b) the judgment against a defendant is more advantageous to the claimant, (a) his costs on the indemnity basis from the latest date when the defendant could have accepted the offer without needing the permission of the court; and (b) interest on those costs at a rate not exceeding 10% above base rate. (b) the stage in the proceedings when any Part 36 offer or Part 36 payment was made; (c) the information available to the parties at the time when the Part 36 offer or Part 36 payment was made; and (d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer or payment into court to be made or evaluated.[5]With effect from 6th April 2007 the former rule 36.21 was substantially re-enacted within the new rule 36.14. Rule 36.14 (so far as material to the issues in this appeal) now provides as follows: “36.14—(1) This rule applies where upon judgment being entered—(a) a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer; or(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer. ……. (3) Subject to paragraph (6), where rule 36.14(1)(b) applies, the court will, unless it considers it unjust to do so, order that the claimant is entitled to— (a) interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired; (b) his costs on the indemnity basis from the date on which the relevant period expired; and(c) interest on those costs at a rate not exceeding 10% above base rate. (4) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3) above, the court will take into account all the circumstances of the case including— (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; and(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated. (5) Where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest may not exceed 10% above base rate.” (a) a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer; or (b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer. ……. (a) interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired; (b) his costs on the indemnity basis from the date on which the relevant period expired; and (c) interest on those costs at a rate not exceeding 10% above base rate. (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; and (d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.[6]Some of the changes in wording between old rule 36.21 and new rule 36.14 have given rise to debate in other cases. However, those changes in wording are not material for present purposes.[7]The claimant’s offer which falls for consideration in this appeal was made when Part 36 was in its original form. However, the judge had to determine the consequences of that offer after Part 36 had been amended. The transitional provisions contained in the Civil Procedure (Amendment No.3) Rules 2006 require that in such a case the court must apply the provisions of Rule 36.14 in its new form.[8]It will be necessary, as this judgment progresses, to consider how the provisions of Part 36 impact upon a case where one party has a conditional fee agreement with after-the-event insurance, thus triggering the operation of section 29 of the Access to Justice Act and section 58A(6) of the Courts and Legal Services Act 1990, as amended by the Access to Justice Act.[9]Having set out the relevant background, I must now turn to the facts of the present case.

Part 2. The Facts

[10]On 7th June 2003 the claimant was cycling along a country lane in Devon. He was struck on a bend by a vehicle driven by Lee White, an uninsured driver. The claimant suffered catastrophic injuries.[11]The claimant’s solicitors, Messrs Stewarts, who are now Stewarts Law LLP, commenced proceedings on the claimant’s behalf against Lee White as first defendant and MIB as second defendant. The first defendant has played no part in the proceedings, which have been fought out between the claimant and MIB.[12]On 30th September 2005 the claimant obtained summary judgment on liability against the first defendant, subject to the future determination of the issue of contributory negligence. Master Fontaine subsequently ordered that issue to be tried on a date to be fixed in the Trinity Term of 2006.[13]On 4th December 2005 (some two months after obtaining judgment on liability) the claimant entered into a conditional fee agreement with his solicitors. That agreement provided for a success fee of 22 ½% if the action settled pre-trial, and a success fee of 100% if the action went to trial. These success fees included a 10% postponement fee to be paid by the client, unless recovered from MIB. Success was defined as any recovery of damages. In the circumstances of this case there was no risk whatsoever that the claimant’s solicitors would not be paid their base costs in full. Yet the solicitors were charging a “success fee” on top of their base costs for running a non-existent risk. This makes a mockery of what is said to be the justification for the present conditional fee agreement regime. It is also highly relevant to the second issue in the appeal. I shall therefore return to this matter in Part 5 below.[14]On 23rd May 2006, when contributory negligence remained a live issue, the claimant offered pursuant to Part 36 to accept £3.4 million (or a lesser capital sum plus periodical payments to achieve an equivalent overall value) in settlement of his claim. MIB rejected that offer on 31st May 2006.[15]I interject at this point in the narrative to say that throughout the litigation many offers and counter-offers were made by both parties. However, only two of the offers are now relevant to the issues under appeal. Therefore I pass over the other offers in silence.[16]On 26th June 2006 the trial of the issue of contributory negligence commenced before Wilkie J. On 27th June 2006 Wilkie J gave judgment rejecting the allegations of contributory negligence and holding that the claimant was entitled to damages on the basis of full liability.[17]The claimant, having achieved a substantial victory on the issue of contributory negligence, made it clear that he was no longer willing to settle on the terms offered in May 2006. The parties then set about preparing for the trial on quantum. This process was (as the judge found on the evidence) affected by delays on the claimant’s side.[18]On 28th May 2008 MIB offered pursuant to Part 36 to pay £3 million plus periodical payments of £260,000 per year in settlement of the claimant’s claim. The offer contained further provisions, the details of which are not relevant for present purposes. The value of that offer, if one capitalised the periodical payments, was £6.8 million.[19]The trial of the issue of quantum commenced on 24th June 2008 before MacDuff J. The trial lasted five days. In addition the judge made a visit to the claimant’s home. The judge heard final oral submissions on 12th September 2008. By the time of trial some of the issues between the parties had been resolved, including the level of future periodical payments.[20]MacDuff J handed down his reserved judgment on quantum on 10th June 2009. The judge awarded a lump sum (before interest) of £2,317,612, comprising general damages of £225,000, special damages of £884,771, and damages in respect of future losses totalling £1,207,841. In relation to accommodation, the judge was strongly critical of the claimant’s decision to purchase a property in Kent, known as Archers Post, to demolish it and to rebuild a huge house on the site. Accordingly, the judge assessed the claim for past and future accommodation costs by reference to a notional property which would have catered for the claimant’s needs. The judge also made an order for future periodical payments in the agreed sum of £260,000 per year. If one capitalises the periodical payments, it can be seen that the total damages awarded by the claimant amounted to approximately £6.1 million. Of that sum, approximately £5 million was referable to future losses.[21]Thus the position was reached by 10th June 2009 that each party had “beaten” the other party’s Part 36 offer. The claimant had secured a more advantageous result than that set out in his Part 36 offer dated 23rd May 2006. MIB had secured a more advantageous result than that set out in its Part 36 offer dated 28th May 2008.[22]It should also be noted that by the date of judgment MIB had made interim payments to the claimant on account of damages totalling £1,535,000. MIB had made interim payments to the claimant’s solicitors on account of costs in the sum of £357,593.[23]Following the handing down of judgment on quantum, it became necessary to work out the consequences of the successful Part 36 offers which each party had made at different stages. The consequences of MIB’s offer were not difficult to establish. It was agreed that (unless the court’s decision on interest dictated a different result) the claimant should pay MIB’s costs from 18th June 2008 onwards. Effectively this meant that the claimant paid MIB’s costs of the quantum trial.[24]The consequences of the claimant’s Part 36 offer were less straightforward and gave rise to substantial controversy. MacDuff J heard argument about these issues on 21st September 2009 and delivered his reserved judgment on 18th February 2010. The judge held as follows:(i) Although the claimant’s Part 36 offer was rejected and could not be accepted after it had expired, it retained its “costs potency” until the date when the claimant ought to have accepted the defendant’s Part 36 offer. That was a period of two years.(ii) Pursuant to CPR rule 36.14(3)(a), interest would be awarded at the enhanced rate of 10% on special damages and at the enhanced rate of 4% on general damages for a period of 21 months.(iii) There would be no award of interest pursuant to rule 36.14(3)(a) on damages referable to future losses.(iv) The claimant was entitled to costs assessed on the standard basis up to 12th June 2006.(v) Pursuant to rule 36.14(3)(b), the claimant was entitled to costs assessed on the indemnity basis between 13th June 2006 and 18th June 2008.(vi) There would be no award of interest on costs pursuant to rule 36.14(3)(c).[25]It should be noted that neither party challenges on appeal or cross-appeal the decisions summarised in sub-paragraphs (i), (ii), (iv) and (v) above.[26]The judge set out the reasons for his decision in a clear and concise written judgment. I shall refer to the judge’s reasoning in respect of those matters which are subject to appeal in due course. At this stage, however, suffice it to say that the judge explained why he awarded enhanced interest only for a period of 21 months rather than for the full 2 year period. Essentially this was because of delays on the part of the claimant and his advisors in the conduct of the proceedings.[27]So far as the claimant was concerned, the overall effect of MacDuff J’s second judgment was that the claimant received additional interest of £9,000 on special damages and £8,000 on general damages. Thus in total the sum awarded to the claimant was increased by £17,000.[28]The claimant was aggrieved by the decision of MacDuff J in relation to the Part 36 issues. Accordingly he appeals to the Court of Appeal.

Part 3. The Appeal to the Court of Appeal

[29]On appeal the claimant challenges the order made by MacDuff J on two grounds. First, he submits that the judge ought to have awarded interest in respect of damages for future losses pursuant to rule 36.14(3)(a). Secondly, he submits that the judge ought to have awarded interest on costs pursuant to rule 36.14(3)(c).[30]In support of the first ground of appeal Mr Gerard McDermott QC, for the claimant, submits that under the present rules there is an imbalance between(a) the huge reward which a defendant receives for making an effective Part 36 offer and(b) the lesser reward which a claimant receives for making an effective Part 36 offer. That imbalance is made worse by the judge’s failure to award interest in this case on a large part of the damages pursuant to rule 36.14(3)(a). Mr McDermott points out that the claimant has only received a reward of £17,000 in respect of his offer, which MIB inappropriately rejected. On the other hand, as Mr McDermott puts it in his skeleton argument:
“As a result of the outstanding aspects of that offer from the defendant, which the claimant failed to better, the claimant has had to pay the defendant’s costs of the quantum trial which are yet to be assessed but likely to approach or exceed 6 figures.”
[31]It seemed to the court difficult to assess the merits of this submission without looking at the costs incurred by each party and without understanding what arrangements had been made in respect of any conditional fee agreement or after-the-event insurance. Mr McDermott saw the force of this point. After taking instructions, he disclosed this material.[32]The material disclosed by the claimant during the hearing is also relevant to the second ground of appeal. It is necessary to understand at least in outline what costs the claimant is entitled to recover before considering whether the judge erred in failing to award interest on those costs.[33]I should add that the costs material that we received during the hearing is normally disclosed to the court and to opposing parties in the course of detailed assessment proceedings. It is not something that a receiving party is entitled to keep to itself. Furthermore this is not a case to which CPR rule 45.16 applies, because the claimant’s accident occurred before 6th October 2003.[34]Having touched upon the additional material handed up during the hearing, I must now turn to the first ground of appeal. Part 4. Ground 1. Did the Judge err in Failing to Award Interest on the Damages for Future Losses?[35]At paragraph 58 of his judgment,

the judge said this:

“58. The part of the award. Upon which part or parts of the award should the enhanced interest be granted? Although the rule provides that the court may order interest to be paid at an enhanced rate upon “a whole or part of any sum of money awarded”
I have reached the conclusion that it would be wrong to make any award of interest, enhanced or otherwise, in respect of those damages which were awarded for future losses and future expenditure, that is to say those damages which would not attract interest in the normal way. There is some authority to support this conclusion. In Petrograde itself, Lord Woolf envisaged that, where the court would otherwise award interest, it could, where these provisions applied, order the interest to be paid at “more than the going rate.” Upon damages for future losses, where interest is not awarded, there can be no “going rate.” In a case (for example) of breach of contract, where the damages all represent past loss, it would be normal to award interest on the full amount of the award. If part 36.21 (now part 36.14) applied, it might be appropriate to award that interest at higher than the “going rate” on the whole of the award. But not where interest would not normally be awarded at all. This was the view of the Court of Appeal in respect of libel damages in McPhilemy v Times Newspapers [2001] EWCA Civ 933. “Given that, in a defamation action, it would generally be unjust to award interest upon the damages, let alone at an enhanced rate, it becomes more important that a part 36.21 order is made as to costs…” (my emphasis); per Lord Justice Simon Brown, as he then was, at paragraph 28. This was also expressed by Eady J in Jones v Associated Newspapers [2007] EWHC 1489 (QB). Where interest would not normally be awarded upon damages, it would be inappropriate to award enhanced (or any) interest upon those damages under the old part 36.21 (now 36.14). Accordingly, I have decided that it would be appropriate to award enhanced interest upon past losses only, and not upon future losses.”[36]Mr McDermott submits that the judge was not bound by the Court of Appeal’s decision in McPhilemy v Times Newspapers Limited (No.2) [2001] EWCA Civ 933; [2002] 1 WLR 934, because that was a libel case to which special considerations attach. Mr McDermott also draws attention to rule 36.5(2), which was formerly rule 36.2A(2). He submits that this rule proceeds on the basis that the court may award interest on damages for future loss.[37]I see force in the proposition that an award of interest under rule 36.14(3) is reward for making an appropriate settlement offer, which the other side has failed to accept. Such awards of interest are not intended to be compensatory. Therefore such awards of interest ought not to be confined to heads of damages or liquidated sums which, in the ordinary way, attract awards of interest. However, I have come to the conclusion that such an approach is not open to this court. It is part of the ratio of McPhilemy that the court can only make awards of enhanced interest under CPR Part 36 in respect of items in the judgment which already merit some award of interest: see the judgment of Chadwick LJ at paragraphs 17 to 21 and the judgment of Simon Brown LJ at paragraph 28. The decision of principle which this court reached in McPhilemy is not confined to libel cases. The judge rightly regarded himself as bound by the decision in McPhilemy.[38]Mr McDermott placed emphasis on the unfairness of Part 36, if it is construed in the manner adopted by the judge. He pointed out that defendants’ offers have much more teeth than claimants’ offers.[39]Mr Richard Methuen QC, at the start of his submissions, very fairly accepted that as things stand claimant offers under Part 36 may not have enough teeth. He went on to argue, however, that if the rules are defective, this is a matter that must be addressed by law reformers or the Rule Committee. It is not appropriate for this court to effect law reform through judicial innovation. Part 36 provides for enhanced interest as the reward for effective claimant offers. It does not provide for claimants to receive any free standing supplements to their damages or other sums recovered.[40]I have come to the conclusion that Mr Methuen’s submissions are correct. Even if the criticisms made of Part 36 are valid, this court cannot possibly step in and re-write the rules. Indeed, this very issue is now the subject of government consultation with many competing factors in play: see MoJ consultation paper CP13/10 (Cm 7947) at pages 40 to 45. At the end of that consultation, the Ministry of Justice and the Rule Committee will have to decide whether Part 36 requires reform.[41]I turn next to the circumstances of this case. I was troubled to read in Mr McDermott’s skeleton argument that, under the present judgment, the claimant would have to pay out a six figure sum for failing to beat MIB’s Part 36 offer, whereas he would only receive back £17,000 for his own effective Part 36 offer.[42]Now, however, we have the full costs material before us. It can be seen that the claimant will not have to pay any sum to MIB, because the entirety of the claimant’s liability for adverse costs is covered by after-the-event insurance. Furthermore, the premium for that after-the-event insurance will be paid by MIB, because after-the-event insurance cover was taken out during the period for which the claimant has an order for costs against MIB. In other words, MIB is receiving a payout under an insurance policy for which MIB is paying the premium.[43]It can therefore be seen that the claimant is paying nothing to MIB for failing to beat MIB’s offer. On the other hand MIB is paying £17,000 to the claimant for failing to beat the claimant’s offer.[44]The facts of this case illustrate that in cases where the claimant has after-the-event insurance with a recoverable premium (under section 29 of the Access to Justice Act), that circumstance may distort the normal operation of Part 36.[45]Let me now draw the threads together. For the reasons set out above I see no grounds to interfere with the judge’s decision not to award interest under Part 36 in respect of damages referable to future losses. I can see no error in the judge’s reasons for that decision. The criticisms which have been expressed of Part 36 were not a matter for the judge and are not a matter for this court. Furthermore, those criticisms have little relevance in a case where the claimant has after-the-event insurance and the defendant is paying the premium.[46]Accordingly, my answer to the question posed in this part of the judgment is “no”. I must now move on to the second ground of appeal.

Part 5. Ground 2. Did the Judge err in Failing to Award Interest on Costs?

[47]The judge decided that MIB should pay the claimant’s costs on an indemnity basis for the entire period from 13th June 2006 to 18th June 2008. He made this order in the exercise of his discretion under rule 36.14(3)(b). However, in the exercise of his discretion under rule 36.14(3)(c) the judge declined to award interest on those indemnity costs.

The judge gave the following reason for not awarding interest on costs:

“66. I do not award any enhanced interest upon those indemnity costs. The order itself, together with the additional interest awarded upon the damages, is reward enough. I remind myself that the award must be proportionate, and must be fair. An order for additional interest of £17,000 with indemnity costs for two years is, it seems to me, a just and proportionate order, particularly as there is a conditional fee arrangement in place. Additionally, I award the indemnity costs for the whole two year period (not the period of 21 months).”
[49]Mr McDermott submits that the judge was obliged to award interest on costs unless it was unjust to do so. He did not expressly address that test. He gave no or no sufficient reason why it was unjust to award interest on costs.[50]The costs schedule which the claimant’s solicitors have provided to this court reveals the following:(i) The claimant’s solicitors are likely to recover profit costs from MIB of £500,403 in respect of the period up to 18th June 2008. That includes a success fee of £106,668, since the parties have almost reached agreement that the success fee should be 35%.(ii) Separately from their profit costs, the claimant’s solicitors will recover from MIB their disbursements up to 18th June 2008, including counsel’s fees and the after-the-event insurance premium.(iii) Counsel’s fees and other disbursements for the quantum trial (i.e. the period after 18th June 2008) will be paid by the after-the-event insurers. MIB will pay the premium for that insurance cover.(iv) The claimant’s solicitors profit costs for the quantum hearing amount to £60,080. That sum cannot be recovered from MIB because the claimant failed to beat MIB’s Part 36 offer.[51]I suggested to Mr McDermott during argument that possibly the claimant’s solicitors would not be paid their profit costs for the quantum trial by the claimant personally since(a) the result was not a success and(b) the claimant’s solicitors were already receiving a much larger sum by way of success fee for the earlier period. Mr McDermott responded that this observation was not correct, since any recovery of damages constituted “success”. Therefore, said Mr McDermott, the claimant’s solicitors would charge their client £60,080 plus VAT for conducting the quantum trial. This sum would be deducted from the claimant’s damages. In addition the claimant’s solicitors would charge their client a postponement fee of 10% of base costs (i.e. £35,810), which would also come out of the claimant’s damages.[52]I regret to say that I regard the arrangements made by the claimant’s solicitors in this case as grotesque. In addition to their base costs (i.e. their proper costs for conducting the litigation) they are extracting from MIB a “success fee” of some £100,000 for running a risk which simply did not exist. Then despite the fact that(a) they were on a conditional fee agreement and(b) the quantum trial was in any real sense a failure (the claimant lost on the main issues and failed to beat the defendant’s Part 36 offer), the solicitors require payment of a further £100,000, which must come out of the client’s damages.[53]On seeing this judgment in draft Mr McDermott submits, and I accept, that MIB with the benefit of legal advice have agreed to pay £106,668 in settlement of the claim for a success fee. Counsel also submits (and I shall assume) that the claimant’s solicitors were complying with the practice of other personal injury solicitors in the arrangements which they made for their own remuneration. Counsel also points to the published statistical research on which rule 45.16 is based. Nevertheless, the fact remains that this is a conditional fee agreement which involved no risk whatsoever to the solicitors and to which rule 45.16 does not apply. I adhere to the view that collectively the arrangements described in the preceding paragraphs are grotesque and that this factor is highly relevant when one comes to consider the claim for interest on costs.[54]Let me now return to the provisions of rule 36.14(3). Whereas sub-paragraph (a) produces a benefit for the claimant, sub-paragraph (c) produces a benefit for the claimant’s solicitors. Although the judge expressed himself tersely in paragraph 66 of the judgment, it is clear he took the view that it would be unjust to order MIB to pay interest on top of indemnity costs to the claimant’s solicitors. There was a conditional fee agreement in place, with the consequences previously mentioned. Also MIB had made payments on account of costs totalling £357,593. On the basis of the evidence before the judge and also on the basis of the fuller information before this court, I see no grounds for disturbing that decision.

Part 6. Conclusion

[55]For the reasons set out in parts 4 and 5 above, I reject both of the claimant’s grounds of appeal. I would dismiss this appeal.

Lord Justice Leveson :

[56]For the reasons given by Jackson LJ, I agree that this appeal should be dismissed. Having regard to the issues which have been raised and its potential impact on personal injury litigation, however, I consider it appropriate to address a number of issues specifically.[57]On the face of it, Mr McDermott had a fair point to make when he argued that the benefit or ‘reward’ to the claimant which flowed from his Part 36 offer which was made before the liability hearing and some two years before the quantum trial was modest compared to the adverse impact of his failing to beat the Part 36 offer made by the MIB only four weeks prior to that trial. Furthermore, as Jackson LJ observed at paragraph 39, Mr Methuen accepted that, as things stand, claimant offers under Part 36 may not have enough teeth although he contended that this was a matter for law reform rather than judicial activism.[58]On examination, however, the position is far from being as straightforward as Mr McDermott contended. True, the reward was not a substantial sum compared to what was in issue in the litigation; but the adverse consequences in relation to the costs of the MIB were not suffered by the claimant but rather met by insurance. Mr McDermott argued that the court should not take account of the insurance arrangements that litigants have made to protect themselves against adverse orders for costs and, in the normal case, I would agree. Here, however, the premium for that insurance constitutes a recoverable cost in the litigation so that the MIB are paying for the insurance that, in fact, provides the claimant with his protection against their costs and, in my judgment, is highly relevant, particularly when the Rules specifically direct the court to consider the justice of the case (albeit that the CPR requires the court to make an order “unless it considers it unjust to do so”: see 36.21(4) in the pre-April 2007 Rules and 36.14(3) in the post-April 2007 Rules).[59]I entirely agree that McPhilemy v Times Newspapers Ltd (No 2) [2001] EWCA Civ 933, [2002] 1 WLR 934 is determinative of a claim to enhanced interest on items that attract no interest. Furthermore, although this is a matter for Parliament, in relation to damages for personal injury, it is not a result about which I have any concern. There are two reasons for my view.[60]First, in this field, because of the operation of the multiplier applied to future loss, special damages for loss of earnings and the cost of care accrue at a faster rate than future loss diminishes (to say nothing of the fact that the multiplicand both in respect of earnings and the cost of care etc also increases). Thus, the greater the lapse of time between the injury and the trial, supervening medical calamity excepted, the greater the damages will be and the greater the chance of a claimant doing better than his Part 36 offer. The rules should not, in my judgment, act as an incentive to tactical delay after the making of such an offer. I emphasise that I do not suggest that a decision of this nature was made in this case because once the claim for contributory negligence had been defeated, and ignoring medical calamity, this claimant was always going to exceed the offer that he had been prepared to accept: that might not, however, always be the case.[61]The second reason is that I do not consider that judges are deprived of the opportunity, in appropriate cases, to reward successful claimants when their sensible Part 36 offers are rebuffed and then exceeded. One of the identified reasons that this Part 36 offer was made was so that the Claimant could cease to worry about the ongoing litigation. In defamation, damages are intended to comprehend the strain and distress caused to the Claimant by the conduct of the trial (see McPhilemy per Chadwick LJ at para 17). General damages for pain suffering and loss of amenity do not reflect that feature but are based on the impact of the injury and, furthermore, do attract an award (albeit modest) of interest: see Wright v British Railways Board [1983] 2 AC 773 and, more recently, Lawrence v Chief Constable of Staffordshire [2000] PIQR Q349. Thus, in an appropriate case, it is open to the Judge to exercise discretion to award damages to a level of greater enhancement than the 2% determined by MacDuff J in this case. Simply by way of illustration, 10% on general damages of £225,000 for 21 months is just short of £40,000 which (particularly if combined with a substantially enhanced award of interest on unpaid special damages) is a not insignificant sum.[62]Finally, it is important to appreciate that the Claimant was not deprived of the same opportunity to consider the Part 36 offer made by the MIB that the MIB had to consider his offer. Indeed, he was in a better position: at the time it was made, all the evidence was available and it was for him, with the assistance of his legal advisers, to decide whether to accept an offer that was twice the sum he had indicated three years earlier (albeit in different circumstances) that he would accept. The risks (and the costs) would have been known and he was also in a better position to be able to consider the alternatives and make an informed decision. Whereas claimants must be provided with an incentive to make a Part 36 offer to compromise litigation and should be rewarded when that offer is beaten, the same is so in reverse. There is no question of an incentive to insurers, but neither should the prospect of recovering costs which would not have been incurred had their offer been accepted be attenuated or affected because of some comparison with the reduced ‘reward’ recovered by the claimant when his offer is refused.[63]At the end of the day, in relation to the position of this Claimant, Part 36 created the mechanism to deal with these matters: it was within the discretion of the Judge to make the appropriate order unless he considered it unjust to do so. MacDuff J made an order which he considered just in the circumstances; he was entitled to do so and there is no basis upon which this court could or should interfere.

The Chancellor :

[64]I agree that this appeal should be dismissed for the reasons given by Jackson LJ. I agree, in particular, with the views he has expressed in paragraphs 52 and 53. In addition to his criticism of the solicitors I regard the situation, as described by Jackson LJ, as a criticism of the system for which Part 36, CFAs and ATE provides. That such a system increases the costs involved is obvious. That it does so to such an extent may not be so well known. And where else (see paragraph 13 of the judgment of Jackson LJ) may an investor (or punter) obtain a short term, risk-free, return of between 22.5% and 100% of his investment (or stake)? The facts of this case appear to show that access to justice for one party may well lead to a substantial denial of justice to the other.

Cited in 2 later judgments