Rowlands & Ors v Bryn Alyn Community (Holdings) Ltd

We handed down our judgment on 12 ^th February 2003. We dealt on that day with certain matters on which we gave rulings there and then, but reserved one point. This is the judgment of the court on that point.

After Connell J gave the judgment, which was the subject of the appeal, he had to consider the effect of certain offers made under Part 36 by certain of the claimants.

The relevant Provisions of Part 36.21 were:

It was common ground that certain claimants had made Part 36 offers and that judgments had been entered in their favour for more than those offers. There was a dispute in the case of the claimant Smyth whether that had happened. The second defendants argued that they were only parties to the action as insurers seeking to protect their own interest, and it was reasonable for them not to have accepted the Part 36 offers. The judge ruled against the second defendants on this last submission, but was in their favour as regards the claimant Smyth. He therefore purported to apply the machinery of Part 36.21 save in relation to Smyth and save in relation to interest on costs. By an order made on 29 ^th October 2001 he therefore made the following order:

Permission to appeal paragraph 1 of the Order having been granted, the second defendants put in a notice of appeal. The claimants then put in a respondents’ notice seeking to challenge the refusal to award interest on the costs ordered on an indemnity basis and on the Smyth issue.

By an exchange of correspondence between 21 ^st December 2001 and 25 ^th January 2002 it was agreed between the parties that the terms of the order needed to be varied in order to give effect to the provisions of Part 36.21 as intended by the judge. The terms of the variation agreed were to substitute for the final words “from the date of judgment … to date of payment” of paragraph 1 of the above order, the words “from the last day upon which the defendant could have accepted the claimants’ offer to the date of judgment.”

The parties were unable however to agree what the word judgment in the order as varied meant. On behalf of the claimants it was submitted that the interest awarded under Part 36.21(2) ran up to the date of judgment in the Court of Appeal. On behalf of the second defendants it was contended that judgment meant the judgment of the judge (as varied by the Court of Appeal) i.e. that interest under Part 36.21(2) ran up until the date of the judge’s judgment on the sums awarded by the Court of Appeal, and that interest ran at the judgment rate thereafter. It was agreed in correspondence that on the hearing of the appeal relating to Connell J’s order under Part 36 only three issues arose – 1. The correct date of judgment; 2. the provision of costs in the case of Smyth; and 3. the costs of and incidental to the appeal. Since by our judgment in the main appeal we increased the general damages to be awarded to Smyth, issue 2 has on any view disappeared.

In this correspondence there is simply no mention of the respondents’ notice and the challenge to the refusal of the judge to award interest on the costs. The second defendants submit that a definition of the issues shows a compromise of that issue; the claimants say that the respondents’ notice raised a separate issue and the challenge to the judge’s refusal to award interest on costs was not abandoned. One suspects that both sides overlooked the existence of the respondents’ notice when reaching their agreement as to the issues on the appeal, and the court must simply do its best to decide objectively what the terms of the compromise covered.

The issues that remained therefore were the date of judgment point, the award of interest on the costs point, (including whether the compromise precludes the point being taken), and the costs of the appeal point.

During the course of argument in relation to the date of judgment point, a suggestion was made that the claimants might seek to achieve the result they sought by applying to the Court of Appeal to exercise its own jurisdiction by use of the machinery available under Part 36 or by exercising a discretion under CPR 40.8. At the conclusion of the hearing the parties were invited to put in further written submissions if they wished to do so. It appears from his written submissions that Mr Fewtrell was under the impression that this latitude was being granted to enable Mr Hogan to deal with the interest on costs point alone, but it matters not.

Further written submissions have been put in by both sides. In addition, and of critical significance to the judgement date point, judgment has been given by a Court of Appeal, differently constituted, in P&O Nedlloyd BV and Utaniko Limited [2003] EWCA Civ 174. On the day that the appeal was being argued before us, it was being argued before Brooke, Laws and Mance LJJ on behalf of the respondents to an appeal before them, that the machinery of Part 36 should be invoked by the Court of Appeal to order the appellants to pay indemnity costs of the appeal in reliance on Part 36 offers made prior to trial. In the alternative it was being argued that a discretion should be exercised under CPR 44.3(c) by reference to that pre-trial offer. The appellants had failed at trial to beat the Part 36 offers and had been ordered to pay indemnity costs by the judge. The appellants then pursued an appeal, and still failed to beat the Part 36 offers and it was contended that the machinery of Part 36 should be applied to the costs of the appeal. That contention was not accepted. What very much affected the minds of the court was how, if the respondents were right, the court would deal with a situation in which the appellants managed to reduce the damages but still failed to beat the pre-trial Part 36 offers. The court ruled that a trial and the appeal proceedings were separate proceedings for the purposes of Part 36. Brooke LJ giving the judgment of the court, having noted that a Part 36 offer can be made as between trial and the appeal, see Part 36.2(4), and the words “at trial” in CPR 36.21(1) could be construed during the appeal proceedings as “on the hearing of an appeal”, said at paragraph 6:

He also dealt with an argument that a discretion might be exercised under, in that case, CPR 44.3(c), in order to bring about the same result saying at paragraph 8:

The relevance of that authority to the judgment date point is twofold. First, it makes clear that unless a fresh Part 36 offer was made during the appeal proceedings the machinery of Part 36 is not available to the appeal court. Second, it makes clear that the Court of Appeal will be disinclined to use its discretion to achieve a similar result by reference to a pre-trial Part 36 offer. Furthermore, since it follows that it was the intention of the rulemakers to distinguish between the trial process and the appeal process, that must affect the argument as to the date of judgment in the order of the judge.

In this case no fresh Part 36 offer was made during the currency of the main appeal. It follows that even if an application had been made to us to exercise powers under Part 36, that application would have been bound to fail. Furthermore, if an application had been made to use CPR 40.8 and (which is doubtful) CPR 40.8 could have been so utilised, in order to persuade us to achieve the same result, it would have been bound to fail on the facts of this case. In fact despite discussions during the hearing no such applications were made.

It also seems to us that it must be clear that if a judge at first instance makes an order pursuant to the powers under Part 36 ordering interest on damages to date of judgment, the appropriate date must be the date of his judgment. It would be for the Court of Appeal to consider whether the powers available under Part 36 should be used in relation to the period between judgment at first instance and judgment in the Court of Appeal, and then only by reference to whether a Part 36 offer had been made in the appeal proceedings. It would be for the Court of Appeal to consider, if it were asked to do so, how a discretion should be exercised by reference to a pre-trial Part 36 offer in relation to the period post-judgment at first instance, and not for the judge to pre-empt that exercise.

As regards the interest on costs point, the first question is whether the compromise has precluded the claimants challenging this aspect of the judge’s order. On a fair reading of the correspondence we do not think it has. What was the subject of the compromise was the second defendant’s appeal. It would not be right to hold that the parties had the respondents’ notice in mind and that the claimants were intending to abandon the point there taken when identifying the issues on the appeal.

What the judge said was:

The court is bound to make the orders referred to in paragraphs (2) and (3) of CPR 36.21 “unless it considers it unjust to do so”(see paragraph (4)). Mr Fewtrell submits that this was an exercise by the judge of his discretion, which it undoubtedly was. But the first difficulty is that, as now appears from the agreed amendment to the judge’s order, the machinery that the judge may have thought he was invoking is not the machinery which he was in fact invoking. Second, the language he used to refuse interest on costs also indicates that he did not have in mind paragraph (4) of CPR 36.21. It seems to us therefore that we are bound to exercise our discretion afresh.

Mr Fewtrell wishes to reargue the question as to whether his clients should have been subjected to the Part 36 procedure at all. He sets out the points he makes in this regard in his latest written submissions. We do not think that it is open to the second defendants to attack this part of the judge’s order by a root and branch attack on whether the Part 36 procedure should have been used at all. We should however also make clear that we are in any event unimpressed by the points which he takes. The starting point for consideration of this aspect is that the machinery under Part 36 was being used. The only question is whether it is unjust on the second defendants, having been ordered to pay indemnity costs, that they should also have to pay interest on those costs. If it is not unjust, the further questions are for what period and at what rate should interest be awarded.

CPR 36.21(3)(a) is dealing with costs incurred since the date when the offer should have been accepted, and CPR 36.21(3)(b) is dealing with interest on those costs without reference to the moment when those costs would have been incurred. The proper approach to this provision was considered in McPhilemy v Times Newspapers Ltd (No 2) [2002] 1 WLR 934 at 944 where Chadwick LJ, having ruled there was no injustice in ordering the payment of indemnity costs, said this at paragraph 23:

Various points need emphasis. First, the interest on costs is intended to compensate a litigant who is out of pocket having funded litigation which he should not have had to fund. Second, interest will be payable on the amount awarded for costs from the date of judgment at the judgment rate, thus the period to be compensated runs only up until the date of judgment. Third, Chadwick LJ set the period running from “the date upon which the work was done or liability for disbursements was incurred” and not from the date of actual funding by the client. Fourth, the rate he set reflected “(albeit generously) the cost of money”.

If this were not a publicly funded case then the position would be straightforward. If an order is made to pay costs on an indemnity basis, it is unlikely to be unjust to make the party pay interest on those costs for the period when litigation is being funded when acceptance of a Part 36 offer should have led to it not being funded. There may be cases where evidence will demonstrate actual dates when clients had put up funds and from which interest will run. Without such evidence the court can do no more than Chadwick LJ did and make the interest run from the date when the work was done or liability for disbursements was incurred. The rate of interest, following the lead of Chadwick LJ, would have been assessed at 4% over base being “(albeit generously) the cost of money.” If it were questioned why there should be a difference between the rate of interest on costs and the rate on the damages, the answer would be that the rate on damages compensates also for the general impact of proceedings (see paragraph 63 of the judgment of Lord Woolf in Petrotrade Inc v Texaco Ltd (Transcript Tuesday 23 May 2000). There must not be double compensation for the impact and the provisions of Part 36.21 are not intended to be penal (see paragraph 62 of the judgment of Lord Woolf in the Petrotrade case).

Should the position be any different because the claimants were publicly funded? In our view the position should be no different. In the circumstances we do not think it would be unjust to order interest at the rate of 4% over base rate on the costs from the date upon which the work was done or liability for disbursements incurred up until the date when the judge made his order for costs.

It follows that the effect of our judgment is that the second defendants have succeeded on the judgment date point, and the claimants have succeeded on the interest on costs point.

That leaves the question of the costs of this appeal and the cross-appeal. It seems to us that costs should follow the event. The second defendants should pay the cost of the claimants on the cross-appeal which was the subject of the respondents’ notice. The claimants should pay the costs of the second defendants on their appeal.