ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY, MERCANTILE COURT
(His Honour Judge Kershaw QC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
LORD JUSTICE MANCE
LORD JUSTICE KEENE
and
LORD JUSTICE LONGMORE
Between :
CAPITAL BANK Plc | Claimant/ Respondent |
- and - | |
PETER STICKLAND | Defendant/ Appellant |
(Transcript of the Handed Down Judgment of
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
STEPHEN DAVIES Esq
(instructed by DLA) for the Claimant//Respondent
EVAN ASHFIELD Esq
(instructed by Evan Dodd) for the Defendant/Appellant
Judgment
Lord Justice Longmore:
Introduction
This appeal addresses the problems that can arise when a claimant makes a Part 36 offer which a defendant wishes to accept after the passage of 21 days from the date of the offer during which his right to accept it is unfettered.
In this action the Claimant Bank, as mortgagee, alleged that Mr Stickland was liable for interfering with the Bank’s immediate right to possession of the vessel CATABATIC a British registered vessel; the action was listed for trial in the Manchester Mercantile Court on 27th February 2004. On the morning of the trial Mr Stickland by counsel applied to the judge for permission to accept a Part 36 offer which had been made by the Bank in order to settle the case. His Honour Judge Kershaw QC refused that application. There was then an application made to the judge to recuse himself since he had come to know of the Part 36 offer. The judge refused that application also. The judge then proceeded to hear the case and gave judgment against the defendant for delivery up of the vessel or its value in the amount of £97,088.80 with interest to the date of payment. He also made an order that Mr Stickland should pay costs on a standard basis up to 1st July 2003 and thereafter on an indemnity basis together with the interest on such costs incurred after 1st July 2003 at 10% over base; that was because the judgment sum exceeded the amount of the claimant’s offer.
The Full Court has given Mr Stickland permission to appeal on two points viz. (1) whether the judge misdirected himself in refusing to allow Mr Stickland to accept the claimant’s Part 36 offer and (2) whether the judge was correct to award indemnity costs and interest on those costs when Mr Stickland had been refused permission to accept the offer made by the Bank.
The Provisions of CPR
Part 36 of the Civil Procedure Rules deals both with offers to settle and payments into court.
Part 36.5 of the CPR provides under the heading of “Form and Content of a Part 36 offer”:-
“36.5 (1) A Part 36 offer must be in writing
. . . . . . . . . . . . . . . . . . . .
36.5 (6) A Part 36 offer made not less than 21 days before the start of the trial must –
(a) be expressed to remain open for acceptance for 21 days from the date it is made; and
(b) provide that after 21 days the offeree may only accept it if –
(i) the parties agree the liability for costs; or
(ii) the court gives permission.
. . . . . . . . . . . . . . . . . . . .
36.5 (8) If a Part 36 offer is withdrawn it will not have the consequences set out in this Part.”
Part 36.6 then deals with notice of a Part 36 payment and Part 36.6.5 provides that a Part 36 payment may be withdrawn or reduced only with the permission of the court.
Part 36.11 then makes provision for the time for acceptance of a defendant’s Part 36 offer or Part 36 payment as follows:-
“36.11 (1) A claimant may accept a Part 36 offer or a Part 36 payment made not less than 21 days before the start of the trial without needing the court’s permission if he gives the defendant written notice of acceptance not later than 21 days after the offer or payment was made
(2) If –
(a) a defendant’s Part 36 offer or Part 36 payment is made less than 21 days before the start of the trial; or
(b) the claimant does not accept it within the period specified in paragraph (1) –
(i) if the parties agree the liability for costs, the claimant may accept the offer or payment without needing the permission of the court;
(ii) if the parties do not agree the liability for costs the claimant may only accept the offer or payment with the permission of the court.
(3) Where the permission of the court is needed under paragraph (2) the court will, if it gives permission, make an order as to costs.”
The converse position relating to the time for acceptance of a claimant’s Part 36 offer is then dealt with in very similar terms in Part 36.12 as follows:-
“36.12 (1) A defendant may accept a Part 36 offer made not less than 21 days before the start of the trial without needing the court’s permission if he gives the claimant written notice of acceptance not later than 21 days after the offer was made.
(2) If –
(a) a claimant’s Part 36 offer is made less than 21 days before the start of the trial; or
(b) the defendant does not accept it within the period specified in paragraph (1)
(i) if the parties agree the liability for costs, the defendant may accept the offer without needing the permission of the court;
(ii) if the parties do not agree the liability for costs the defendant may only accept the offer with the permission of the court.
(3) Where the permission of the court is needed under paragraph (2) the court will, if it gives permission, make an order as to costs.”
The proceedings
The history of the proceedings is that a claim form was issued in early 2003 for delivery up of the vessel or payment of its value, limited to £88,818.12 plus interest. On 10th June 2003 the Bank’s solicitors, DLA, made a Part 36 offer to settle the proceedings for £85,000 including interest. The offer was in proper form save that it unnecessarily referred to costs but, since the reference to costs only restated the consequences as to costs set out in the Rules, it was agreed that this did not matter. Mr Stickland did not respond to the letter of 10th June but did cause a defence to be served in July 2003. The only point of substance taken in that defence was that the vessel in respect of which the proceedings were brought was not the same vessel as had been mortgaged to the Bank. On 27th November 2003 DLA repeated the offer made in June and still got no response.
Meanwhile on 10th September 2003 the Bank obtained an order from His Honour Judge Hegarty QC that Mr Stickland should provide facilities for an inspection of the vessel by no later than 15th October 2003. Mr Stickland failed to provide any inspection facilities so the Bank had to go back to Judge Hegarty for a further order that Mr Stickland comply with the original order of 10th September, this time by no later than 21st November, and that unless such facilities were so provided the defence be struck out. Remarkably no such facilities were even then provided but the Bank agreed that their surveyor, a Mr Moody of Swanwick Yacht Surveyors, would visit the yacht at a boatyard at Lagos in Portugal which he did on 6th January 2004. He discovered two matters of importance:-
(1) the Hull Identification Number PRTGB0021797, given in the original bill of sale made out to the company from whom Mr Stickland had acquired the vessel, corresponded to the Number moulded into both the transom and the transom bathing ladder on the vessel, although it did not correspond with a number on a brass plaque on the vessel which looked brand new rather than the 10 years old which it purported to be;
(2) the number 900944 which the British Registry had assigned to the CATABATIC on registration was clearly displayed on the vessel.
Mr Moody made his report on 11th February and it was duly served on Mr Stickland’s solicitors.
It thus appeared that Mr Stickland’s defence was doomed to failure, although he did amend his defence to take a point on the Bank’s title to sue.
On 11th December 2003 DLA sent Mr Stickland’s solicitors a yet further letter offering to settle the dispute in these terms:-
“Our client will settle upon the terms of the Part 36 Offer put forward by letter dated 10 June 2003, provided it is accepted by your client by no later than 31 December 2003. Clearly the parties will need to apply for the offer to be accepted out of time.”
There matters remained until 25th February, two days before the day on which the trial was fixed to take place. On that day Mr Stickland’s solicitors sent a fax to DLA purporting to accept the offer contained in the letters of 10th June and 11th December 2003. On the following day DLA responded that the offer had lapsed and that Mr Stickland required the Court’s permission to accept the offer which he did not have. They said that any application to the judge for permission to accept the offer would be opposed. Thus it was that the first business of the judge on the morning of the trial was to receive and consider Mr Stickland’s application that the offer be accepted as at that date.
The judgment
The judge, after setting out the history of the matter, observed that the strength of the claim had altered for the better from the Bank’s point of view and that for that reason alone he would refuse the application. Matters which reinforced his view were the defendant’s persistent flouting of the court’s orders, the absence of any security for payment of the £85,000 if he were to decide that it could be accepted and the lateness of the application made on the day of the trial.
The submissions
On behalf of Mr Stickland Mr Ashfield (who did not appear before Judge Kershaw) submitted:-
(1) the only proper reason for refusing a defendant permission to accept a claimant’s Part 36 offer after the initial 21 day period had elapsed was that a substantial change of circumstance had occurred, such as would entitle a defendant, who had made a payment into court (the converse case), to withdraw or reduce any payment into court which he had made;
(2) it followed that a claimant who wished to object to late acceptance of his Part 36 offer should only be permitted to object if he at the same time withdrew or reduced his Part 36 offer on the basis of a substantial change of circumstance (or if, at least, he could be treated as being entitled to withdraw or reduce his offer on that basis);
(3) no such change of circumstances had occurred in the present case;
(4) it was illogical to allow a claimant to retain the benefit of an existing Part 36 offer while refusing a defendant permission to accept it late; that was to allow a claimant to have his cake and, at the same time, to eat it. Either the defendant should be allowed to accept the offer late or the claimant should be required to withdraw or reduce it; in that event he would be unable to obtain the automatic benefit of the Part 36 costs and interest consequences, although he would be able to invite the court to exercise a general discretion on costs by reference to the fact that there had once been a time when a Part 36 offer could have been accepted;
(5) on this basis, the judge was wrong to have ordered indemnity costs and 10% (or any) interest on costs pursuant to Part 36.26 and should have awarded costs on a standard basis or, at most, indemnity costs from the time of the original offer to the time when it could have been withdrawn without any interest being payable on such costs.
Mr Davies for the Bank submitted:-
(1) the judge had an open-ended discretion whether to allow late acceptance of a Part 36 offer;
(2) there was no error in law in the way he exercised his discretion; there had been a change of circumstance and, even if there had not, he was entitled to rely on the three further factors mentioned in his judgment;
(3) there was no justification for requiring a claimant to withdraw or reduce his offer as the price of his opposition to an application to accept the offer after the 21 days had elapsed;
(4) the judge’s order in relation to indemnity costs and interest on such costs was likewise within his discretion; no argument other than for a standard basis throughout had been addressed to him below and any variation of the judge’s order should, therefore, not be entertained by the court.
Permission to accept either a Part 36 offer or a payment into court after the lapse of the 21 day period during which there is an unfettered right to accept
There is virtually no post-CPR authority on this question which is the main reason why permission to appeal has been granted. One possible view of the Rules might be that the right to accept continues after the 21 day period and that the only judicial function is to secure an appropriate order as to costs. Neither counsel argued for this view of the matter although Mr Ashfield came close to it when saying that permission should only be refused if a claimant withdraws or reduces his Part 36 offer (or a defendant applies to withdraw or reduces his payment-in and is allowed to do so). This latter submission reflected the fact that a claimant making a Part 36 offer and a defendant making a payment into court are not in precisely the same position; a claimant may withdraw (or reduce) his offer at any time (see Scammell v Dicker[2001] 1 WLR 651) whereas a defendant who makes a payment into court (and, if he wishes to settle a money claim and automatically obtain Part 36 consequences, he has to make a payment into court, see Part 36.3) can only withdraw or reduce his payment into court with the permission of the court (see 36.6.5). This distinction between offerors under the Rules cannot, however, provide any guide to the principle which should govern the court when a late application to accept an offer is made, since the court’s permission is required in either case unless the incidence of costs can be agreed.
For my part I can see no justification for requiring a claimant making a Part 36 offer to withdraw or reduce his offer (or to be treated as having done so) as a condition of his opposing a defendant’s application for late acceptance of the offer. That would be an impermissible gloss on the Rules. Similarly I can see no justification for requiring a defendant who has made a payment into court to make an application that such payment be withdrawn or reduced (or to be treated as having done so) as a condition of his opposing a claimant’s application to accept late the payment–in which has been made. If the only reason for allowing a defendant to withdraw or reduce a payment into court is, as Mr Ashfield submitted, that there has been a substantial change of circumstance, such a condition would in theory preclude a judge from taking other considerations into account when deciding whether to allow a claimant to accept a payment into court more than 21 days after notification of such payment-in. The imposition of any such condition would, moreover, only have as its purpose the giving of an opportunity to the defendant in this case (or a claimant in the converse case) to argue that costs should be awarded on the basis that no offer to settle had been made at all. It is perhaps worth while adding that the same argument as that made here by Mr Ashfield appears to have been rejected before CPR both in connection with the Supreme Court Rules and the County Court Rules, see Garner v Cleggs [1983] 1 WLR 862, 869H per Lawton LJ and Black v Doncaster Metropolitan Borough Council[1999] 1 WLR 53, 58H-59A per Stuart-Smith LJ respectively. Since the advent of CPR the court’s discretion should not be narrowed by saying that it can only be exercised if a claimant is to be treated as withdrawing his offer (or if a defendant is to be regarded as entitled to withdraw or reduce his payment-in) but the discretion should rather be as wide as possible so as to advance the overriding objecting of dealing with cases justly, see Foskett, The Law and Practice of Compromise 5th ed (2001) para 18.11.
In this context I do not see why the judge should not have taken into account, in deciding whether Mr Stickland was to be entitled to accept the Bank’s offer, the fact that the application was made on the morning of the trial and thus so late in the day that the court’s normal wish to encourage settlements (so that other litigants can have their cases more speedily decided) had been effectively discounted. Similarly he should, in my view, be entitled to take into account, when considering a late application to accept a Part 36 offer, the substantiality of the offer to accept. A defendant offering a banker’s draft or equivalent will be in a stronger position than Mr Stickland was in this case; he only offered a promise to pay which once the trial date had been lost, would have had to be enforced, if payment were not forthcoming, by obtaining judgment on a yet further trial date. Mr Ashfield said that the security provided by the mortgage would continue as security for the agreement sanctioned by the court’s permission that the offer could be accepted. Even assuming that to be correct beyond the realm of argument, having to arrest the vessel in Portugal and obtain an order for sale is not an obviously attractive option.
I would not therefore seek to limit in any way the extent of the discretion of a judge who has to consider whether a Part 36 offer or a payment into court can be accepted after the expiry of the period of 21 days. Both the timing of the application and the ready availability of the defendant’s money may well be relevant considerations. If a change of circumstance has occurred that will also be a relevant consideration.
Although courts are discouraged from unnecessarily relying on pre-CPR authorities, Flynn v Scougall[2004] EWCA Civ 873, 13th July 2004. has recognised that Cumper v Pothecary[1941] 2 KB 58 is consistent with the overriding objective that cases be dealt with justly. That case came about as a result of Benham v Gambling[1941] AC 157 in which the House of Lords decided that only a notional figure should be awarded in respect of loss of expectation of life and reduced an award of £1,200 to £200. In Cumper v Pothecary a payment into court had been made by the defendant on the basis of the law as it was believed to be before Benham v Gambling; not surprisingly there were two applications to the court, one made by the plaintiff to take the money out of court after expiry of the time (then 7 days) during which it could be accepted as of right, the other by the defendant to be permitted to reduce the amount of the payment in. Once the 7 day period had passed money could only be taken out of court pursuant to the order of the court but it was suggested by the plaintiff that fraud or mistake should be the only grounds for refusing an order for payment out to be made to him. Goddard LJ giving the judgment of the court said (page 67):-
“We can see no ground for putting such a limit on the powers of the court . . . It is, in our opinion clear that if the plaintiff does not accept the money within the prescribed time, the court has thereafter complete discretion either to make or refuse an order. In the majority of cases, no doubt, it would only be a question of costs, whether the plaintiff should pay those incurred between the expiration of the seven days and the date of the application, but there may be other considerations.”
The plaintiff’s application was therefore refused. It is of interest to note that the application by the defendant was also refused, although on technical grounds, without prejudice to a second application being made. The money therefore remained in court, but the court recognised that change of circumstances could in theory be a ground for permitting the payment into court to be withdrawn or reduced. Although that case related to a payment into court by the defendant, similar principles should in my judgment now apply to Part 36 offers by claimants and late applications for their acceptance.
Change of circumstance?
The fact that there has been a change of circumstance is certainly relevant and may well be the most important factor to be taken into account. Mr Ashfield submitted that the judge should not have held it to be relevant on the facts of the present case and for that purpose he relied on the personal injury case Flynn v Scougall, already cited, in which this court was faced with the problem of a defendant wishing to reduce a payment into court during the 21 day period in which the claimant had a prima facie unfettered right to accept it. 4 days after the application and still within the 21 day period the claimant gave notice of acceptance of the payment-in. What had prompted the defendant to apply to reduce the amount of his payment-in was the receipt of the report of his own expert, Mr Pinder, contradicting the claimant’s expert’s report in relation to the period for which the claimant’s working life would be reduced by reason of the accident. This court held that the defendant should not be allowed to reduce his payment-in so soon after it had been made merely in the light of an expert opinion which the defendant had already commissioned dealing with facts, which were already part of the case. At paragraph 39 May LJ (with whom the other members of the court agreed) noted with approval that in an earlier case Garland J had held that the approach of Goddard LJ to the second application in Cumper v Pothecary (by the defendant to reduce the amount of his payment into court) was consistent with the overriding objective of the CPR. What Goddard LJ had said was ([1942] 2 KB at page 70):-
“. . . we think it desirable to say that it must not be thought that a defendant who has paid a sum into court is entitled, as of right, to resile from that step. He must, in our opinion, show that there are good reasons for his application – for instance the discovery of further evidence, which puts a wholly different complexion on the case . . . . or a change in the legal outlook brought about by a new judicial decision . . . . and there may be others . . . . We think the same considerations apply, if the matter comes before the court on an application by the plaintiff to have the money paid out to him . . . . it [the court] should consider whether there is a sufficient change of circumstance since the money was paid in to make it just that the defendant should have an opportunity of withdrawing or reducing his payment.”
Then at paragraph 42 of his judgment in Flynn v Scougall May LJ said this:-
“The defendant chose to make the Part 36 payment before Mr Pinder’s report arrived. In doing so she secured the advantage of an earlier payment into court and took the risk that Mr Pinder’s report might improve her evidential position. . . . It was not based on the discovery of new evidence or a change in legal outlook. Rather the defendant was relying on a further review of available information by a fresh expert.”
The defendant was thus not allowed to reduce his payment-in and the claimant had a right to accept the amount originally paid into court.
The present case is entirely different. The Bank’s surveyor had, unlike Mr Pinder, discovered new evidence; that new evidence was the original hull identification number moulded on the hull, the newness of the plaque with a differing number, and the existence of the original British registry number. This was evidence which could only be obtained by inspecting the vessel, an inspection which the defendant had taken steps to ensure would be deferred as long as possible. When the evidence finally emerged, it then appeared that the main defence to the claim was entirely unsustainable. I agree with the judge that this justified the exercise of his discretion against allowing Mr Stickland to accept the Bank’s Part 36 offer after the time for accepting it had expired. He was also, in my judgment, entitled to take into account the lateness of the application and Mr Stickland’s pre-trial conduct. On no view can it be said that the judge misdirected himself in law or exercised his discretion on a flawed basis.
Indemnity costs and interest on such costs
Once the judge had decided that it was inappropriate to permit Mr Stickland to accept the Bank’s Part 36 offer, it was relevant for the judge to decide whether the Bank had done better than its offer by going to trial. Clearly it had and the judge had therefore a discretion to make the usual order for costs in those circumstances, including an order for interest on costs at 10% above base rate in accordance with Part 36.21(3).
Mr Ashfield contended that the Bank thereby got the benefit of making a Part 36 offer while Mr Stickland suffered the detriment of not being able to accept an offer which had not been withdrawn and thus should have been open to acceptance. A somewhat similar situation arose in Garner v Cleggs [1983] 1 WLR 862 where a defendant made a payment into court of £25,655.00 on 11th August 1981 which was not accepted within the 21 day period during which there was an unfettered right to accept it. The money therefore, remained in court but on 13th October 1981 the defendant found a new witness who appeared to assist his case substantially; on 22nd January 1982, therefore, he applied to take the money out of court in the light of that new evidence. That application was granted on 25th February. An eight day trial then began on 16th March at the end of which the plaintiff obtained judgment for £24,000 inclusive of interest. The plaintiff applied for all his costs since there was no money in court at the end of trial; the defendant applied for all his costs since there had been a payment into court which was greater than the sum awarded and could have been but never was accepted. The judge awarded the plaintiff his costs and there was then an appeal. This court held first that the proper approach was for the defendant to be awarded his costs between the date of payment into court and the date when he could have resisted an application by the plaintiff to take the money out of court viz. for the period between 2nd September and 13th October, but the court held secondly that since this possibility was not submitted to the judge they would not interfere with the judge’s exercise of discretion to award the plaintiff his costs.
This authority is instructive because it shows not only that there can be appropriate circumstances in which a claimant can be refused permission to take money out of court (and in which, therefore, a defendant can be refused permission to accept a Part 36 offer) but also that the time when the claimant would be likely to be refused permission to take out money in court (or a defendant be refused permission to accept a Part 36 offer) is a critical moment after which the money will remain in court but the defendant (or claimant) may no longer obtain the benefit of such payment (or offer) in relation to costs.
If one applies Garner v Cleggs to the case of a claimant’s Part 36 offer which the court declines to allow a defendant to accept after the 21 day period, it would become relevant to inquire when the claimant could have successfully opposed an application by the defendant to accept the offer. That would in this case be on or shortly after 11th February 2004, the date on which Mr Moody sent his report to the Bank and Mr Stickland could, in theory, have submitted that any costs awarded to the claimants should be on an ordinary basis after that date. In fact, however, the Bank did not then (or at any time) withdraw its offer and, on the facts of this case when an unsuccessful application to accept the Part 36 offer was in fact made, I would myself say the critical date would be the date on which the application was, in fact, refused by the court, rather than a notional date a few days earlier. Be that as it may, no application was made to the judge in relation to costs incurred after 11th February and I would not interfere with the judge’s exercise of discretion in relation to costs incurred after July 2003 any more than the court was inclined to do in Garner v Cleggs itself.
Conclusion
For these reasons I agree with the orders made by His Honour Judge Kershaw and would dismiss the appeal.
Lord Justice Keene:
I agree.
Lord Justice Mance:
I agree with Longmore LJ’s conclusions and the reasoning by which he reaches them. With regard to the period for which indemnity costs should run (paragraphs 20-23 above), I agree that it is too late in this court to criticise the way in which the judge exercised his discretion. The claimants never withdrew their offer, and it was open to them to resist its late acceptance without doing so. The claimants therefore started with a prima facie entitlement to all their costs, unless the court considered it “unjust” to make such an order: CPR 36.21(4). That the claimants were after 11th February 2004 able to (and did) successfully resist late acceptance of their offer was a factor that the court might, if asked, have taken into account, when deciding whether this was unjust.
In Garner v. Cleggs, the defendants obtained leave to withdraw their payment into court, but only on 25th February 1982, pursuant to an application made on 22nd January 1982. The basis on which they sought and obtained such leave was that they had on 13th October 1981 come across fresh evidence which appeared greatly to improve their prospects of a successful defence. In the event it failed to come up to their expectations and they lost. The judge awarded the plaintiff all his costs on the basis that no payment in existed at the time of judgment. That there had been a valid payment in for a time, after which it had been withdrawn, was, however, a matter of historical fact; and the Court of Appeal thought that, if the defendants had raised the point, the judge might well have considered it unjust to award the defendants costs during the period when the payment in was in practice available for the plaintiff to accept (i.e. during the period up until 13th October 1981) see per Lawton LJ, p.970D-E and H and Robert Goff LJ, p.872F-G.
By parity of reasoning here, if the defendant had raised the point, the judge might have considered it unjust for the defendant to have to pay indemnity costs in respect of all or some part of the period after the claimants on about 11th February 2004 received the report which was, in the judge’s view, by itself sufficient to enable them to resist the defendant’s late attempt to accept their offer on 27th February 2004, the day of trial. But, since this point was never raised before the judge, it cannot be known for certain what conclusions he would have reached either on the facts (for example, as to the likelihood or otherwise of the claimants in fact objecting to any late acceptance at all times after 11th February 2004) or on the justice of the case. In these circumstances, I agree that this appeal fails in its entirety.
ORDER: Appeal dismissed; Appellant to pay Respondent’s costs of the appeal such costs shall be subject of a detailed assessment on the standard basis up to and including 1 October 2004, on an indemnity basis thereafter.
(Order does not form part of approved judgment)