MEF v St George's Healthcare NHS Trust

In the meantime, by letter dated 18 September 2019 and sent by email at 1611 (before the second day of hearing finished), the Claimant wrote to the Defendant in the following terms:

“We write further to the offer in your letter of 27 September 2018 and to Danny Stott’s email to Alexandra Bennett of 18 August 2019, reaffirming the offer, to confirm that the Claimant will accept that offer and will pay the Defendant’s reasonable costs of Detailed Assessment.”

The Claimant says that his solicitors did not know the result of the afternoon’s proceedings when they sent the letter. That this letter had been sent was not known to either of the party’s representatives at the assessment hearing itself. When they were informed, they went back to Master Brown. The Claimant claimed, but the Defendant did not accept, that the Claimant’s letter constituted a valid settlement of the proceedings. That dispute was then listed to be heard before a different Cost Judge, Master Rowley, on the morning of 19 September 2019.

At the hearing, the Defendant contended that the offer was no longer open for acceptance once the detailed assessment had commenced. The Defendant argued that CPR 47.20(4) imported the provisions of CPR Part 36 into detailed assessment proceedings and that, reading across CPR 36.11(3) into such proceedings, effectively the court’s permission was required to allow the Claimant to accept the offer in this case. The principles were the same whether the offer was made under Part 36 or by way of a Calderbank letter. Once the detailed assessment had commenced then “all bets are off and it is too late to accept an offer”. The Claimant contended that the August 2019 Offer, reopening the 27 September 2018 Offer (albeit subject to the modification concerning payment of costs since 27 September) was not time-limited, was not withdrawn, was not a Part 36 offer and was therefore open for acceptance at the end of the second day of the detailed assessment hearing.

In his judgment, the Judge commented (paragraph 7) that he was sceptical of the Claimant’s claim that this was simply a commercial settlement without an indication of how the detailed assessment had been going generally. However that did not matter for the purposes of his decision. After citing §11 of the judgment of Morgan J in Houghton v PB Donoghue (Haulage & Plant Hire Ltd) [2017] EWHC 1738 Ch, at paragraph 10 he commented that, even in the case of Part 36 offers, there is still a discretion to allow an offer to be accepted after the trial has started, despite the provisions of CPR 36.11(3). At paragraph 11, he took the view that Part 36 did not apply to the present case, because this was not a Part 36 offer case. The Defendant had decided to make Part 44 offers as it was entitled to do. Having done so, the offers were common law offers rather than based on Part 36. He continued:

“Based on that, all that is required is common law offer and acceptance, unlike the situation in Part 36 where offers may still continue even if they have been rejected.” He continued (at paragraphs 12 and 13):

“It does not seem to me that such offers can be assumed to stop at the court door. It does not seem to me that it is an abuse of the court’s process. The defendant could have made Part 36 offers and would then have had the protection of the claimant having to require the court’s permission to accept an offer. The defendant could have made a time-limited offer that was only acceptable prior to the hearing. It was said to me that those offers were never made. That is not my experience. I have seen offers made in exactly those terms where they are acceptable only prior to the hearing, and then regularly parties make “time bomb” offers for limited periods.”

“It does not seem to me that the defendant’s position is quite as difficult as Ms McDonald for the defendant put forward. It seems to me that the defendant could have protected its position if it had wanted to do so. The fact that it has not done so is no reason for me to say that the offer has not been validly accepted in accordance with ordinary common law principles.”

He decided that the assessment proceedings were therefore concluded.

The Judge went on to grant permission to appeal. Whilst he did not think necessarily that there was a reasonable prospect of success, permission should be granted for “some other compelling reason”, namely an important point of principle; the point being that with the advent of electronic bills, the present situation may occur more easily in the future since it will be obvious to everybody exactly where the figures are as the hearing progresses.

By its Amended Grounds of Appeal and in argument before me, the Defendant contends as follows:

The Claimant submits as follows:

CPR 44.2, which applies equally to the costs of detailed assessment proceedings, sets out the court’s discretion as to costs. CPR 44.2(4) provides that, in deciding what order to make about costs, the court will have regard to all the circumstances, including “(c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which the costs consequences under Part 36 apply”. Thus, a “Calderbank letter” (an offer made without prejudice save as to costs) which has not been accepted will be taken into account when the court exercises its discretion as to the costs of the proceedings.

CPR 47.20 addresses “Liability for costs of detailed assessment proceedings”. The receiving party is, generally, entitled to those costs: CPR 47.20(1). The court has a discretion to make some other order; relevant factors being set out at CPR 47.20(3). CPR 47.20(4) expressly provides that the CPR Part 36 provisions apply to the costs of detailed assessment proceedings, with certain modifications, including in particular:

“(b)

“trial” refers to “detailed assessment hearing”

(c)

a detailed assessment hearing is “in progress” from the time when it starts until the bill of costs has been assessed or agreed

As to CPR Part 36 itself, the regime for offers under CPR Part 36 is a self-contained code; general contract principles of offer and acceptance do not apply: see Gibbon v Manchester City Council [2010] EWCA Civ 726 at §§4 to 6. Whilst at common law a rejected offer cannot be accepted, under Part 36 there is no doctrine of implied withdrawal and the onus is on the offeror to withdraw an offer. Further a Part 36 offer may be accepted even if offeree had made a counter offer: see The White Book Service 2020 Vol 1§36.11.1.

CPR 36.11 addresses acceptance of a Part 36 offer. CPR 36.11(2) provides that, subject to sub-paragraphs (3) and (4), a Part 36 offer may be accepted at any time, unless it has already been withdrawn. However CPR 36.11(3) provides that

“The court’s permission is required to accept a Part 36 offer where - …(d) a trial is in progress”

Where the offeree is doing badly mid-trial, permission under CPR 36.11(3)(d) will rarely be granted: see Houghton, supra at §§10 and 11 and other cases cited in The White Book Service 2020 Vol 1§36.11.3.

Thus, in view of the modifications in CPR 47.20(4)(b) and (c), where a Part 36 offer is made in respect of the costs of detailed assessment, the court’s permission is required to accept such an offer, once the detailed assessment hearing has started and until the bill has been finally assessed or agreed.

As regards these principles, I have been referred to Chitty on Contracts (33^rd edn). An offer which is rejected is no longer valid. An offer can be withdrawn by the offeror at any time prior to acceptance by the offeree. Chitty §2-102 provides that an offer which expressly states that it will last only for a specified time cannot be accepted after that time. §2-103 then continues:

“Where the duration of an offer is not limited in one of the ways described in para 2-101 (Footnote: ¹ ) above, the offer comes to an end after the lapse of a reasonable time. What is a reasonable time depends on all the circumstances; for example, on the nature of the subject matter and on the means of communication…”

I have been referred to cases cited in that passage: Ramsgate Victoria Hotel Co v Montefiore (1866) LR 1 Ex 107; Manchester Diocesan Council for Education v

The principles of construction of contracts are well established: see Arnold v Britton [2015] AC 1619 per Lord Neuberger at §§16-22 and per Lord Hodge at §§76-77. In summary, the exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader. I refer also to §21 of judgment of Lord Clarke of Stone-cum-Ebony in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 where he sets out the position succinctly in the following terms:

“… the court must … ascertain what a reasonable person would have understood the parties to have meant” by the language used, taking account of all the available background knowledge, relevant surrounding circumstances and business common sense.”

As regards the correct approach on this appeal, it is limited to review of the decision of the Judge, (as I do not consider it would be in the interests of justice to hold a rehearing): Senior Court Costs Office Guide §30.5. The provisions of CPR 52.21 apply. The question is whether the Judge’s decision was “wrong” - in law, in fact or in the exercise of discretion. The correct approach to review on issues of fact is summarised in The White Book Service 2020 Vol 1 §52.21.5. The appeal court will correct material errors of facts on various grounds, including insufficient evidence or mistake. The degree to which the appeal court will show deference to the lower court will depend upon the nature of the issues determined by the court below. see Assicurazioni Generali SpA v Arab Insurance Group (B.S.C.) [2002] EWCA Civ 1642 at §§14 and 15.

The Judge, correctly, approached the issue by reference to common law principles of offer and acceptance, and not by reference to CPR Part 36. However he did not expressly apply the contractual principle of lapse after a reasonable time. To that extent, he could be said to have erred in law. In the light of the foregoing legal analysis, the issue is whether the “reasonable time” for acceptance of the August 2019 Offer expired at the point of the commencement of hearing on 17 September 2019 or rather continued

The factual and contractual context (relevant to the issue of reasonable time), and known or available to the parties – both at the time of the August 2019 Offer and as at commencement of the hearing - is as follows.

First, the August 2019 Offer is an offer to settle proceedings; more particularly to settle detailed assessment proceedings. In a detailed assessment hearing, each party will almost certainly know, as the hearing progresses, how well or badly the hearing is going. They will be able to re-calculate the bill from time to time as the costs judge makes “mini-decisions” on individual issues. In this way they might ascertain that the receiving party will recover more or less than an offer. Whilst the advent of use of electronic bills to re-calculate on an ongoing basis makes this easier, my understanding is that even without such electronic assistance, it is, and has always been, common for parties to re-calculate as the hearing goes along and decisions are made. In my judgment, this feature of detailed assessment makes the position distinct from that pertaining in other types of proceeding, where a party might well perceive that the hearing is not going well, but is less likely to know whether or not the ultimate outcome will be better or worse than an offer which has been made.

Secondly, the Part 36 procedure is available to be used in such proceedings; it was available to the Defendant, which chose instead to use the different “Calderbank” offer approach. Part 36 is a statutory code with its own specific provisions. In particular, by express provision, a Part 36 offer can only be accepted once a hearing has commenced with the court’s permission. However Part 36 does not provide that the offer lapses at the door of the court nor impose an absolute bar on acceptance post-commencement. It is not possible to rely on this position under Part 36 to support the (stricter) contention that a Calderbank offer lapses at the door of the court. There can be no direct “read across” from Part 36 procedure to the contractual position of a Calderbank offer.

Thirdly, the course and content of the Defendant’s prior offers since April 2018 is highly relevant context. First, none of the earlier offers had an absolute time limit. Rather the initial April 2018 Offer was subject to a time condition with costs consequences. In my judgment, in view of the terms of the April 2018 Offer, it is a reasonable inference that the subsequent offers (September, October and January) were subject to the condition that if they were not accepted within a reasonable time, the Claimant would be responsible for the Defendant’s costs. Thus, an ability to accept the offer(s) late but subject to that costs condition is inconsistent with an absolute time limit upon acceptance. Secondly, the Defendant was aware throughout that it could withdraw the offer made, but consciously decided not to do so; see paragraph 13 above. In fact, Mr Stott was working on the assumption (and was indicating to the Claimant) that the 27 September 2018 Offer remained open throughout, and all the way until August 2019 – even if, as a matter of contract law, his reminders amounted to reinstatement of offers which had been rejected. Thirdly, the fact that the £440,000 offer remained “open” and at the same level, despite the continuing weakening of the Claimant’s claim following service of the Replies to the Points of Dispute indicates the Defendant was not necessarily concerned with the precise amount of the likely outcome.

In my judgment, the foregoing context supports the Judge’s conclusion (at paragraph 12) that the August 2019 Offer did not lapse at the door of the court, but remained open for acceptance.

Mr Hutton QC for the Defendant makes two particular points, which he contends apply to all such offers in detailed assessment proceedings. First, he submits that if the offer were to remain open during the hearing, it would provide no costs protection for the Defendant and moreover would have put the Claimant at no risk at all (and thus gave him no incentive to accept the offer). The Claimant would be able to accept the offer if and when it became clear that he was going to recover less than the offer, and the Defendant would not get the chance to show the costs judge the letter in relation to the costs of the detailed assessment under CPR 44.2(4).

However, as regards costs, the Defendant remains fully protected. If the Claimant accepts the offer, during the assessment, he is bound to pay the Defendant’s costs incurred since as far back as September 2018, and including its costs of the detailed assessment hearing. On the other hand, if the Claimant does not accept the offer, then the Defendant will be able to refer the costs judge to the offer on the issue of the costs of the assessment under CPR 44.2(4). As regards risk and incentive for the Claimant, the Claimant remains at risk of an ever increasing penalty in costs, if he does not accept the offer either before or during the assessment. With the offer in place, and whether or not he accepts, he is at substantial risk that whatever happens, he will be responsible for not only the Defendant’s costs, but also his own costs. The longer the proceedings go on, the more those costs will be, particularly once the hearing commences. That increasing costs exposure provides an incentive for the Claimant to accept the offer.

Secondly, Mr Hutton submits that if the offer remained open during the hearing, such an offer provided a “perverse incentive”. The Defendant has ended up in a worse position than if it had not made the offer at all, because the amount of the assessment would have been very significantly lower than the offer of £440,000 and that amount substantially outweighs any benefit derived from the costs protection provided by the offer. If the offer is accepted, the Defendant would never get the benefit of the actual assessment by the Court of costs lower than the offer. The offer put a floor in the costs liability (as long as the Claimant did the calculation as the assessment was going on) and provided no opportunity for the Defendant to achieve a lower figure at the assessment.

I do not accept this submission. First, the situation falls to be considered at the time that the offer is made, or at the very latest, at the door of the court prior to commencement of the hearing. (The Defendant’s case on appeal is that the offer is impliedly withdrawn at that point in time; not that the offer lapses only once it becomes clear that the Claimant would recover less than the offer.) It may be that, with the benefit of hindsight, it turns out that the Defendant is likely to be worse off than if the offer had not been made – although even that is hypothetical, since the final assessment and the parties’ costs are not actually known. But that is not the question. Looking at the matter prospectively, there are a variety of possible outcomes. It is not known that the Claimant will do worse than the offer, let alone much worse. Thus, at that point in time, the continuation of the offer does not provide a “free hit” for the Claimant. If the offer is not accepted at any time, then the Defendant will be better off for having made the offer – it can refer to the letter on the issue of costs. If the offer is accepted, then it might turn out that the Defendant is worse off, but that is not necessarily the case. The

At the time that the offer is made and then at the door of the court, there remain incentives, respectively, to make and retain the offer, even if it is capable of acceptance in the course of the hearing. I do not accept the proposition that the making of an offer to settle necessarily means that, if accepted, the offeror cannot turn out to be worse off than if the offer had not been made at all. For example, a defendant may settle a personal injury claim on the assumption that the claimant’s prognosis is particularly bad. If it turns out, after settlement, that the claimant’s condition has improved, and future loss is less than anticipated, the settlement remains binding.

It was always open to the Defendant to put a time limit on the offer. Equally it was open to it to withdraw the offer at any time. This is so even once the hearing had started. In this regard, the Judge’s reasons are essentially sound. His experience of time limited offers has been confirmed to me by Master Haworth’s own experience. As regards the feature of ongoing re-calculation in a detailed assessment, the offeror (here the Defendant) is equally in a position to do that calculation, and is free at any time to withdraw the offer, if it is doing much better than the offer. Here, the Defendant could have withdrawn the offer at lunchtime on the second day of the hearing.

As the hearing proceeded, Mr Hutton submitted that there are two constructions of the words “subject to the agreement of the Defendant’s costs of Detailed Assessment since that date”. The first construction is that the words mean “subject to agreement to pay the Defendant’s costs in principle since 27 September 2018 to be subject to detailed assessment, if not agreed”. The alternative construction (put forward in the Amended Grounds of Appeal) is that the Claimant was required to agree the precise figure of the Defendant’s costs before accepting the August 2019 Offer. Unless and until that figure is agreed, the offer to settle could not be accepted. This meant that further negotiation of the post-27 September costs had to take place before there could be a binding settlement of the underlying detailed assessment proceedings. Whilst by the close of argument, Mr Hutton declined to favour one construction over the other, he had in the course of argument, described the first construction as his “primary construction”. He accepted that if that construction is correct, then the Claimant’s acceptance on 18 September did match the August 2019 Offer, and, subject to ground (1), gave rise to a binding settlement of the proceedings.

In my view, Mr Hutton’s primary construction is the correct construction of the relevant words. First, the August 2019 Offer has to be construed against the background of the previous offers. The April 2018 Offer expressly stated that the condition for acceptance was entitlement to recovery of “reasonable costs of assessment”. I also conclude that a

In my judgment, taking account of all the available background knowledge and relevant surrounding circumstances, a reasonable person would have understood the Defendant to have meant, by the language used, that the condition of the offer was that the Claimant should accept, in principle, to pay the Defendant’s costs of the detailed assessment after 27 September 2018, to be assessed if not agreed.

In the light of my conclusions at paragraphs 37, 39, 41 and 46 above, I conclude:

In due course I will hear submissions as to the appropriate orders to be made consequential upon these conclusions. Finally I am grateful to counsel for the assistance they have provided to the Court in the presentation of oral and written arguments in this matter.