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Fox v Foundation Piling Ltd, Court of Appeal, 7 July 2011

25 July 2011
The issues

Part 36 – exaggerated claim – costs – conduct – effect of withdrawn Part 36 offer.

The facts

On the 11th April 2003 the Claimant fell whilst carrying heavy equipment across a building site. He made a claim for damages for personal injuries against his employer. The insurers obtained a video from private investigators showing that the Claimant was able to walk normally and that his general mobility and the mobility of his lumbar spine were generally good and that there was no evidence of limping.

On the 6th April 2006 he started proceedings in the Central London County Court. The Claimant instructed an orthopaedic surgeon who examined him on the 28th June 2006 and prepared a report. He was unaware of the video surveillance. He found that the accident had aggravated a pre-existing condition and that the Claimant would be unlikely to return to his previous employment. He found that the Claimant was suffering from severe back pain and pain in both legs. A Schedule of Loss was claimed showing a past loss of £82,000 and a continuing loss of £23,000 per year.

The Defendant instructed an expert who concluded that the Claimant had suffered from degenerative change and that the effect of the accident was to accelerate a disc prolapse which was otherwise inevitable.

The Defendant made a Part 36 offer in the sum of £63,000, of which £39,449.21 would be paid to the CRU. The Claimant counter offered under Part 36 to accept £150,000. In November 2008 the Claimant went to Mr Williamson, the Defendant’s expert, for an examination. He was videoed. The video showed the Claimant to be generally free of disability until the point at which he approached the spinal clinic, at which point he began to use a walking stick and to limp. Mr Williamson concluded that the accident precipitated a disc prolapse, which would have occurred in any event, but that the clinical presentation was exaggerated.

The Defendant’s solicitors thereafter disclosed their video evidence.

At joint statement stage the experts agreed that the accident had accelerated spinal degeneration and that the acceleration period was between 2 years (the Claimant’s expert) and 1 year (the Defendant’s expert). A revised Schedule of Loss and Damage was served on the basis of 2 years disability, totalling £59,451. The Defendants withdrew their Part 36 offer and made a new offer in the sum of £31,702. The new offer was calculated on the basis of 18 months disability and in respect of costs proposed that the Defendant should pay the Claimant’s costs up to the 20th October 2008 but that the Claimant should pay the Defendant’s costs thereafter. The basis of this proposal was that the Defendant’s final offer was lower than the Defendant’s offer dated 29th September 2008. Of the £31,702, £5,797.47 would be paid to the CRU.

The action settled on the basis that the Claimant accepted the offer, save that the question of costs would be determined by the Court.

When the matter came before the Judge the Claimant was ordered to pay the Defendant’s costs in respect of the period after the 20th October 2008 on the basis that the Defendant thereafter was the successful party, but if the Judge was wrong on that issue that nonetheless the Claimant’s conduct warranted such an Order.

The Claimant Appealed to the Court of Appeal.

The decision

Reviewing the authorities it was clear that where one party made a Part 36 offer and then achieved a more advantageous result than that proposed in the offer, the provisions of Rule 36.14 modified the Court’s general discretion in respect of costs.

Secondly, parties were entitled to make calderbank offers outside the framework of Part 36 and that where a party made such an offer and achieved a more advantageous result, the Court’s discretion was wider. A not uncommon scenario was one where the Claimant recovered more than the Defendant had previously offered to pay, but less than the Claimant had previously offered to accept. In such a case the Claimant should normally be regarded as the successful party. In that situation the starting point was that the successful party should recover its costs from the other side.

The next stage was to consider whether any adjustments should be made to reflect issues on which the successful party had lost or other circumstances. An adjustment might be required to reflect costs referable to a discrete issue which the successful party had lost or to compensate the unsuccessful party for costs incurred by reason of unreasonable conduct on the part of the successful party.

In a personal injury action the fact that the Claimant had won on some issues and lost on others along the way was not normally a reason for depriving the Claimant of part of his costs.

The fact that the Claimant had deliberately exaggerated his claim might in certain circumstances not be a good reason for depriving him from part of his costs. This had been the case in Morgan v UPS in which the Court of Appeal had distinguished from Painting v University of Oxford in that whereas Mrs Painting had made no efforts to negotiate, despite her obvious exaggeration of her claim, the Claimant in Morgan accepted the effects of the contents of the video evidence and reduced his claim accordingly, both openly and in the course of without prejudice negotiations.

In September 2008 the Defendant had offered £63,000 inclusive of payments to the CRU. The gross sum which the Defendant ultimately paid amounted to £37,500 inclusive of payment to the CRU. At first blush it appeared that the Claimant had failed to beat the Defendant’s Part 36 offer. However, that analysis was not correct. Taking into account CRU, the net sum which the Defendant offered to pay in September 2008 was £23,550.79 whereas the net sum which the Claimant finally recovered was £31,702.53. Accordingly the Claimant was the successful party in the litigation and the starting point had to be that the Defendant should pay the Claimant’s costs of the action.

Were there any circumstances which made it appropriate to depart from the starting point? Could the Defendant’s offer be taken into account at all? That offer had been withdrawn in November 2009. In the view of the Court it was plain that the offer could be considered. Although it subsequently ceased to attract the consequences set out in Rule 36.14 it then constituted an “admissible offer to settle” within Rule 44.3(4)(c). Should the costs Order reflect the fact that the Claimant had exaggerated his claim? His original Schedule of Loss claimed £280,000. The Claimant ultimately recovered £31,702.59 in total. In the Court’s view this case had much in common with Morgan v UPS. The Defendant had video evidence from an early stage which showed that the Claimant was exaggerating his disabilities but failed to make any realistic offer reflecting the true value of the claim until November 2009, which offer was promptly accepted. There was no justification for departing from the usual starting point, namely that the unsuccessful party should pay the successful party’s costs. The Judge had exercised his discretion on the wrong basis, namely on the assumption that the Defendant was the successful party.

The Court of Appeal would re-exercise the discretion. There had been a growing and unwelcome tendency by first instance Courts and in the Court of Appeal to depart from the starting point set out in Rule 44.3(2)(a) too far and too often. This approach strove for perfect justice but at huge additional cost to the parties and at huge cost to other litigants because of the uncertainty which such an approach generated. It was to be hoped that the forthcoming amendment to Rule 36.14 would point the way to a more clear cut approach to the costs Rules in future. In the context of personal injury litigation, where the Claimant had had a strong case on liability but quantum was inflated, the Defendant’s remedy was to make a modest Part 36 offer. If it failed to make such an offer at the first opportunity it could not expect to secure costs protection. Different considerations might arise in cases where the Claimant was proved to have been dishonest but on the Judge’s findings this was not the case here. There was no reason to depart from the starting point. The Defendant would be ordered to pay the Claimant’s costs of the action assessed on the standard basis.

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