Withdrawing Part 36 offers - Part 36 - no payment on account of costs - Success fees in publication cases - Parties must review statements of case - Issuing proceedings to pursue order for costs not abusive -ESignatures: Law Society and CLLS respond to Consultation


Perils of withdrawing Part 36 offers

Background

This decision follows a partly successful claim by BritNed, the operators of the UK and Dutch electricity grids, and ABB.  The claim followed a decision by the European Commission in 2014 which found a cartel in relation to submarine and underground power cable projects. BritNed contended that it had suffered loss and damage caused by the cartel and claimed in tort for breach of statutory duty.  

ABB made a Part 36 offer which remained open throughout the trial. BritNed had counter-offered with a substantially larger sum.  After the trial, but before judgment, ABB withdrew its offer. 

Outcome at trial

Marcus Smith J held that "in terms of who writes the cheque" BritNed was the winner, but it was the loser in relation to what it had claimed. It had recovered just 10% of its €135m Part 36 offer. The damages award failed to beat ABB's withdrawn Part 36 offer. 

ABB argued that since BritNed had received nothing like its own Part 36 offer, and had failed to beat ABB's offer, ABB should have its costs, and interest on them, from the latest point that its Part 36 offer could have been accepted by BritNed. BritNed countered that quantification of damages was particularly difficult in cartel cases of this nature.

Costs award

While accepting that ABB's Part 36 offer was a factor he had to take in to account, the judge noted that ABB should not have withdrawn its offer. Although he declined to grant a costs order in favour of ABB, the judge accepted that it would be unjust for ABB to pay any of BritNed's costs, given they had made an early commercial offer. He therefore made no costs order. This may be seen as a harsh outcome for BritNed.

Comment

Where Part 36 offers are withdrawn, the costs consequences which normally flow from such offers if the offeror "beats" its own offer will not automatically apply. Parties should therefore think carefully before withdrawing Part 36 offers. Nevertheless the court retains discretion to consider a withdrawn Part 36 offer when assessing costs. 

BritNed Development Ltd v ABB AB & Anor [2018] EWHC 3142 (Ch)

Part 36 - no payment on account of costs following automatic costs order on acceptance

In cases where a Part 36 offer has been accepted with the "relevant period"[1]  (so that D is automatically liable for C's costs), does a court have the power to order a defendant to pay a reasonable proportion of those legal costs in advance of determination by the court of the exact amount that D is to pay?

The "relevant period" is however long the offer is specified by the offeror to remain open for acceptance, with a minimum of 21 days.[2] 

Key facts

  •  C brought a claim against D, seeking compensation for loss incurred as a result of the D's alleged professional negligence.
  • During the course of the claim, D made a settlement offer to C (a Part 36 offer [3]). C accepted this offer, and a formal settlement agreement was drawn up and entered into between the parties.
  • The settlement agreement provided that D would pay C's legal costs. The exact amount to be paid was to be agreed between the parties at a later date, or, if the parties couldn't agree, a court would decide.

Shortly after executing the formal settlement agreement, C applied to the court asking it to order D to pay a proportion of C's legal costs in advance of the parties agreeing (or a court having to decide on) the exact amount D was to pay. Finnegan v Frank Spiers (t/a Frank Spiers Licensed Conveyancers) [2018] EWHC 3064 (Ch)

Decision

Where a Part 36 offer has been accepted in the relevant period (in accordance with CPR 36.13(1)), the judge held that the court cannot order D to pay a proportion of the other side's legal costs on account (ie, in the interim period whilst awaiting the exact amount payable to be determined).

Practical significance

When making Part 36 offers, or accepting them within the relevant period, claimants should be aware that there may be considerable delay before payment for legal costs is received from the defendant.

Finnegan v Frank Spiers (t/a Frank Spiers Licensed Conveyancers) [2018] EWHC 3064 (Ch)

Success fees in "publication cases" no longer recoverable

From 6 April 2019, success fees payable under Conditional Fee Agreements ("CFAs") will no longer be recoverable from opponents in defamation and privacy cases, together referred to as "publication" cases. However, in principle, after-the-event insurance ("ATE") premiums will still be recoverable in publication cases.

Background

CFAs – some of which operate as "no win no fee" agreements – allow lawyers to charge successful claimants an "uplift" on their normal legal fees (an additional "success fee"), which in the past a winning client could recover from the unsuccessful party. After 2013, success fees and ATE premiums ceased to be recoverable from losing opponents in most types of civil claim[4]. ATE insures a claimant against the risk of having to pay an adverse costs order if the claim is unsuccessful and is often used in conjunction with CFAs. The cost of the ATE premium could, pre 2013, be recovered from the defendant if the claim succeeded, but often need not be paid to the insurer if the claim fails. 

In implementing his 2013 cost reforms Jackson LJ strongly championed the retention of a costs protection regime in publication cases to protect claimants' access to justice. These recommendations were further supported by the Leveson Inquiry [5] which led the government to delay the application of the 2013 reforms to those cases. The Ministry of Justice ("MOJ") consulted on the issue with a view to introducing an improved bespoke regime for publication cases.

Application of the reform

Lord Chancellor, David Gauke [6], in November 2018 announced the government's decision to apply the 2013 reforms to publication cases to the extent of abolishing the recoverability of CFA success fees. He justified the decision by citing the European Court of Human Right's decision in MGN v United Kingdom [7], which held that it is disproportionate that a defendant should have to pay a claimant  a 100% success fee under a CFA, because having to do so infringed the defendants' right to freedom of expression under Article 10 of the European Convention on Human Rights. By abolishing the recoverability of success fees, the government may hope further to control costs in publication cases. 

The government has said that ATE premiums will continue to be recoverable "at least for the time being", which they say will protect access to justice, and that the change will discourage weaker cases which are unlikely to be insured. 

Comment 

The decision has been widely criticised as risking the press pushing the boundaries of responsible journalism at the expense of potential claimants in publication cases. Maintaining recoverability of ATE premiums may be of limited assistance to claimants, for now, but may not last. 

All parties must review statements of case and sign statements of truth

Facts

Cs claimed that D1 - D3 had breached fiduciary duties owed to them and a connected third party company, because they had diverted for themselves a business opportunity to conclude a contract with the claimants for the recovery of assets. Ds4 - D9 were companies controlled by D1, D2 and D3. 

D1 and D2 had not signed statements of truth in relation to the statements of case which had been served on their behalf, and on behalf of D4. Only D3, who was also a lawyer, had signed a statement of truth.

Judgment

Although the judge noted that the statements of truth did not have any direct impact on the issues to be determined, she said that her decision should serve as "a clear reminder as to the importance of Statements of Truth, and a careful observance of the requirements pertaining to them". 

The judge held that the importance of statements of truth is reflected by there being "a whole rule, Rule 22 in the Civil Procedure Rules [(CPR 22)], devoted to them, and by the fact that the sanction for breach can be contempt of court". She was particularly concerned that neither D1 nor D2 appeared to comprehend exactly what a statement of truth was, and did not seem to have been taken through the defence in full by D3 to ensure that they approved the relevant factual allegations.

CPR 22 provides that a statement of truth must be signed by the party, a litigation friend or the legal representative thereof, and the judge criticised D3 for regarding this as "an irritating formality"; he was neither the litigation friend, nor legal representative of D1 and D2. She noted that D3 had not grasped an "essential requirement" of CPR 22, which was that each party has checked and verified the truth of the factual case being advanced on his behalf.

This decision shows that each party must review the statements of case carefully, either providing its own statement of truth or authorising his legal representative to sign on his behalf. Where there is a composite defence, it is important for "each defendant to review and verify each element of the case as it pertains to him".

Recovery Partners GP Ltd & Anor v Rukhadze & Ors [2018] EWHC 2918 (Comm)

Issuing proceedings for the main purpose of pursuing an order for costs was not abusive

In Ayton v RSM Bentley Jennison [2018] EWHC 2851 (QB) May J overturned the Master's decision on costs, in a case where a claimant had issued proceedings for the sole or main objective of pursuing an order for costs.

Background

C instructed solicitors to deal with a professional negligence claim against a firm of accountants, who had negligently advised it to invest in Russian oil. C received a cheque from D's solicitors for the sum claimed plus interest at 1% but did not cash it. The correspondence was silent as to costs but, on enquiry, the defendants refused to pay costs, as the pre-action protocol for negligence claims said nothing about C's entitlement to recover them. 

C issued proceedings. They included the sums already offered by Ds together with a relatively modest claim which related to a car. C made three Part 36 offers, none of which D accepted. D made a number of offers (none of which included costs). The matter proceeded to trial. C was eventually awarded £119,578.22, beating all three of its Part 36 offers. 

C was initially ordered to pay 80% of D's costs, despite beating all of its Part 36 offers. The Master said: "It would have been futile to bring a claim simply for costs. Accordingly, this was an entirely unnecessary piece of litigation if it was intended only to recover the claimant’s legitimate claims."

On appeal, May J concluded that the Master was wrong and awarded C its costs. In particular she found that D had not "surmounted the formidable obstacle of establishing that it would be unjust for the consequences of Part 36 to apply."  She said that: "The defendants acted unfairly in adopting the position of refusing to pay the claimant any of his pre-action costs…Why should he, or his solicitors… be out of pocket when the defendants had effectively conceded the claim?"

Comment

This decision has very helpfully clarified that a claimant may issue proceedings for the sole or main objective of pursuing an order for costs. This is likely to influence the approach of claimants and defendants alike to pre action offers. 

It should be noted that there is a distinction to be made between when the parties dispute the incidence of costs and where only the amount is in issue. If liability for costs has been agreed, C should issue costs-only proceedings under CPR 46.14, so that the court can assess the quantum of costs due to it. 

It was also important in this case that the claim had not been extinguished. If C accepts a pre action offer, not including costs, it will have no extant claim to bring and in those circumstances issuing proceedings may be an abuse.

Electronic signatures: The Law Society and CLLS respond to the Law Commission consultation

The Law Society and City of London Law Society ("CLLS") have each published responses to the Law Commission consultation on electronic methods of document execution. 

The Consultation

The Law Commission's 2018 Consultation aimed to address uncertainty regarding the validity of electronic execution. 

The Commission reached the provisional conclusion that an electronic signature (whether a scanned manuscript signature, digital signature or signature via public key infrastructure) does fulfil the statutory requirement for a document to be signed.  

Consultees were invited to share their views on that conclusion, alongside a range of other topics including the creation of an industry working group to assist with statutory reform,  the use of technology to witness signatures (for example, via video link), and whether a consultation regarding the modernisation of deeds is necessary. 

The Law Society's response

In its response The Law Society proposed the enactment of "enabling but not prescriptive" legislation to alleviate doubts about the validity of electronic execution. 

It expressed support for setting up an industry working group, stating that a "multi-disciplinary examination" would be of most benefit, perhaps working in tandem with the Ministry of Justice's Law Tech Delivery Panel. 

However, the Law Society raised doubts about both the efficacy and likely adoption of the practice of witnessing electronic signatures via video link. 

The response recommended that further consideration be given to restricting the circumstances in which a document must be witnessed, and revisiting the concepts of deeds and delivery to modernise the law. 

The CLLS's response

The CLLS echoed the Law Society's support for an industry working group and a review of the concepts of deeds and delivery. 

The CLLS questioned whether a remotely witnessed signature would fulfil the current legal requirement that a deed be signed in the presence of a witness. Where such a question falls to be determined by the English courts – for example, where a signature has been attested by video link – the CLLS expects that a flexible approach will be taken by the courts.

It is anticipated that the Commission will present its final recommendations to government in early 2019.