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01 April 2014
The High Court has allowed an appeal of a decision on a defendant's liability for costs following its acceptance of the claimant's offer under Part 36 of the Civil Procedure Rules. The High Court's ruling(1) confirms that in cases involving multiple defendants, an individual defendant may, on acceptance of a Part 36 offer, be liable for non-specific common costs in addition to the costs attributable to the proceedings against it.
Proceedings had been issued against 10 defendants in relation to an asbestosis claim; the total value of the claim was placed at £195,000. The claimant made a Part 36 offer to accept £18,000 plus costs.
The eighth defendant accepted the offer within the 21-day period specified in the rule stating that this was:
"in full and final settlement of the claim against my client. I note that this offer is net of benefits and confirm that my client will pay your client's costs in pursuing my client to date to be subject to assessment if not agreed."
The claims against the other nine defendants were then abandoned, proceedings having been issued but never served. The claimant lodged a bill of costs in the sum of £58,097.31.
That amount was disputed by the eighth defendant. Pursuant to Civil Procedure Rule 36.10, the claimant submitted that she was entitled to all reasonable costs incurred in the proceedings; they should not be disaggregated, apportioned or divided. The eighth defendant in turn contended that it should pay only those costs incurred by the claimant in pursuing the claim against the eighth defendant, given that liability for the injury was several.(2)
The defendant argued successfully before a costs officer, and later before the costs judge, that as its liability for the injury was several – rather than joint and several – that principle should apply to the costs that it was to pay. The court found the eighth defendant liable for the costs specifically relating to the claim against it and a divisible proportion of the common costs of the proceedings. The claimant appealed this decision.
The claimant argued that in the particular circumstances of this case, the Part 36 offer should be construed as an offer to settle the whole claim (ie, the claim against all 10 defendants). Alternatively, the term 'the costs of the proceedings' in Civil Procedure Rule 36.10(1) should be interpreted as embracing the costs of proceeding against all 10 defendants.
In a second alternative argument, the claimant sought to persuade the court that the effect of a deemed order, as generated by Civil Procedure Rule 44.9, was to entitle it to an assessment in terms of reasonableness. That is, if the claimant could show that it was reasonable to have issued proceedings against any of the other defendants, as a matter of principle, the eighth defendant should have to pay the costs.
Regarding the common costs, the claimant submitted that it was entirely arbitrary to apportion or divide these on the basis of a denominator equivalent to the number of defendants; the court should have arrived at a conclusion on apportionment which was evidence based and not mechanistic.
The eighth defendant argued that the claimant's offer did not comply with Part 36 and in any event, 'the costs of the proceedings' meant, and could only mean, the costs of proceeding against this eighth defendant. The eighth defendant suggested that to contend otherwise would create unfair and unworkable results. Regarding common or generic costs, the general rule was that they fall to be divided on a straightforward arithmetical basis. Further, the claimant had failed to file evidence which might have supported a different conclusion.
The court considered that there were three distinct issues to be determined:
The claimant's Part 36 offer probably did not comply with the wording of Civil Procedure Rule Part 36, but the eighth defendant did not take that point when accepting it. Non-compliance was therefore waived. Further, the eighth defendant had not filed a respondent's notice and so the point could not be considered in this appeal in any event.
The claimant also submitted that she had made an offer to settle "all the costs" of the proceedings. However, the court considered that it was clear from the correspondence which made "an offer to settle this claim against your client" that the claimant was only ever intending to offer to settle the claim against the eighth defendant, leaving open the possibility of pursuing other defendants for the balance of financial loss, and the eighth defendant was only ever intending to settle it on that basis. Accordingly, there was no reason not to apply the usual costs rules under Civil Procedure Rule 36.10(1). The court had to consider the language that the parties had used against the known factual matrix of the case, applying ordinary objective contractual principles.
The second issue turned on what was meant by the term 'the costs of the proceedings' in Civil Procedure Rule 36.10(1). The court had no hesitation in concluding that the term meant, in this context, "the costs of proceeding against the defendant against whom the deemed order has been made". Any broader definition would achieve obvious injustice and violate the language of the rule as seen in its proper contextual setting.
The master had therefore been correct to find that the eighth defendant was liable only for the costs directly attributable to the action against it.
The court's starting point was that this question did not depend on the meaning of the term 'the costs of the proceedings' in Civil Procedure Rule 36.10(1); the court was now concerned only with common (or generic) costs.
Common costs effectively fell into two categories. First, there were the non-specific common costs (eg, court fees, medical reports and travel expenses) that would have been incurred in any event, regardless of the number of other defendants. Second, there were the specific common costs which would, in principle, be capable of identification and division (see Dyson(3)); these should not be included in the 'general costs' of proceedings.
The claimant submitted that the non-specific common costs, which would have been incurred regardless of the other defendants, should be paid in their entirety by the eighth defendant in addition to any specific common costs.
Relying on Dyson, the court found that the claimant would be entitled to orders against each defendant on a 100% basis, leaving it to those defendants to contest issues of apportionment. While it was true that as a matter of convenience or pragmatism the costs judge would in most cases choose to divide those costs according to the number of defendants, on the assumption that all of them are solvent, this did not affect the correct legal analysis.
It therefore followed that the lower court's conclusion in relation to the non-specific common costs, which it did not treat as a separate category, could not be upheld. It was wrong in principle. The claimant was entitled to these costs on a 100% basis.
On the issue of the specific common costs, which also formed part – on an undifferentiated basis – of the costs order made by the lower court, the claimant's submission that the previous decision was somewhat arbitrary was accepted, albeit on principle rather than a case-specific basis, given the lack of evidence submitted by the claimant on this point.
The 'rough and ready' approach taken by the lower court, although favoured in at least two first-instance decisions and in Fourie,(4) was deprecated by the judge in Dyson, precisely for the reason that it was unscientific and impressionistic. The general rule was therefore that evidence-based decisions are required (eg, time spent), rather than an approach which simply identifies the number of defendants. However, it was noted that this rule must give way in circumstances where it would be disproportionate to conduct such a detailed analysis.
This decision confirms that where a Part 36 offer is accepted by one of multiple defendants, that defendant's individual liability for costs will likely extend only to the costs of the proceedings against it. However, if the claimant can provide evidence of non-specific common costs incurred in the proceedings, these may also be recoverable from the individual defendant at a rate of up to 100%.
In higher value disputes, defendants should also consider the evidence-based approach on specific common costs now advocated by the court. This will be relevant when considering the potential costs exposure of accepting a Part 36 offer in cases where significant levels of costs have been incurred.
For further information on this topic please contact Laura Martin or Andy McGregor at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
(1) Haynes v Department for Business, Innovation and Skills  EWHC 643 (QB).
(2) See Barker v Corus  2 AC 572 regarding the several nature of asbestos claims.
(4) Fourie v Le Roux  EWHC 1840 (Ch).
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