Crooks v Hendricks Lovell Limited
Court of Appeal
15 January 2016
Background
The claimant brought a claim for personal injury and loss arising from an accident at work in 2009. Liability was admitted but issues of medical causation remained. By the time the claim reached trial the claimant’s claim for special damages was £184,674 of which almost £183,000 represented past and future lost earnings. The parties were considerably apart in terms of medical evidence and this was reflected by their respective Part 36 offers.
In September 2012, the defendant made a Part 36 offer to the claimant in the sum of £18,500 using the standard form N242A. The offer was stated to be inclusive of interim payments amounting to £18,500 and crucially was stated to be made “net of CRU”. The offer also stated (in another part of the form) that it was made “without regard to any liability for recoverable benefits”. In October 2013, the claimant made a Part 36 offer of £47,500 “net of CRU and inclusive of interim payments”. This offer was withdrawn shortly before trial and it was the effect of defendant’s offer of September 2012 which was to be considered in the court’s judgment.
A Certificate of Recoverable Benefits (CRB) covering the trial on 14 and 15 November 2013 showed recoverable benefits of £16,262.76. Giving judgment on 15 November, the recorder attributed only 12 months’ lost earnings to the accident. He awarded the claimant a total sum of £29,550, comprising £4,000 for PSLA, £25,500 for past loss of earnings and £50 for miscellaneous expenses. However, because the claimant had indicated his intention to review the CRB, the recorder adjourned his consideration of costs, and therefore the question of whether the claimant had beaten the defendant’s Part 36 offer, until the outcome of the review.
The review was partially successful so that a new sum of £6,760.11 was capable of being offset against the claimant’s damages. The recorder held that the claimant had failed to better the defendant’s Part 36 offer and made an order for costs in favour of the defendant from the last date for acceptance of the Part 36 offer. In doing so, he had accepted the defendant’s argument which broadly went as follows:
Before the review of the CRB the value of the offer was £18,500 plus the benefits of £16,262.76 making a total of £34,762.76 and therefore, in the absence of the review, the claimant’s award was £5,212.76 less than the offer.
After the review of the CRB, the value of the offer was £18,500 plus recoverable benefits of £6,760.11, plus £9,502.65 from the CRU refund to be paid to the claimant. This made a total of £34,762.76 and the claimant’s award was still £5,212.76 less than the offer.
The claimant appealed contending that he should not be liable for the defendant’s costs. The Court of Appeal had to address three issues: first whether the recorder misconstrued the defendant’s Part 36 offer, misdirecting himself as to the meaning of the words “net of CRU”. Secondly, whether the rules required him to consider the costs of the action at the conclusion of the trial, rather than awaiting the outcome of the review of the CRB. Thirdly whether the recorder was wrong to award costs in favour of the defendant.
Court of Appeal findings
Moore-Bick LJ, Arden LJ and Lindblom LJ allowed the appeal and reversed the recorder’s decision holding that the claimant was not liable to pay the defendant’s costs after expiry of the Part 36 offer.
Did the recorder misconstrue the defendant’s Part 36 offer?
The offer was held to be a valid Part 36 offer. The crucial point was the meaning of the expression “net of CRU”. When an offer is stated to be “net of”, in this case CRU, it must be read as having been made without regard to liability for recoverable benefits. In the context of the case before the recorder that must therefore mean that the sum of £18,500 would not be reduced by the recoverable benefits.
Was the recorder right to adjourn his consideration of the costs position until the outcome of the review?
It was appropriate for the recorder to await the result of the review before determining whether the claimant had beaten the Part 36 offer. Pursuant to what was then CPR 36.14, it was not appropriate for the recorder to proceed straight away to determine the issue of costs. The rule, as it then was (the rule numbers have since changed but the substance remains the same) provided that:
CPR 36.14 Costs consequences following judgment
(1) This rule applies where upon judgment being entered –
(a) a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer; or
(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer.
On the basis that not all of the relevant circumstances had occurred at the time judgment was given, and the correct amount of recoverable benefits still required determination, it was not appropriate for the recorder to move straight on to consider the issue of where the costs liability lay and the recorder was right to adjourn matters.
Did the claimant beat the defendant’s Part 36 offer?
The recorder was wrong to conclude that the claimant had failed to beat the defendant’s offer as he ultimately obtained a more advantageous result than the Part 36 offer. When determining whether the defendant had beaten the Part 36 offer, it was necessary to compare the offer with the judgment award on the same basis, allowing for any necessary subtraction of the figures for CRU from the total figure for damages.
The approach the recorder should have taken was to consider the effect of the CRU’s review decision on the composition of the judgment award once the final CRU figure was incorporated. He had been wrong to look at the matter in terms of the amounts paid by the defendant. What he should have done was look at whether the total payment the claimant would actually receive was more or less than the amount of the offer. Had he done so he would have acknowledged that this left the claimant receiving a higher figure than the defendant’s Part 36 offer and therefore a more advantageous judgment. On 15 November 2013, the amount payable to the claimant net of benefits would have been £13,287.24. After the review, the amount payable to the claimant net of benefits was £22,789.89 therefore beating the £18,500 offer.
Accordingly the defendant was ordered to pay the claimant’s costs of the proceedings.
Comment
The Court of Appeal’s decision in relation to the first point brings some clarity to the issue of the phrasing of Part 36 offers which will assist lawyers in advising their clients about the terms and effects of Part 36 offers. This point is particularly important to litigants as the defendant had made its offer on the standard form N242A, the use of which is now much more common, and the clarification from the court should be welcomed as assisting the parties in interpreting offers clearly.
It is however the third issue which is the most significant aspect of the judgment. Cases which have relatively modest values in damages but fairly substantial CRBs are often problematic, and the court’s decision will make the defendant’s situation slightly more difficult moving forwards.
First there will be a delay in bringing about the final order following a trial if the CRB is going to be reviewed or appealed if the offer is made net of recoverable benefits. The Court of Appeal held that, on the second issue, the recorder was correct to proceed as he did and await the result of the CRU review before making his costs order. This inevitably builds a delay into the case with the parties having to await the CRU’s decision and also results in a situation where judgment is handed down but the parties do not yet have finality to the litigation. This is a disincentive of making offers net of recoverable benefits as opposed to gross.
It can be seen from the chronology of the case that the recorder gave judgment on 15 November 2013 but the decision on costs was not delivered until 17 October 2014. This delay in bringing about finality to the case does not assist either party in moving on from the litigation.
Secondly, if the defendant wishes to make an offer net of recoverable benefits then it now has the added uncertainty that in order to truly compare the final judgment with the Part 36 offer, the CRU’s decision must be second guessed in order to calculate what the final award will be. This places more pressure on defendants to try to work out what benefits may not be attributable to the accident related injuries and makes calculation of a well-placed net offer more difficult for the defendant. In practical terms, if a net offer is made at the outset of a piece of ligation when the defendant may not necessarily have its expert evidence in place, the defendant may not be aware of what aspects of the CRB may be open to challenge, thus restricting the ability to accurately pitch any net offer. This uncertainty will only make the defendant’s task of placing any net offer more difficult.
Drawing on the Court of Appeal’s judgment in Fox v Foundation Piling Ltd (2011), the court considered that the point of whether an offer has been beaten or not is not something that should be looked at from any complex philosophical perspective but from a common sense point of view.
The claimant’s claim for special damages alone stood at almost £185,000 at the time of trial, but having recovered £29,550, the claimant was still awarded his costs. To make such a reduction in the claim but still be liable for the costs may seem unfair to defendants, but the Court of Appeal reiterated comments from previous decisions that reducing an inflated claim will not necessarily result in a costs order being made against the defendant. The court reminded practitioners that in such situations:
“The defendant’s remedy is to make a modest Part 36 offer”, and [if] the defendant fails to make a sufficient Part 36 offer at the first opportunity, it cannot expect to secure costs protection”.
The judgment therefore not only serves to bring clarity to the issue of terminology of offers and calculation of final awards, but also as a reminder to defendants that reducing a claim substantially, but not to such a level that the final award is less than the defendant’s Part 36 offer, will not necessarily yield a costs order against the claimant.
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