Court of Appeal gives clarification on CPR Part 36 and Part 44 interactions

Global Assets Advisory Services Ltd and Another v Grandlane Developments Limited and Others [2019] EWCA Civ 1764

Much needed clarification has been provided by the Court of Appeal regarding the interaction between Parts 36 and 44 of CPR. For several years there has been uncertainty about the court’s jurisdiction to order interim payments on account of costs where claims conclude via Part 36 offer and acceptance, giving rise to a deemed order for costs on the standard basis under CPR 44.9.

The facts

In an action where the Appellants sought, amongst other things, a final injunction restraining the Respondents from using confidential information, the claim was eventually compromised via Part 36 offer and acceptance with the Respondents accepting the terms set out. A dispute then arose as to whether the Appellant was entitled to a payment on account of costs in the sum of £215,000. At a hearing before the Honourable Mr Justice Teare, the Appellant’s application for an order for payment on account of costs was dismissed. Although granting permission to appeal, Teare J considered himself bound in comity with the decision of Birss J in Finnegan v Spiers [2018] EWHC 3064 (Ch).

Finnegan v Spiers [2018]

This was a decision at District Judge level where the court ruled it had no power to make an order for a payment on account of costs where a Part 36 offer had been accepted within the relevant period. This was essentially because Part 36 was held to be a complete code and the rules made no provision for payment on account or provided the court with any discretion in such circumstances. On appeal to Birss J, the High Court held:

• CPR Part 36 spells out the consequences of acceptance of a Part 36 offer in that it deals with the incidence of costs and the basis of assessment and accordingly, the majority of CPR r 44.2 was not applicable (paragraph 30);
• CPR r44.2(8) applies when a court has ordered a party to pay costs which is not the same as the circumstances in which CPR r36.13(1) or (2) applies because in those circumstances, there is a deemed order. As a consequence, there is no reason to read r44.2(8) in such a way as to make it applicable where a Part 36 offer is accepted (see paragraph 31);
• Although Proudman J's decision in Barnsley v Noble [2013] 2 Costs LO 150; [2012] EWHC 3822 (Ch) was that the court had power to order a payment on account where a deemed costs order had been made and was not made on the basis that CPR r38.6 (which relates to discontinuance) contains a discretion, that decision applies only where there is a discontinuance (see paragraphs 26 and 31); and
• CPR Part 36 is the place to find all the costs consequences where a Part 36 offer is accepted, including the availability of payments on account, whether expressly or as a result of an express discretion in relation to costs. There is no such express provision in relation to CPR 36.13(1) where the offer is accepted within the relevant period (see paragraph 32).

Deemed costs orders

The Court of Appeal had previously implied at paragraph 45 of Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654 that acceptance of a Part 36 offer could not be described as “an order for damages and interest made in favour of the claimant” [within the meaning of CPR rule 44.14(1)]. One may have been forgiven for thinking that Birss J was therefore correct in considering that the natural extension of this implication would be a deemed order under CPR 44.9 would not normally be sufficient to satisfy the precondition “Where the court orders a party to pay costs subject to detailed assessment” within the meaning of rule 44.2(8) so as to trigger the court’s jurisdiction to “order that party to pay a reasonable sum on account of costs”.

However, in giving the lead judgment in Global Assets, Sir Rupert Jackson was unequivocal in his view of whether such restriction on the court’s jurisdiction in fact existed:

“I can see no reason why the power to make an order under CPR r 44.2(8) should be restricted to circumstances in which the court has physically made the order as opposed to circumstances in which an order of the court is deemed to have been made. In both circumstances, it is the court which has ordered the party to pay the costs and accordingly, it seems to me that the circumstances fall within the wording of CPR r 44.2(8). A deemed order is no less an order of the court. It is made in order to enable the matter to be progressed in a fair and proportionate way without further need for costs to be expended and court time and resources wasted. It would be perverse if, as a result, the successful party was at a disadvantage because an interim payment on account of those costs could only be made where the original order for costs had been made following a hearing or by consent… A person entitled to costs should not be kept out of the portion of those costs to which he is plainly entitled, pending a detailed assessment. Those policy reasons remain the same whether or not the order is deemed to have been made. In both circumstances something should be paid without delay.”

Jurisdiction and Timing

One question that had needed examination for some time was whether the court was in a position to deal with applications for a payment on account of costs in the absence of having tried the claim, therefore lacking in any detailed knowledge of the background facts and circumstances. Sir Rupert did not consider such a perceived disadvantage to cause an impediment:

“It seems to me that the current wording cannot form the basis for a distinction between cases in which the application for an interim payment is heard by the trial judge and those in which it is not. It seems to me that it applies whether or not the trial judge hears the application for an interim payment. If the judge hearing the application considers that there is good reason not to make the order, the terms of CPR r 44.2(8) enable him to decline to do so…It seems to me, therefore, that there can be no reason to conclude that the power contained in CPR r 44.2(8) can or should only be exercised by the judge who has heard the substantive proceedings.”

In approving the decision of Proudman J in Barnsley v Noble - which focused on circumstances where a deemed order arose under CPR 38.6 on discontinuance of a claim - Sir Rupert made the following key findings:

1. In a case where a deemed order exists, a party applying for an order for a payment on account of costs is not seeking to vary the deemed order but rather seeking relief, which is distinct from and in addition to the relief contained in it.
2. Although CPR Part 36 is described as a "self-contained procedural code about offers to settle made pursuant to the procedure" there is nothing in the terms of CPR Part 36 which suggests that it is entirely freestanding and that all costs consequences of the acceptance of a Part 36 offer are to be found within the four corners of CPR Part 36 itself.
3. Once one has concluded that the terms of CPR Part 36 itself do not form an exclusive code as to the costs consequences of offers to settle which comply with Part 36, it is necessary to determine whether there is a tension or conflict between CPR r 36.13 and CPR r 44.2(8) which must be resolved.
4. In this case, once one has concluded that it is possible to look outside CPR Part 36 itself, it seems to me that there is no conflict or tension between CPR r 36.13(1) and CPR r 44.2(8)…CPR r 44.2(8) does not undermine or conflict with CPR r 36.13(1) at all.
5. It seems to me that there is no logical distinction to be made between the circumstances in which a deemed order is made on discontinuance under CPR r 44.9(1)(c) and where a deemed order is made following the acceptance of a Part 36 offer within CPR r 36.13(1), pursuant to CPR r 44.9(1)(b).

What this means for Keoghs clients?

Each case turns on its own facts, but with statutory interest currently at 8% under section 17 of the Judgements Act 1838 and section 74 of the County Courts Act 1984, there is a strong case to suggest that a reasonable voluntary payment on account of costs should be made to the receiving party once a liability for costs (either in whole or in part) has been determined.

There has been a stream of authorities in the past few years to reinforce the principle - now enshrined at CPR rule 44.2(8) - that:

Where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is good reason not to do so.

Over the past decade there has been a deliberate push towards creating more opportunities within the litigation process for parties who are entitled to costs to be the recipient of a reasonable sum on account pending assessment of those costs. See for example the recent appeal decision of HHJ Robison in I v Hull & East Yorkshire Hospitals NHS Trust (Sheffield County Court) 25/02/2019.

There is an ever growing library of case law dealing with the question of how the court will approach the assessment of what a “reasonable” sum on account of costs may be. A paying party’s ability to argue quantum of an interim payment has been somewhat diminished of late, especially where the court has already approved the receiving party’s costs budget. See for example McInnes v Gross [2017] EWHC 127 (QB) and Orexim Trading Limited v Mahavir Port and Terminal Private Limited [2019] EWHC 2338 (Comm).

One question that remains to be determined by a court of binding authority is what constitutes sufficient information to enable it to properly apply the factors at CPR 44.2(4)&(5) in the context of a request for a payment on account made part-way through a claim rather than at conclusion. Master Cook recently wrestled with the issue in RXK v Hampshire Hospitals NHS Foundation Trust [2019] EWHC 2751 (QB). Whilst only a first instance decision, the short judgment is worth consideration by those who regularly face demands from claimant lawyers for interim costs payments part way through lengthy and high value claims.  

Keoghs has a dedicated and specialist costs unit who work alongside substantive teams to guide and advise their clients on how best to combat unreasonable demands for payments on account.