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Part 36 enforceability in protected party cases
In the recent case of Wormald v Ahmed  EWHC 973 (QB) HHJ Ambrose provided important guidance to those seeking to resolve catastrophic injury cases where the claimant is a minor or protected party by virtue of a lack of capacity.
She found that neither claimant nor defendant are bound by an accepted Part 36 offer and an application to resile from the offer can be made at any time before the court has approved the settlement. Guidance was given as to the approach the court might take in deciding whether to allow a party to resile from acceptance of the Part 36 position and the circumstances in which the court might approve the settlement.
The claimant suffered a serious brain injury when he was involved as a pedestrian in a road traffic collision in 2009. He was only 20 years old. The defendant made a Part 36 offer of £2,000,000 in October 2014, which was not accepted at the time. There was a trial of the preliminary issue of liability in November 2014 and judgment was entered in favour of the claimant for 60% of his damages to be assessed.
In September 2020, the claimant’s solicitor served notice of acceptance of the offer made six years earlier. On same day, the claimant sadly died of a cardiac condition.
Six days after acceptance of the offer the defendant’s solicitor attempted to withdraw the offer because of the claimant’s death (as a result of which damages would have been substantially reduced). In December 2020, the claimant sought a declaration that the offer could not be withdrawn and an order for approval of the accepted sum of £2,000,000.
The claimant had significant ongoing health problems of a respiratory nature due to his injuries. In September 2020, his solicitors were informed that he was back in hospital having choked and suffered a cardiac episode.
After consulting with counsel and taking urgent instructions from the litigation friend, the claimant’s solicitor accepted the offer. The defendant responded by asking for confirmation that the claimant remained alive and what his condition was. On the same day the claimant’s solicitor replied indicating that the claimant was on life support and in a critical condition but did not identify that there was a cardiac issue.
HHJ Ambrose identified three key issues to be decided as follows:
- If a protected party accepts a Part 36 offer, is the other party able to withdraw before approval of settlement by the court?
- When the court is asked to approve settlement, on what grounds (if any) can a Part 36 offer be withdrawn?
- Should the court grant permission for withdrawal of the defendant’s offer or approve the settlement?
The court was mindful of the provisions of Part 36, which identify the limited circumstances in which a Part 36 offer can be withdrawn, and the provisions of CPR Part 21.10, which confirms that a claim made by a child or a protected party for settlement or payment is invalid without approval of the court.
There was argument about the likely difference in damages according to whether the claimant had survived his cardiac episode. The defendant contended that the value of the claim after death would have been less than £500,000 (60% of that award would equal £300,000). This was not accepted by the claimant, but no evidence was led as to what the fatal award might be. The judge assumed that, if approved, the settlement would result in the estate recovering substantially more than it would if the case had been decided at trial.
The claimant accepted that it was possible to withdraw a Part 36 offer given the carefully prescribed situations as identified under CPR Part 36. It was submitted that the purpose of CPR 21.10, i.e. the requirement for court approval to make settlement valid, was there to protect the interest of the vulnerable child or protected party as opposed to the defendant.
The defendant argued that in a case of a minor or protected party, the effect of Part 36 was modified because of the existence of CPR 21.10 and an accepted offer could therefore be withdrawn. Alternatively, if the withdrawal was ineffective, settlement should not be approved. It argued that the hasty settlement was “opportunistic” and the case had proceeded since 2014 on the basis that the historic offer of £2,000,000 did not really provide any protection.
HHJ Ambrose found in favour of the defendant.
She said that the primary purpose of Part 36 was to lay down fair cost consequences for settlement offers so as to give the parties an incentive to settle disputes. It was intended to provide “clarity and certainty” for the making and accepting of offers including their cost consequences. However, such rules did not override policy and CPR Part 36 had to be read in context of the safety valve provided by the court under CPR 21.10. In other words, a Part 36 offer gives rise to less certainty where protected parties are involved but the price of that lesser certainty is worth paying in exchange for ultimate protection of those vulnerable parties in possibly accepting a “bad bargain”.
Summary of principles concerning settlement in cases involving children and protected parties
The judge identified the following guiding principles:
- Compromise on behalf of a protected party even by way of Part 36 offer requires approval of the court under CPR 21.10;
- Where a protected party accepts a Part 36 offer acceptance is not binding until approved by the court;
- Proceedings are not stayed until the court approves settlement;
- Until settlement is approved, the other party may resile from an offer by giving notice of withdrawal. Such withdrawal essentially gives notice that a settlement is challenged;
- However, the notice of withdrawal will not itself be valid for the purpose of Part 36 and in particular in relation to cost consequences;
- Either party may still apply for approval of the settlement (Practice Direction Part 21). The court will decide whether the withdrawal is to be given effect or the settlement is to be approved.
The court went on to explore the approach the court might take in these circumstances.
It said that the primary consideration remained the protection of the protected party but the overriding objective was also relevant to deal with cases “justly”. The onus of showing that it would be unjust to bind a party to an offer lay on that party.
In the present case, it was relevant that the protected party had died. Therefore, the protection of his interests as a vulnerable person became less significant and the need to control the proceeds fell away. The court was not there to police whether the compromise was too generous to the protected party, or give rise to a financial windfall. However, where it was clear that the protected party or his estate was doing financially better than he would have at trial, this would go into the balance.
In this case, it was also important that the defendant had not been provided with information that the claimant had suffered a cardiac episode until after the offer had been accepted.
The court rejected the suggestion that the behaviour of the claimant’s solicitor was opportunistic but felt that the decision to accept had been made under pressure and “hastily”. If the claimant had pulled through, then it would have been unjust to hold him to the compromise at £2,000,000 and he would have been able to justify resiling from it.
The parties were not on an equal footing at the time of settlement because the lack of knowledge of the defendant was an important issue.
In the circumstances, the judge found that it would be unjust for the defendant to be bound by the acceptance of the offer and gave directions for the claimant to provide information at approval of the settlement including answering the defendant’s request for medical records.
What does it mean?
- It is clear that acceptances of Part 36 offers in cases where court approval is required are less certain and there is opportunity for the claimant or defendant to resile from acceptance prior to the approval hearing;
- In deciding whether to allow a party to resile or to approve the settlement, the burden of proof is upon the party who seeks to resile and the court will decide the matter according to the overriding objective in dealing with the case justly;
- The court is likely to give as much protection as possible to the vulnerable party i.e. the claimant, unless there are significant concerns that approval would create an unjust situation – for example in this case where the claimant had died and the award had been much less.
- The court will decide such arguments according to the overriding objective taking all matters into account. If there is a suggestion that the parties are not on an equal footing at the time of acceptance this is something that will weigh in the balance.
The court is not concerned with adjudicating upon whether the approval will lead to a windfall. In this case, it was important that the protected party had died and therefore the need for his protection was diminished. If the protected party had not died, then the court is likely to have been much more reluctant to allow the defendant to resile.
Ultimately, the decision confirms that agreed settlements for protected parties are less secure until court approval has taken place. The court made it clear that the Part 36 regime of offer and acceptance whilst important in providing certainty did not trump the need to achieve a just result in accordance with the protection provided by CPR 21.10.
It is not uncommon in cases of very serious brain injury for there to be a sudden deterioration in health and, sadly, death that significantly reduces the value of damages. The impact of this is ameliorated if the case has settled by way of a periodical payment order. Equally, there may be a deterioration that increases the future needs of the claimant - for example care, which would increase damages. In cases where there is a significant delay between settlement and the approval hearing, the opportunity for such arguments to be aired again is very real.
It is important for defendants to be mindful and carefully check the existence of previous Part 36 offers that may have been made many years before, particularly where there is a change in the presentation or health of the claimant.
Although some commentators may deprecate the reduced certainty of settlement, it seems right that the court should prefer the principle of the overriding objective and achieving a just result.
The case also underlines the importance of the parties abiding by their professional obligations to each other and the court in providing frank and open information at the time of settlement.