The High Court has ruled that there is no jurisdiction to award a payment on account under CPR 44.2(8) in circumstances where a claim is settled by way of acceptance of a Part 36 Offer.
This is a surprising decision and one that appears to run contrary to the development of the rules and general direction of case law on the subject of payments on account. Notably, whilst only recently published, the decision was made in June 2018, prior to the decision in Culliford and Anor v Thorpe [2018] EWHC 2532 (Ch) in which HHJ Matthews said, at para 14:
“it is not the law that, once an order for costs has been made, drawn up and sealed, no further application can be made to the court for an order for a payment of a sum on account of those costs. There is nothing in the rules which so requires, and there may be good reason why payment of the sum on account is not considered at the time the order was made.”
and
“I see no justification in the rules or authorities for the Claimants’ view that, if an application is not made at the time, the next opportunity arises only after detailed assessment proceedings have been commenced.”
Why should the position be any different where settlement is achieved following acceptance of a Part 36 Offer?
The effect of this decision will be to potentially keep a successful claimant (or defendant) out of funds following settlement of an action (which concludes upon acceptance of a Part 36 Offer) until such time as a request for detailed assessment is lodged and an application for an interim costs certificate is made under CPR 47.16. This can often be many months after settlement, if at all.
Can it really have been the intention of the rules committee to make such a fundamental distinction between cases which conclude at trial or by way of consent order, and those which settle upon acceptance of a Part 36 Offer?
Of course, parties are free to agree whatever payments they like, and with statutory interest running at 8% it is in the paying party’s interest to make some payment at the earliest opportunity. However, in many cases, it is only under threat of an application under CPR 44.2(8) that this is ever done.
The decision in Culliford was welcomed in this respect, confirming as it does that there is nothing to prevent the court making an order for payment on account of costs after the final order has been made.
The decision in this case rather dilutes the impact of Culliford.
In another case concerned with payments on account, Astonleigh Residential v Goldfarb [2014] EWHC 4100 (Ch), Mr Justice Alpin reached a different conclusion as to the interaction between Part 36 and CPR 44.2(8), commenting, at para 11:
“It seems to me that what is discussed in Cooke (sic) as to the power to make such an order where there is acceptance of the Part 36 Offer, is all concerned with matters of practicality and whether one would be coming before the court or not. There is no suggestion that it is a matter of jurisdiction and there is certainly no suggestion in the CPR itself that in such circumstances there is no power to grant such an order.”
This decision does not appear to have featured in argument in the present case.
The question on this appeal was whether the court has the power to order a payment on account of costs under CPR 44.8(2) in a situation in which a Part 36 offer has been accepted under rule 36.31 and so by rule 44.9(1) it is deemed that a costs order has been made on the standard basis.
At first instance District Judge Kelly found that it did not essentially because Part 36 is a complete code and the rules make no provision for a payment on account in these circumstances, nor does the rules provide the court with any discretion in these circumstances in the circumstances of a deemed costs order.
The claimant appealed.
The appellant argued that:
The respondent argued that:
17. I accept the submission that Part 36 is a complete code. Rule 36.1(1) says so and this is supported by the authorities. However, as Ms O’Connor submits, the case could be said not to be about Part 36 but about the effect of a deemed order under rule 44.9 and the interaction with rule 44.2(8). So it is not so clear whether the fact that Part 36 is a complete code necessarily assists.
18. Turning to consider rule 44.9, it deems a costs order made in certain circumstances and it is notable, it seems to me, that those circumstances vary. In a discontinuance, the provision in rule 38.6 provides that the claimant will be liable “unless the court orders otherwise”. Notably, there is no reference to the basis of assessment. That is provided by the provisions of rule 44.9(1) whereas, when 44.9(1) applies to acceptance of a Part 36 offer, the defendant’s liability for costs is not qualified by the same language as is in 38.6 “unless otherwise ordered”, but also Part 36 does specify the basis of assessment as well and so, to that extent, parts of rule 44.9(1) are redundant when they apply to Part 36.
19. I conclude from that analysis that it is not straightforward to reason from the relation between one trigger of the deemed order in rule 44.9 and the other, that is to say, between the discontinuance trigger and the Part 36 trigger.
20. Looking at rule 44.2(8), as a matter of language, it does appear to have the temporal quality identified by the respondent, as it is written where the court makes an order for costs it will order a payment on account of a reasonable amount unless there is good reason not to.
21. That temporal aspect may explain the decision in Ashman. What happened in that case was that after a costs order has been made at a hearing but before the order was drawn up and sealed, the Master was asked to make a payment on account. The Master noted the terms of rule 44.2(8) and held that the right way to look at the matter was that he had already made a costs order at the hearing but that he was being asked to alter the order under the Re Barrel Enterprises [1973] 1 WLR 19 CA and Re L (Children)[2013] 1 WLR 634 jurisdiction, he decided to do so and to make the payment on account order. But the point is that the analysis that the Master conducted in that case was that it was necessary in order to make a payment on account order, that the costs order which had already been made had to be altered. That does support the respondent’s case that to make a payment on account order after a costs order has been deemed to be made, would require a variation or alteration in that order.
22. Considering the Fitzpatrick authority, I note that it was based on the previous language in rule 44.3(8). Paragraph 54 of Coulson J’s judgment makes that clear. I am bound to say I wonder whether the change from rule 44.3(8) to rule 44.2(8) was intended to put into effect what is said by the judge in paragraph 54 itself, that the language is strikingly similar. Nevertheless, what is clear from Fitzpatrick as the judgment makes clear is that there are good reasons why payments on account can and should be made if they are appropriate.
23. Turning to the Lahey case, the appellant is right that Lahey was about the application to vary a deemed order to substitute an order requiring payment of 100 per cent of the assessed costs to make it into an order requiring payment of only 25 per cent of the assessed costs. That is clear from paragraphs 20 and 21 of the judgment of Dyson LJ giving the judgment of the court. That is a different circumstance from the present one. Nevertheless, the reasoning of the court in Lahey is clear, that the court has no power to vary a deemed costs order, and I refer to paragraphs 19 and 23 of that decision.
24. It seems to me that one way of approaching this case is to ask whether that is what the appellant before me is trying to do.
25. Finally, I will consider the Barnsley case. There the judge decided that she had power to make a payment on account after a discontinuance. Lahey was not cited to her. The respondents explained the order the judge made on the basis that rule 38.6 contains a discretion and so the court had the power to make a payment on account as a result of that. That is so, but it is fair to say that the judge’s reasons in Barnsley were not based on that proposition. Her reasoning was not focused on rule 38.6. Her decision was that the court had the power to make a payment on account when a deemed costs order was made under rule 44.9 and in that sense the reasoning of the judge supports the appellant.
26. It seems to me that another relevant factor when considering Barnsley is that it was decided when the payment on account provisions were those in rule 44.3(8) and not rule 44.2(8) and those provisions do differ. The earlier provision can be read as setting the existence of a costs order as a precondition and then providing for the exercise of a discretion by using the word “may”, whereas the current rule reads differently. The provision uses the word “will”, subject to a good reason not to make the order and reads as though the payment on account will be made where the costs order is being made, in other words at the same time. However, I am concerned not to decide a matter that is not necessary to be decided and I will not decide this case on the basis that rule 44.2(8) in its current form demands that a payment on account order must be made at precisely the same moment that the court makes a costs order.
27. Nevertheless, it seems to me that that approach to Barnsley highlights again the question is whether the appellant here is seeking to vary a deemed costs order. If the application for a payment on account is a variation of any sort of costs order (a deemed costs order or anything else) then in this case it would be precluded by Lahey and the broad reasoning of Barnsley would be wrong. Nevertheless, as I think I have said already, Barnsley may still be supportable on the ground of rule 38.6 in the specific circumstances that were before the court there relating to discontinuances. So on any view, I do not need to contradict Barnsley in relation to discontinuances.
28. I cannot read rule 44.3(8) (that is the previous provision) as a provision which would require variation of existing costs orders before a payment on account was made. If that is what rule 44.2(8) means, I will be happier about the respondent’s case if I thought that the change in language could have been intended to have that effect. I very much doubt it was intended to do that, even if that is the effect it has, as is suggested by the Ashman case. I say that because of the way Coulson J put it in Fitzpatrick. I do not believe that judgment can be read as indicating that the judge that I have just identified was what the judge there had in mind.
29. In my judgment, the right way to look at this is on a broader basis and consider the broad relationship between Part 36 itself and rule 44.2. It is clear that, although Part 36 is not a complete code, for example, given the existence of rule 44.9, nevertheless the consequences of acceptance of an offer are spelled out in Part 36 and they have the effect that the majority of rule 44.2 (and other parts of Part 44 as well no doubt) cannot be applicable to such a situation.
Part 36 deals with the incidence of costs and the basis of assessment. The point of rule 44.9, as the respondent submitted, at least in this context, is to deem a costs order to be made so that the detailed assessment provisions can be triggered. It seems to me that the purpose of the deeming provision cannot be said to have engaged any other parts of rule 44.2.
30. I can see compelling reasons why a payment on account in a Part 36 case like this would be different from one considered after a trial, but that alone is not a reason not to do it, although it does show that the exercise is different in kind. What it does show, it seems to me, is that
the place to find the court’s ability to make a payment on account order after acceptance of a Part 36 offer is in Part 36 itself. It is absent from there. There is no reason, in my judgment, to read rule 44.2(8) to make a payment on account applicable when a Part 36 offer is accepted.
So I distinguish Barnsley. In my judgment, it applies to discontinuances only.
31. I would not say that Lahey precludes the order that the appellant seeks in this case, because I am not convinced that the correct way of looking at this case is as if it is seeking a variation of a deemed order unlike Lahey. I believe the correct analysis is that
the place to find all the costs consequences of accepting a Part 36 offer is Part 36 and that includes the availability of payments on account, either expressly so or because the rules give a discretion about costs in other circumstances which apply, for example, to the late acceptance of a Part 36 offer but do not apply in this case.
32. Accordingly, District Judge Kelly was right. To the extent that my reasons differ from hers, I have heard much fuller argument on it than she did on the issue and there is no need to consider the respondent’s notice.
33. Finally, I wish to take the trouble to commend both counsel for their arguments and skeletons in this case. It was presented with economy and precision and I am grateful to both of them.
34. The appeal will be dismissed.
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