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. 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’s Position
The appellant argued that:
- there is no authority on rule 44.2(8);
- Lahey v Pirelli Tyres  EWHC Civ 91 is not a binding authority on this issue and could be distinguished. The problem in that case, it was said, was that after a deemed costs order had been made, the paying party sought an order to alter that from an order requiring payment of 100 per cent of the assessed costs to only 25 per cent of the assessed costs. The fact the court held it had no power to do that is different from this case;
- the decision in Barnsley v Noble  EWHC 3822 (Ch) should be followed. The reasoning applied to this case as well because it applies to any deemed costs order under rule 44.9 irrespective of what has triggered the costs order. The core of Proudman J’s reasoning in that case was that, when a deemed costs order was made, the court can order a payment on account. The decisive factor was not the existence of the discretion under rule 38.6 which might allow for a different order;
- with reference to the judgment of Coulson J (as he then was) in Fitzpatrick Contractors Limited v Tyco Fire and Integrated Solutions (UK) Limited (formerly Wormald Ansul (UK) Limited) (No.3)  EWHC 274 (TCC) at paragraph 54 “Pursuant to CPR 44.3(8), a claimant in the position of Fitzpatrick is entitled to seek an interim payment in respect of costs. The general rule is that, unless there is a good reason why not, the court will order such an interim payment.“;
- there is no reason to limit the application of the rules in the manner contended for by the respondents and thereby frustrate the effect of the deemed order and, for that matter, rule 44.2(8).
The Respondent’s Position
The respondent argued that:
- Part 36 is a complete code and the source of the entitlement to costs in this case arose from acceptance of a Part 36 offer. Rule 36.13 deals with the consequences, provisions about payment on account are simply not there and one should not import from the general law things into Part 36: Gibbon v Manchester City Council  EWCA Civ 726;
- the Fitzpatrick case was a very different case because there there was a residual discretion available to the court to make a payment on account because the matter was governed by rule 36.13(4)(b). In other words because acceptance had come after the relevant date under Part 36;
- Rule 36.13 deals with the incidence of costs and with the basis of assessment. The provision at 44.9 provides for a deemed order, but in those circumstances, no discretion about costs arises before and Part 36 and rule 44.2 are mutually exclusive. Support for that can be seen in rule 44.2(4)(c) which refers to factors which could not have anything to do with a decision about making a costs order under Part 36;
- considering rule 44.2(8), the change in language from its predecessor position in rule 44.3(8) is relevant. Beforehand, the court’s power was consequent on a costs order and arose, in effect, after it, whereas under rule 44.2(8), the rule is written in such a way that temporally the payment on account order is to be made at the same time as the costs order. That difference has been noted in the question and answer booklet published at the same time as the White Book, and in particular paragraphs 8.14 and 8.52, and it also explains a decision of Master Matthews in his judgment in Ashman v Thomas  EWHC 1810 (Ch);
- in this case, the appellant was seeking to vary a deemed order and the court has no power to do that. That is the core point made by the Court of Appeal in the Lahey case and it is authority for the point that, when a deemed order is made, the court has no power to vary it. So if, as the respondent submits is right, a payment on account would amount to varying a costs order, then the court has no power to make the order;
- the Barnsley case should be distinguished because it is concerned with a different situation and, due to the presence of rule 38.6, the court had a discretion in that case which would not exist in this case. Also, Proudman J there observed that she had not had full authority cited before her, in particular, for example, Lahey was not cited.
MR JUSTICE BIRSS:
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  1 WLR 19 CA and Re L (Children) 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.