Part 36 And Interim Payments On Account of Costs

Derrick Yirenki v Ministry of Defence [2019] EWHC 1955 (QB)

Following the decision of Birss J in J P Finnegan v Spiers (t/a Frank Spiers Licensed Conveyancers) [2018] EWHC 3064 (Ch) which we reported on last year, HHJ Rawlings has found that the court has no power to award a payment on account of costs in circumstances where the substantive action has settled by way of acceptance of a Part 36 Offer.

“It may be that it creates a disincentive to a claimant to accept part 36 offers but it seems to me that such disincentive would be very slight, there are many advantages to a claimant in engaging in the process of making and accepting part 36 offers. The disincentive of not being able to receive a payment on account of costs which will be assessed in due course is not a sufficient disincentive to mean that part 36 offers will not work effectively to promote settlement of claims”

He rejected an alternative argument that he had the power in any event to order a payment on account under the wide discretion afforded to him by s51 of the Senior Courts Act 1981.

“Section 51.1 … says that, subject to the provisions of any other enactment or rules of court, the costs of and incidental to the proceedings are in the discretion of the court. Whilst that wording is potentially wider than just determining who is to pay costs and to what extent, it is still difficult to read into that provision, a discretion to order a payment on account of costs… The CPR already sets out the circumstances in which a court can order a payment on account of cost to be assessed and I do not consider that there is scope for finding that there is a separate and wider power to order a payment on account of costs to be assessed than is contained in CPR 44.2 (8).”

With statutory interest running at 8% it does of course remain the clear interests of a paying party to make an interim payment on account of costs at an early stage.

DERRICK YIRENKI v MINISTRY OF DEFENCE [2019] EWHC 1955 (QB)

CPR 44.2(8) : CPR 44.9(1) : CPR 36.31: PART 36 ACCEPTANCE : PAYMENTS ON ACCOUNT : INTERIM PAYMENTS : FINNEGAN

Finnegan v Frank Spiers (T/A Frank Spiers Licensed Conveyancers) [2018] EWHC 3064 (CH)

Yirenki v MOD (Power to award a payment on account of costs pursuant to acceptance of a Part 36 Offer) : Key Points

“CPR 36 … is meant to be a self-contained code, [and] contains no provision allowing a claimant to apply for a payment on account of costs to be assessed, where the claimant accepts a part 36 offer. I can see no basis for reading into CPR 36, any such right” [9(a)]

“it is more arguable that CPR 44.2 (8) was intended to be engaged by the reference in CPR 36 to the acceptance of a part 36 offer by a claimant taking effect as if an order for costs had been made. I am not however satisfied that Birss J was clearly wrong in Finnegan to conclude that CPR 44.2 (8) is not engaged where a part 36 offer is accepted by a claimant” [9(b)]

“It may be that it creates a disincentive to a claimant to accept part 36 offers but it seems to me that such disincentive would be very slight, there are many advantages to a claimant in engaging in the process of making and accepting part 36 offers. The disincentive of not being able to receive a payment on account of costs which will be assessed in due course is not a sufficient disincentive to mean that part 36 offers will not work effectively to promote settlement of claims” [10]

“For all of the above reasons I am not satisfied that the decision of Birss J in Finnegan was clearly wrong and I will therefore follow that decision in finding that I have no jurisdiction to order that the defendant pay a sum on account of the costs of the claimant, which are to be assessed following the claimant’s acceptance of the defendant’s part 36 offer.”

That still leaves open the possibility of me ordering an interim payment under section 51 of the Senior Courts Act 1981. No such separate discretion is mentioned in Finnegan.

“Section 51.3 appears more restrictive than section 51.1. It gives the court the power to determine who and to what extent costs are to be paid. It does not obviously include a power to decide that a party who has made a part 36 offer should make a payment on account of costs to be assessed to the other party, it does not talk about the timing of payment, at all. So, it seems to me that section 51.3 is of no assistance to the claimant.” [13]

“Section 51.1 is in wider terms and says that, subject to the provisions of any other enactment or rules of court, the costs of and incidental to the proceedings are in the discretion of the court. Whilst that wording is potentially wider than just determining who is to pay costs and to what extent, it is still difficult to read into that provision, a discretion to order a payment on account of costs… The CPR already sets out the circumstances in which a court can order a payment on account of cost to be assessed and I do not consider that there is scope for finding that there is a separate and wider power to order a payment on account of costs to be assessed than is contained in CPR 44.2 (8).” [14]

Link to Judgment

Full Case Details

This was another case concerning the court’s power to award an interim payment on account of costs in circumstances where the substantive action has settlement on acceptance of a Part 36 Offer.

The Claimant’s Position

In support of his application for an interim payment following acceptance of the defendant’s Part 36 Offer, the claimant made two essential points:

Finnegan provides an unduly restrictive interpretation of the operation of the Civil Procedure Rules and it should not be followed based upon the policy and the practical consequences of applying that decision; for example, it is a disincentive to claimants to make and accept Part 36 offers, if Birss J is right, that interim orders for costs cannot be made in relation to acceptance of a Part 36 offer, whereas they can and normally should be made under CPR 44.2(8) where the court makes an order for costs in a party’s favour.
independent of any right applying under CPR 44.2(8) to grant an order to the effect that a defendant should pay a sum on account of costs to be assessed, section 51 of the Senior Courts Act 1981 gives the court a very wide discretion as to costs. Use of the discretion under section 51 is not excluded by CPR 36; which is silent as to whether or not the court can order an interim payment and, therefore, the court has jurisdiction under section 51 of the Senior Courts Act 1981 independent of CPR 36, to order a payment on account.

HIS HONOUR JUDGE RAWLINGS:

6. I can only depart from the decision of Birss J in the Finnegan case if I consider that his decision is clearly wrong. There are two elements to Birss J’s judgment: (a) under CPR 36, there is no provision for the making of an interim payment on account of the claimant’s costs; and (b) CPR 44.2(8) does not apply where a part 36 offer is accepted by a Claimant.

7. As to CPR 36, it has been confirmed in a number of cases to be a self-contained code aimed at promoting the settlement of cases to which other parts of the CPR do not apply and reading CPR 36 in isolation it does not provide for payments on account of costs which fall to be assessed when a claimant accepts a Defendant’s Part 36 offer.

8. CPR 44.2(8) says that where the court orders a party to pay costs subject to a detailed assessment, the court should order that party to pay a reasonable sum on account of those costs unless there is a good reason not to do so. CPR 36 provides that, where a part 36 offer is accepted, the acceptance takes effect “as if an order for costs had been made”. Whilst the provision that acceptance of a part 36 offer takes effect “as if an order for costs had been made” clearly allows a claimant who accepts a part 36 offer to use the same mechanisms for assessing and enforcing those costs as would apply if a court order for those costs had been made, I am not as satisfied that, on a strict reading of CPR 44.2 (8) it is engaged where a part 36 offer is accepted by a claimant. This is because CPR 44.2 (8) appears to envisage that the court will normally make an order for a payment on account costs when it makes an order for costs to be assessed. The provision under part 36 that, where the claimant accepts a defendant’s part 36 offer it takes effect “as if an order for costs had been made” does not give the court the opportunity that CPR 44.2 (8) envisages, when it makes an order for costs to be assessed, to order a payment on account of those costs (nor the obligation to make an order for a payment on account of costs to be assessed, unless there is a good reason not to).

9. Mr Ridgway invited me, if I concluded that a literal interpretation of CPR 36 and 44.2 (8) did not allow me to order payment on account of costs, to fill what he referred to as an obvious lacunar or error in the rules, by interpreting them to allow for such a payment on account costs. In order to come to the conclusion that CPR 36 either alone or read in conjunction with CPR 44.2 (8), should be read to allow a claimant who accepts a defendant’s part 36 offer to apply for an order that the defendant pays a sum on account of the cost be assessed, I would need to conclude that that was the intention of the Civil Procedure Rules Committee (“CPRC”) (which drafted the rules). I am unable to come to that conclusion for the following reasons:

(a) CPR 36 which, as I have already indicated, is meant to be a self-contained code, contains no provision allowing a claimant to apply for a payment on account of costs to be assessed, where the claimant accepts a part 36 offer. I can see no basis for reading into CPR 36, any such right;

(b) it is more arguable that CPR 44.2 (8) was intended to be engaged by the reference in CPR 36 to the acceptance of a part 36 offer by a claimant taking effect as if an order for costs had been made. I am not however satisfied that Birss J was clearly wrong in Finnegan to conclude that CPR 44.2 (8) is not engaged where a part 36 offer is accepted by a claimant, because CPR 44.2 (8) only appears to apply in circumstances where the court makes an order that one party pays the other parties cost and because it places an obligation on the court, when making such an order, to order a payment on account of the cost to be assessed, unless there is a good reason not to. That power and obligation does not lend itself to applying in circumstances where a cost order is effectively deemed to have been made under CPR 36, because a claimant has accepted a part 36 offer made by a defendant; and

(c) neither party came prepared to argue the question of whether I had jurisdiction to order the defendant to pay a sum on account of the claimant’s costs (up to the date of the hearing each party appears to have proceeded upon the basis that the claimant could make such an application). Mr Ridgway has advanced his arguments “on the hoof” when faced with the case of Finnegan which I provided to him prior to the hearing. It would, in my judgement, be unsafe, in those circumstances for me to read into CPR 36/CPR 44.2 (8) a power to order a payment to be made on account of costs to be assessed under CPR 36 when I have not had the benefit of anything like full argument on the question of whether or not it is appropriate to attribute that intention to the CPRC.

10. Now, it may be that creates an anomaly. It may be that it creates a disincentive to a claimant to accept part 36 offers but it seems to me that such disincentive would be very slight, there are many advantages to a claimant in engaging in the process of making and accepting part 36 offers. The disincentive of not being able to receive a payment on account of costs which will be assessed in due course is not a sufficient disincentive to mean that part 36 offers will not work effectively to promote settlement of claims

11. For all of the above reasons I am not satisfied that the decision of Birss J in Finnegan was clearly wrong and I will therefore follow that decision in finding that I have no jurisdiction to order that the defendant pay a sum on account of the costs of the claimant, which are to be assessed following the claimant’s acceptance of the defendant’s part 36 offer.

12. That still leaves open the possibility of me ordering an interim payment under section 51 of the Senior Courts Act 1981. No such separate discretion is mentioned in Finnegan. Mr Ridgway draws my attention to Section 51.1 and 51.3. Section 51.1 says, “Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in…the High Court…shall be in the discretion of the court.”. Section 51.3, provides “The court shall have full power to determine by whom and to what extent the costs are to be paid.”

13. Section 51.3 appears more restrictive than section 51.1. It gives the court the power to determine who and to what extent costs are to be paid. It does not obviously include a power to decide that a party who has made a part 36 offer should make a payment on account of costs to be assessed to the other party, it does not talk about the timing of payment, at all. So, it seems to me that section 51.3 is of no assistance to the claimant.

14. Section 51.1 is in wider terms and says that, subject to the provisions of any other enactment or rules of court, the costs of and incidental to the proceedings are in the discretion of the court. Whilst that wording is potentially wider than just determining who is to pay costs and to what extent, it is still difficult to read into that provision, a discretion to order a payment on account of costs. Section 51.1 is specifically made subject to the rules of the court. Mr Ridgway says that CPR 36 is silent as to whether the court can order a payment on account of costs to be assessed, where a part 36 offer is accepted by a claimant and so it is not inconsistent with the court having such a power under Section 51. As I have said, CPR 36 is a self-contained code, the fact that it does not provide for an order to be made, that a defendant make a payment on account of costs, to be assessed, is, in my view inconsistent with my finding that a separate power to make such an order exist under section 51, where a defendant’s part 36 offer has been accepted by the claimant. The CPR already sets out the circumstances in which a court can order a payment on account of cost to be assessed and I do not consider that there is scope for finding that there is a separate and wider power to order a payment on account of costs to be assessed than is contained in CPR 44.2 (8).

15. As to the costs of the claimant’s application for a payment on account of costs, the defendant says, that the claimant acted unreasonably in not providing a breakdown of time spent on documents set out in its costs schedule which detail it requested and which it suggests would have led to agreement of a figure for a payment on account of the cost to be assessed. The claimant says that it provided more than sufficient details of its costs (and more than the defendant might normally reasonably expect) and the defendant acted unreasonably in not agreeing a figure to be paid on account of his costs. Neither party approached the matter, prior to being supplied with a copy of Finnegan, on the basis that the court may not have jurisdiction to order the claimant to pay a sum on account of his costs. I have read the papers, it is not clearly obvious to me either that the defendant or the claimant acted unreasonably, resulting in there being no agreement of a payment to be made on account of costs. For that reason, and based upon neither party having recognised, prior to the hearing there was an issue as to the jurisdiction of the court to order the payment on account costs, it seems to me that the fairest result is that each party should bear their own costs and for that reason I make no award as to costs and each party must bear their own costs.

RECENT BLOG POSTS

9th August 2019/by Toby Moreton

SIGN UP TO OUR NEWSLETTER FOR REGULAR UPDATES

By signing up you consent to receiving occasional emails about our latest news and services. Your information will be used in accordance with our privacy policy.

CPR 36.31, CPR 44.2(8), CPR 44.9(1), Interim payments, Part 36 acceptance, Payments on account