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Neutral Citation Number: [2003] EWCA Civ 383
Case No: B3/2001/2496

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(CHESTER DISTRICT REGISTRY)
Mr Justice Connell

Royal Courts of Justice
Strand, London, WC2 A 2LL

24 March 2003

Before:

LORD JUSTICE AULD
LORD JUSTICE WALLER
and
LORD JUSTICE MANTELL

 

Between:

Rowlands & ors
Claimants/ Respondents/

- and -

Bryn Alyn Community (Holdings) Ltd (In Liquidation)
First Defendant
&
Royal and Sun Alliance PLC
Second Defendant Appellant

 

Andrew Hogan (instructed by Uppal Taylor) for the Claimants
Nicholas Fewtrell (instructed by Hill Dickinson) for the Second Defendant
Hearing date: 12 February 2003

HTML VERSION OF JUDGMENT : APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)
Crown Copyright ©
   Lord Justice Waller :
1.   We handed down our judgment on 12th February 2003. We dealt on that day with certain matters on which we gave rulings there and then, but reserved one point. This is the judgment of the court on that point.
2.   After Connell J gave the judgment, which was the subject of the appeal, he had to consider the effect of certain offers made under Part 36 by certain of the claimants.
3.   The relevant Provisions of Part 36.21 were:
  
   "CPR 36.21
    Costs and other consequences where claimant does better than he proposed in his Part 36 offer
   
(1)    This rule applies where at trial –
  
    (a) a defendant is held liable for more; or
    (b) the judgment against a defendant is more advantageous to the claimant, than the proposals contained in a claimant's Part 36 offer.
(2)    The court may order interest on the whole or part of any sum of money (excluding interest) awarded to a claimant at a rate not exceeding 10% above base rate for some or all of the period starting with the latest date on which the defendant could have accepted the offer without needing the permission of the court.
(3)    The court may also order that the claimant is entitled to –
  
(a)    his costs on the indemnity basis from the latest date when the defendant could have accepted the offer without needing the permission of the court; and
(b)    interest on those costs at a rate not exceeding 10% above base rate.
(4)    Where this rule applies, the court will make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so.
    (Rule 36.12 sets out the latest date when the defendant could have accepted the offer)
(5)    In considering whether it would be unjust to make the orders referred to in (2) and (3) above, the court will take into account all the circumstances of the case including –
  
(a)    the terms of any Part 36 offer;
(b)    the stage in the proceedings when any Part 36 offer or Part 36 payment was made;
(c)    the information available to the parties at the time when the Part 36 offer or Part 36 payment was made; and
(d)    the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer or payment into court to be made or evaluated.
(6)    Where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest may not exceed 10% above base rate."
4.   It was common ground that certain claimants had made Part 36 offers and that judgments had been entered in their favour for more than those offers. There was a dispute in the case of the claimant Smyth whether that had happened. The second defendants argued that they were only parties to the action as insurers seeking to protect their own interest, and it was reasonable for them not to have accepted the Part 36 offers. The judge ruled against the second defendants on this last submission, but was in their favour as regards the claimant Smyth. He therefore purported to apply the machinery of Part 36.21 save in relation to Smyth and save in relation to interest on costs. By an order made on 29th October 2001 he therefore made the following order:
  
   "Order
  
   Upon hearing Miss Adams of Counsel on behalf of the Claimants and Mr Fewtrell on behalf of the Second Defendants, and the First Defendants neither appearing nor being represented.
    IT IS HEREBY ORDERED
    THAT the Second Defendant do pay
   
 1.   In the claims of Kane, Rowlands, Elliott and Halliwell-Meachen, interest pursuant to Part 36.21(2) of the Civil Procedure Rules upon general damages at the rate of 8% above base rate from the date of Judgement, 26th June 2001, to the date of payment.
 2.   In the case of Peter Anthony Smyth, the Claimant's claim for relief pursuant to Part 36, be dismissed;
 3.   The Second Defendant do pay those Claimants' costs as set out in paragraph 1 hereof, to be assessed if not agreed, on an indemnity basis pursuant to Part 36.21(3)(a) of the Civil Procedure Rules, but the Claimants' application for interest upon such costs pursuant to CPR Part 36.21(3)(b) be dismissed;
 4.   The Second Defendant do pay the Claimants' costs of and incidental to this application on the basis as set out in paragraph 3 above;
 5.   The Second Defendant to have permission to appeal the learned judge's award of interest at the rate of 8% above base rate on general damages from the date of judgment to the date of payment as set out in paragraph 1 of this order."
5.   Permission to appeal paragraph 1 of the Order having been granted, the second defendants put in a notice of appeal. The claimants then put in a respondents' notice seeking to challenge the refusal to award interest on the costs ordered on an indemnity basis and on the Smyth issue.
6.   By an exchange of correspondence between 21st December 2001 and 25th January 2002 it was agreed between the parties that the terms of the order needed to be varied in order to give effect to the provisions of Part 36.21 as intended by the judge. The terms of the variation agreed were to substitute for the final words "from the date of judgment … to date of payment" of paragraph 1 of the above order, the words "from the last day upon which the defendant could have accepted the claimants' offer to the date of judgment."
7.   The parties were unable however to agree what the word judgment in the order as varied meant. On behalf of the claimants it was submitted that the interest awarded under Part 36.21(2) ran up to the date of judgment in the Court of Appeal. On behalf of the second defendants it was contended that judgment meant the judgment of the judge (as varied by the Court of Appeal) i.e. that interest under Part 36.21(2) ran up until the date of the judge's judgment on the sums awarded by the Court of Appeal, and that interest ran at the judgment rate thereafter. It was agreed in correspondence that on the hearing of the appeal relating to Connell J's order under Part 36 only three issues arose –
   
 1.   The correct date of judgment;
 2.   the provision of costs in the case of Smyth; and
 3.   the costs of and incidental to the appeal.
    Since by our judgment in the main appeal we increased the general damages to be awarded to Smyth, issue 2 has on any view disappeared.
8.   In this correspondence there is simply no mention of the respondents' notice and the challenge to the refusal of the judge to award interest on the costs. The second defendants submit that a definition of the issues shows a compromise of that issue; the claimants say that the respondents' notice raised a separate issue and the challenge to the judge's refusal to award interest on costs was not abandoned. One suspects that both sides overlooked the existence of the respondents' notice when reaching their agreement as to the issues on the appeal, and the court must simply do its best to decide objectively what the terms of the compromise covered.
9.   The issues that remained therefore were the date of judgment point, the award of interest on the costs point, (including whether the compromise precludes the point being taken), and the costs of the appeal point.
10.   During the course of argument in relation to the date of judgment point, a suggestion was made that the claimants might seek to achieve the result they sought by applying to the Court of Appeal to exercise its own jurisdiction by use of the machinery available under Part 36 or by exercising a discretion under CPR 40.8. At the conclusion of the hearing the parties were invited to put in further written submissions if they wished to do so. It appears from his written submissions that Mr Fewtrell was under the impression that this latitude was being granted to enable Mr Hogan to deal with the interest on costs point alone, but it matters not.
11.   Further written submissions have been put in by both sides. In addition, and of critical significance to the judgement date point, judgment has been given by a Court of Appeal, differently constituted, in P&O Nedlloyd BV v Utaniko Ltd [2003] EWCA Civ 174(Bailii). On the day that the appeal was being argued before us, it was being argued before Brooke, Laws and Mance LJJ on behalf of the respondents to an appeal before them, that the machinery of Part 36 should be invoked by the Court of Appeal to order the appellants to pay indemnity costs of the appeal in reliance on Part 36 offers made prior to trial. In the alternative it was being argued that a discretion should be exercised under CPR 44.3(c) by reference to that pre-trial offer. The appellants had failed at trial to beat the Part 36 offers and had been ordered to pay indemnity costs by the judge. The appellants then pursued an appeal, and still failed to beat the Part 36 offers and it was contended that the machinery of Part 36 should be applied to the costs of the appeal. That contention was not accepted. What very much affected the minds of the court was how, if the respondents were right, the court would deal with a situation in which the appellants managed to reduce the damages but still failed to beat the pre-trial Part 36 offers. The court ruled that a trial and the appeal proceedings were separate proceedings for the purposes of Part 36. Brooke LJ giving the judgment of the court, having noted that a Part 36 offer can be made as between trial and the appeal, see Part 36.2(4), and the words "at trial" in CPR 36.21(1) could be construed during the appeal proceedings as "on the hearing of an appeal", said at paragraph 6:
  
   "…. Part 36 provides a straightforward code whereby a claimant may protect himself against the subsequent costs of first instance proceedings, or the subsequent costs of an appeal, but there is no hint that the rulemakers ever considered that a claimant might make a portmanteau Part 36 offer which would provide him with the protection of the code in CPR 36.21 both at first instance and on a subsequent appeal. If he wants to protect himself as to the costs of an appeal, he must make a further offer in the appeal proceedings. Then everyone will know where they stand, and it is unnecessary to give CPR 36.21 a convoluted meaning."
12.   He also dealt with an argument that a discretion might be exercised under, in that case, CPR 44.3(c), in order to bring about the same result saying at paragraph 8:
  
   "It goes without saying that if his clients had made an admissible offer to settle the appeal proceedings then this would have been a factor we would have been bound to take into account (see CPR 44.3(c). In the absence of such an offer they must be taken to have resiled from their willingness to accept 75% of their claim, so that their original Part 36 offer can no longer be regarded as being on the table. If they did not wish to offer to settle on the appeal for less than the full amount awarded to them on the judgment, it would have been open to them to craft a letter relating to the costs of the appeal which might have persuaded us that it would be just that they should continue to be awarded indemnity costs. But in the absence of any such letter, we see no reason why the usual rate as to standard costs should not be applied. The appeal raised points of law that were considered fit for argument in this court when permission to appeal was granted, and although the defendants did not succeed, we see no reason why the usual rate as to costs should not follow, in the absence of some letter relating to the costs of the appeal proceedings."
13.   The relevance of that authority to the judgment date point is twofold. First, it makes clear that unless a fresh Part 36 offer was made during the appeal proceedings the machinery of Part 36 is not available to the appeal court. Second, it makes clear that the Court of Appeal will be disinclined to use its discretion to achieve a similar result by reference to a pre-trial Part 36 offer. Furthermore, since it follows that it was the intention of the rulemakers to distinguish between the trial process and the appeal process, that must affect the argument as to the date of judgment in the order of the judge.
14.   In this case no fresh Part 36 offer was made during the currency of the main appeal. It follows that even if an application had been made to us to exercise powers under Part 36, that application would have been bound to fail. Furthermore, if an application had been made to use CPR 40.8 and (which is doubtful) CPR 40.8 could have been so utilised, in order to persuade us to achieve the same result, it would have been bound to fail on the facts of this case. In fact despite discussions during the hearing no such applications were made.
15.   It also seems to us that it must be clear that if a judge at first instance makes an order pursuant to the powers under Part 36 ordering interest on damages to date of judgment, the appropriate date must be the date of his judgment. It would be for the Court of Appeal to consider whether the powers available under Part 36 should be used in relation to the period between judgment at first instance and judgment in the Court of Appeal, and then only by reference to whether a Part 36 offer had been made in the appeal proceedings. It would be for the Court of Appeal to consider, if it were asked to do so, how a discretion should be exercised by reference to a pre-trial Part 36 offer in relation to the period post-judgment at first instance, and not for the judge to pre-empt that exercise.
16.   As regards the interest on costs point, the first question is whether the compromise has precluded the claimants challenging this aspect of the judge's order. On a fair reading of the correspondence we do not think it has. What was the subject of the compromise was the second defendant's appeal. It would not be right to hold that the parties had the respondents' notice in mind and that the claimants were intending to abandon the point there taken when identifying the issues on the appeal.
17.   What the judge said was:
  
   "So far as costs are concerned, in paragraph 2, in my view the Part 36 procedure will be sufficiently honoured here if I order the costs to be on an indemnity basis without attracting any interest on the order as to costs."
18.   The court is bound to make the orders referred to in paragraphs (2) and (3) of CPR 36.21 "unless it considers it unjust to do so"(see paragraph (4)). Mr Fewtrell submits that this was an exercise by the judge of his discretion, which it undoubtedly was. But the first difficulty is that, as now appears from the agreed amendment to the judge's order, the machinery that the judge may have thought he was invoking is not the machinery which he was in fact invoking. Second, the language he used to refuse interest on costs also indicates that he did not have in mind paragraph (4) of CPR 36.21. It seems to us therefore that we are bound to exercise our discretion afresh.
19.   Mr Fewtrell wishes to reargue the question as to whether his clients should have been subjected to the Part 36 procedure at all. He sets out the points he makes in this regard in his latest written submissions. We do not think that it is open to the second defendants to attack this part of the judge's order by a root and branch attack on whether the Part 36 procedure should have been used at all. We should however also make clear that we are in any event unimpressed by the points which he takes. The starting point for consideration of this aspect is that the machinery under Part 36 was being used. The only question is whether it is unjust on the second defendants, having been ordered to pay indemnity costs, that they should also have to pay interest on those costs. If it is not unjust, the further questions are for what period and at what rate should interest be awarded.
20.   CPR 36.21(3)(a) is dealing with costs incurred since the date when the offer should have been accepted, and CPR 36.21(3)(b) is dealing with interest on those costs without reference to the moment when those costs would have been incurred. The proper approach to this provision was considered in McPhilemy v Times Newspapers Ltd (No 2) [2002] 1 WLR 934 at 944 where Chadwick LJ, having ruled there was no injustice in ordering the payment of indemnity costs, said this at paragraph 23:
  
   "Nor do I see any injustice, in principle, in an order under paragraph (3)(b) of rule 36.21 for the payment of interest on the costs which are the subject of the order which I would make under paragraph (3)(a). The purpose for which the power to order interest on costs under that paragraph is conferred is, I think, plain. It is to redress, in a case to which rule 36.21 applies, the element of perceived unfairness which arises from the general rule that interest is not allowed on costs paid before judgment: see Hunt v RM Douglas (Roofing) Ltd [1990] 1 AC 398, 415F. So, in the ordinary case, the successful claimant who has made payments to his own solicitor on account of costs in advance of the trial will be out of pocket even if he obtains, at the trial, an order for costs on an indemnity basis. He will get interest on his costs from the date of the order (whether he has actually paid them or not); but he will get nothing to compensate him for the cost of money (or the loss of the use of money) which he has had to bear before trial in relation to payments which he has made on account of costs. An order under paragraph (3)(b) of rule 36.21 enables the court to achieve a fairer result in that respect. But, having regard to the point which, as it seems to me, paragraph (3)(b) is intended to meet, I would order payment of interest at a rate which reflects (albeit generously) the cost of money, say, 4% over base rate; and I would direct that interest runs, on the costs to which the order applies, from the date upon which the work was done or liability for disbursements was incurred."
21.   Various points need emphasis. First, the interest on costs is intended to compensate a litigant who is out of pocket having funded litigation which he should not have had to fund. Second, interest will be payable on the amount awarded for costs from the date of judgment at the judgment rate, thus the period to be compensated runs only up until the date of judgment. Third, Chadwick LJ set the period running from "the date upon which the work was done or liability for disbursements was incurred" and not from the date of actual funding by the client. Fourth, the rate he set reflected "(albeit generously) the cost of money".
22.   If this were not a publicly funded case then the position would be straightforward. If an order is made to pay costs on an indemnity basis, it is unlikely to be unjust to make the party pay interest on those costs for the period when litigation is being funded when acceptance of a Part 36 offer should have led to it not being funded. There may be cases where evidence will demonstrate actual dates when clients had put up funds and from which interest will run. Without such evidence the court can do no more than Chadwick LJ did and make the interest run from the date when the work was done or liability for disbursements was incurred. The rate of interest, following the lead of Chadwick LJ, would have been assessed at 4% over base being "(albeit generously) the cost of money." If it were questioned why there should be a difference between the rate of interest on costs and the rate on the damages, the answer would be that the rate on damages compensates also for the general impact of proceedings (see paragraph 63 of the judgment of Lord Woolf in Petrotrade Inc v Texaco Ltd (Transcript Tuesday 23 May 2000). There must not be double compensation for the impact and the provisions of Part 36.21 are not intended to be penal (see paragraph 62 of the judgment of Lord Woolf in the Petrotrade case).
23.   Should the position be any different because the claimants were publicly funded? In our view the position should be no different. In the circumstances we do not think it would be unjust to order interest at the rate of 4% over base rate on the costs from the date upon which the work was done or liability for disbursements incurred up until the date when the judge made his order for costs.
24.   It follows that the effect of our judgment is that the second defendants have succeeded on the judgment date point, and the claimants have succeeded on the interest on costs point.
25.   That leaves the question of the costs of this appeal and the cross-appeal. It seems to us that costs should follow the event. The second defendants should pay the cost of the claimants on the cross-appeal which was the subject of the respondents' notice. The claimants should pay the costs of the second defendants on their appeal.