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Part 36 - Dishonest and misleading conduct does not permit departure from usual cost rules

Tuson v Debbie Murphy (2018) [2018] EWCA Civ 1461

The Court of Appeal considered whether a claimant ought to receive a cost penalty even though the defendant made the Part 36 offer in full knowledge of the misleading and dishonest conduct of the claimant.

The claimant, Ms Tuson, fell from her horse during a lesson at the defendant's riding school and broke her right arm. She subsequently developed Obsessive Compulsive Disorder which two psychiatrists attributed to the accident. Liability was admitted and her claim was initially valued at over £1.5 million, based on the premise that she would be unable to work again.

In November 2013 the claimant obtained a franchise in a playgroup organisation under which she ran "messy play" workshops for children. The claimant failed to disclose the franchise in her witness evidence or to the employment expert in the context of her loss of earnings claim.

The defendant became aware of the playgroup and informed the claimant's solicitors. The claimant maintained that she had never intended to run the playgroup as a business, but had engaged in it as a means of dealing with her OCD. The defendant's solicitors made a Part 36 offer in the sum of £352,060. The claimant did not accept the offer within the 21-day period, which expired on 8 October 2015. She subsequently accepted the offer on 1 December 2015. The defendant was ordered to pay the appellant's costs only up to 1 April 2014 on the basis that that was the time at which the claimant had begun to mislead the dependant about the extent of her disability. The claimant was to pay the defendant's costs thereafter.

The claimant accepted liability for the respondent's costs from the expiry of the Part 36 offer on 8 October to 1 December 2015 but submitted that the order to pay its costs from 1 April 2014 was a retrospective penalty which was unjust and disproportionate in the light of the information available at the time. She appealed the decision.

The Court of Appeal allowed the appeal and ordered the defendant to pay the claimant's costs up to the expiry of the Part 36 offer (i.e. 21 days after the date of the offer). LJ Bean concluded that the claimant's material non-disclosure was dishonest, and misleading but the judge's exercise of his discretion as to costs was flawed. The defendant made the unconditional Part 36 offer in full knowledge of the claimant's material non-disclosure, and knowing that acceptance of the Part 36 offer gave the claimant a right to her costs up to the expiry of the offer. According to CPR 36, in considering whether such orders would be unjust, the court had to take into account all the circumstances of the case including the matters listed in CPR 36.17(5). One of those was "the information available to the parties at the time when the Part 36 offer was made". The defendant was in full possession of the facts when they made the Part 36 offer and was aware of the costs consequences of making a Part 36 offer.

Forbes comment

This was a pre-2015 case therefore it was not open to the defendant to plead "fundamental dishonesty".

The judgment serves as a reminder of the benefits of using Calderbank offers, which can be made "without prejudice save as to costs". Where a Part 36 offer is made, the defendant must pay the claimant's costs under CPR 36.10. However, via a Calderbank offer the defendant can offer to settle the genuine claim but at the same time offer to settle the issues of costs on the basis that the claimant will pay the defendant's costs incurred in respect of the fraudulent or dishonest aspects of the case on an indemnity basis.

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