Court cannot order costs on account after part 36 acceptance

Birss: Answer to issue is in part 36

The courts have no power to order the payment of costs on account after a part 36 offer is accepted, the High Court has ruled.

Mr Justice Birss said the place to find the court’s ability to make an order following acceptance of a part 36 offer was “in part 36 itself” – which makes no provision for it.

Birss J said: “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.”

He went on: “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.”

The High Court heard in Finnegan v Frank Spiers [2018] EWHC 3064 (Ch) – a ruling from June published this week – that Mr Finnegan accepted a part 36 offer from Frank Spiers Licensed Conveyancers, having claimed damages for professional negligence.

As part of the settlement in May 2017, the firm agreed to pay the claimant’s “reasonable costs”. A few days later Mr Finnegan made an application for an interim payment on account of costs of £19,000.

Birss J said: “The district judge observed that there was no authority on the point she had to decide and expressed surprise about that.

“She decided that the court had no power to make an order for a payment on account, essentially because part 36 is a complete code and the rules make no provision for a payment on account in these circumstances, nor do the rules provide the court with any discretion in these circumstances in the circumstances of a deemed costs order.”

Birss J said he accepted the argument that part 36 is a complete code. “Rule 36.1(1) says so and this is supported by the authorities.”

However, counsel for Mr Finnegan argued that the case could be said not to be about part 36 but about the effect of a deemed order under rule 44.9 – a costs order under part 36 will be deemed to have been made on the standard basis – and the interaction with rule 44.2(8).

This provides that, where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is good reason not to do so.

Birss J responded: “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…

“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.”

The claimant’s appeal was dismissed.

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