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Costly consequences: The pros and cons of disapplying CPR 36.14

This article was first published in New Law Journal, 8 February 2013

Unlike the general power provided by CPR 44.3, the costs consequences of Pt 36 do not lie in the discretion of the court. The court must apply them unless it considers it “unjust” to do so.

CPR 36.14(4) requires the court to take into account all the circumstances of the case when considering whether injustice would arise. However, the nature of the specific circumstances which the court must take into account suggests that its focus should be on whether the offeree can reasonably be expected to have accepted the offer in question, not the more general question of whether it was appropriate for him to reject an offer of settlement at all. The recent costs decision of Briggs J in Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch) is a controversial example of a court taking a wider view of the question of whether it would be unjust to give effect to CPR 36.14.

The facts

Mr Smith was employed by Trafford Housing Trust in a managerial position. In reaction to publicity about the potential legalisation of gay marriage, he made a comment on Facebook criticising the proposal, which he said offended his Christian beliefs. The defendant initiated disciplinary proceedings on the ground that his Facebook post was contrary to its code of conduct and equal opportunity policy. Mr Smith was demoted to a nonmanagerial position with 40% less pay.

At trial, Briggs J found that the trust’s decision to demote Mr Smith was a “serious and repudiatory” breach of contract. However, the constraints of the common law meant that damages were limited to Mr Smith’s loss of earnings during his contractual period of notice of 12 weeks, only £98. (Mr Smith would probably have got considerably more had he brought his claim before the employment tribunal, but he did not bring a claim there in time.)

The costs order

In applying for an order that Mr Smith pay its costs, the trust relied upon the act that it had beaten a Pt 36 offer it had made for £1000. Mr Smith argued that it would be “unjust” for him to pay its costs.

Briggs J accepted Mr Smith’s arguments and made no order for costs. He gave the following reasons:

(i) It was not “primarily a case about money” for either party.

(ii) Mr Smith’s aim was to “restore his reputation”.

(iii) The case raised “important matters of principle” about the trust’s code of conduct and equal opportunities policy.

(iv) The case was “unusually…properly taken to trial, by both parties”, since settlement “would have left the real matters in issue between the parties still unresolved”.

(v) “Mr Smith has in reality been the successful party”, even though “in form the proceedings were…purely for damages for breach of contract”.

On one view Briggs J’s decision is merely as example of the exceptional case where a party is justified in rejecting (what turned out to be) a good offer of settlement. However, it could equally establish a far-reaching and somewhat hazardous precedent. In effect, what the judge was saying is that if a claimant is “seriously” wronged by the defendant, then regardless of the legal consequences of that wrong, he is entitled to his day in court without fear of having to pay the defendant’s costs for the privilege.

The fact remains, however, that the fundamental function of the courts is to decide whether the claimant is entitled in law to a remedy as a result of the defendant’s wrongdoing. In the majority of cases that remedy will be an award of damages in a quantified sum of money. Whatever the rights and wrongs of the dispute between the parties, in the eyes of the law, Mr Smith was entitled only to damages of £98.

While the judge may have been right to say that settlement would have left matters unresolved, the same can surely be said of a large proportion of claims. I question therefore the judge’s conclusion that this entitled Mr Smith to take the matter to trial even though his claim proved to be worth far less than what he was offered. There is an overarching policy consideration that matters should be settled. This is why Pt 36 exists. To say that a claimant who is awarded less than 10% of a defendant’s Pt 36 offer can nevertheless bring his claim with impunity, simply because his grievance is well-founded, risks undermining this policy. It also means that defendants can place less confidence in the costs protection their Pt 36 offer was intended to provide.

This is, however, only a first-instance decision. It won’t be long, I suspect, before the Court of Appeal is asked to decide whether the power to disapply CPR 36.14 really is as broad as Briggs J appears to have thought.