Unreasonable pressure
The ruling in Carver encourages claimants to settle their claims before unacceptably high costs are incurred, so why did Jackson LJ resist calls not to reverse it, asks Richard Langley
In his final report, Lord Justice Jackson has confirmed the provisional view expressed in chapter 46 of his preliminary report: 'I would suggest that serious consideration be given to reversing the Court of Appeal's decision in BAA v Carver [2008] EWCA Civ 412 by rule change. That decision introduces an unwelcome degree of uncertainty into the part 36 process. The decision also puts unreasonable pressure on claimants to accept offers which are not quite high enough. Many of those who have contributed to phase 1 of the costs review have been strongly critical of Carver.'
Carver contained the Court of Appeal's interpretation of changes to the part 36 regime. In particular, if a claimant fails to obtain a judgment 'more advantageous' than a defendant's part 36 offer then the court will (unless it considers it unjust to do so) award the defendant its costs from expiry of the relevant period and interest on those costs.
In Carver, the claimant had been awarded £4,686, which was just £51 more than the defendant's part 36 offer. The Court of Appeal held that the claimant had failed to obtain a judgment 'more advantageous than' the defendant's offer. Under the old regime, the claimant would have been regarded as having beaten the defendant's offer and therefore would have recovered all the costs of the claim in the usual way. However, under the new regime, the Court of Appeal held that an 'open-textured' approach was to be followed. This involved reviewing the particular circumstances, including the emotional toll of the litigation, in order to ascertain whether the claimant really had obtained a 'more advantageous' judgment.
Uncertain risks
Carver has often been criticised and this is hardly surprising given the degree of uncertainty that it now introduces in any case in which a part 36 offer is made. It goes against lawyers' instincts to be unable to predict with a reasonable degree of reliability what would be the risks involved in not accepting a part 36 offer. It can make it almost impossible to give clients any advice that is worth relying on. And why should someone who can demonstrate that the emotional toll of the litigation was not that great on them be in a better position than the more risk-averse claimant who found the whole process a more stressful ordeal? Ironically, the uncertainty introduced by Carver has increased the emotional toll on claimants who decide to brave it out and eschew a defendant's offer.
Nevertheless, it is perhaps surprising that Jackson LJ shares these criticisms and is recommending that Carver be reversed. There is no doubt that Carver increases the pressure on claimants to settle their claims. One might have thought that Jackson LJ would regard incentives to settle to be a good thing. One of the guiding principles of the Woolf reforms was to reduce the costs incurred in litigation by introducing mechanisms to encourage settlement. One such mechanism was part 36 itself. Given that Jackson LJ was tasked with establishing how present cost rules impact on behaviour and whether changes could bring about more proportionate costs, one might have expected him to welcome the part that Carver plays in incentivising defendants to make offers, and claimants to accept those offers, before incurring all the costs of a case.
The only explanation that he gives for suggesting a reversal of Carver, apart from the obvious point that the uncertainty it introduces is 'unwelcome', is that it puts what he describes as 'unreasonable pressure' on claimants to accept offers 'which are not quite high enough'. It is the very essence of compromise that the parties in dispute will each settle for a result that is 'not quite' what they wanted, but nevertheless acceptable compared with the risks and irrecoverable costs associated with battling on. It is difficult to see why such pressure is inherently unreasonable.
Levelling the playing field
What is perhaps more striking is that Jackson LJ should regard Carver as placing unreasonable pressure on claimants, without accepting the pressure that the part 36 regime has, since its inception, imposed on defendants. Defendants have always been subject to the terror of a well-pitched claimant's part 36 offer, whereby the claimant stood to recover indemnity costs and penal interest rates. Such consequences have only ever applied to a claimant's offer and not to a defendant's offer (where the consequences are limited to costs on the standard basis and 'ordinary' levels of interest on those costs). When one considers the additional (and greater) terror to which defendants are now routinely subject '“ that of being faced with a claimant on a CFA with ATE insurance '“ then Carver might be regarded as only a partial re-levelling of a playing field which remains very much in the claimant's favour.
Evidently, Jackson LJ does not agree. Although he is proposing that success fees and insurance premiums are no longer recoverable, he is proposing that defendants should also pay a ten per cent enhancement if the claimant beats its part 36 offer. It seems that defendants must seize the opportunity still provided by Carver to make well-pitched part 36 offers, drawing to the attention of claimants the risks that they run if the offer is not accepted, piling on the very pressure that Jackson LJ regards as so unreasonable.