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High Court issues judgment on interplay between Part 36 and need for approval

  • 23 April 2021 23 April 2021
  • UK & Europe

  • Insurance & Reinsurance

The High Court has recently considered whether a defendant was entitled to withdraw a Part 36 offer which was accepted shortly before the claimant, who was a protected party, died.

High Court issues judgment on interplay between Part 36 and need for approval

Wormald v Ahmed [2021] EWHC 973 (QB)

The defendant had made a Part 36 offer of £2 million which had been rejected. However, a change in the claimant’s prognosis indicated he was in a critical condition and not expected to live. The claimant died which meant £2 million would result in recovery significantly in excess of any reasonable value of the claim. Acceptance of the offer was made following a change in the claimant’s prognosis, but that change was not communicated to the defendant’s solicitors until after the claimant’s death.   

Final determination as to whether the settlement offer or proposed withdrawal should be approved will be determined on production of the claimant’s medical records and further information. Nonetheless, the findings of the High Court raise questions as to the application of Part 36 in relation to both protected parties and children, where an approval hearing is necessary.

Ms Claire Ambrose, sitting as a Deputy High Court Judge, acknowledged that “parties rarely have equal knowledge in deciding to conclude a settlement”. However, in this instance, the claimant’s altered prognosis was critical to a fair assessment of the claim and caused a “lack of equal footing on the decision to settle”. The judge concluded that it would be unjust for the defendant to be bound by the offer made six years earlier given the lack of information.

Background

The claimant sustained a serious brain injury after a road traffic accident. Proceedings were issued with his mother as his litigation friend. Liability was denied but in October 2014, the defendant made a Part 36 offer to settle the claimant’s claim in the sum of £2 million. Quantum was to be decided at trial in October 2021.

On 15 September 2020 the claimant’s solicitors were informed that the claimant was in a critical condition in hospital. Two days later they informed the defendant’s solicitors the claimant was in hospital and would miss some upcoming medical appointments. Acceptance of the £2 million offer was served on 18 September. The claimant died later that evening.

On account of the claimant’s death, the defendant’s solicitors sought to withdraw the offer of £2 million. The defendant submitted the offer would result in a windfall to the claimant’s estate as parts of the offer addressed the claimant’s future and past losses.

The claimant issued an application to seek an order that the offer had been accepted and could not be withdrawn. The claimant submitted there would be no unwarranted windfall and there would be liabilities given the late acceptance.

Hearing

The defendant submitted that the acceptance was not binding until approved by court and notwithstanding the provisions of Part 36 it could be withdrawn. In cases involving minors and protected parties the effect of Part 36 is modified and an offer can be withdrawn. The claimant’s acceptance of the offer was described as “hasty and opportunistic”.

The claimant argued that CPR 36.14 does not refer to the claimant being a protected party so once an offer has been accepted it cannot be withdrawn and the court’s approval is then required. The claimant submitted a court’s approval under CPR 21 was to ensure the protected party was adequately provided for and not to protect the interests of the opponents.

Judgment

The judgment held this case raised “some novel questions as to the application of Part 36 of the Civil Procedure Rules to protected parties or children” and the CPR does not “provide a clear answer to the issue raised”. 

The judgment addressed three issues:

  1. Where a protected party accepts a Part 36 offer is the other party subsequently able to withdraw that offer before approval of the settlement?

The wording of the rules provides guidance though, as per CPR 36.11 acceptance of Part 36 offers is subject to Part 21.10. The “wording, purpose and case law” on Part 36 suggest the strict terms of Part 36 do not prevail over Part 21.

There was a need to balance the express restrictions on withdrawal under CPR 36 with the express requirements of CPR 21.10 and the broader policies of the overriding objective and the protection of protected parties. It was held that the judge found that the court’s approval is required under CPR 21.10 when a Part 36 offer is accepted on behalf of a protected party. Any Part 36 offer and acceptance involving a protected party is not binding until approved by the court (per the case of Drinkall) and any party may challenge the settlement by giving notice of withdrawal.

The court will then decide whether the withdrawal is effective, or if the settlement is to be approved.

  1. When the court is asked to approve a settlement, on what grounds (if any) can a Part 36 offer be withdrawn, and approval of a settlement be refused?

The claimant was correct in submitting that the primary considerations under 21.10 was the protection of the protected party and his dependents. However, it was important to deal with cases justly and ensuring all parties “are on an equal footing”. The question, therefore, is whether approval of the settlement is unjust in all the circumstances, and the onus of showing it “would be unjust to bind a party to its offer lies on that party”.

The considerations under CPR 36.17 will provide “useful guidance in assessing whether it would be unjust to bind a party to its Part 36 offer, even where that may be disadvantageous to the protected party”. The ultimate decision is fact sensitive. Whilst the court is not policing the compromise to see if the protected party (or estate) is giving a financial windfall, if the settlement represents a significant increase on what would have been awarded at trial, then this will be considered.

  1. In this particular instance, should the court grant permission for withdrawal of the defendant's offer of 15 October 2014 or approve the settlement in the amount offered?

The Court concluded that the claimant’s acceptance of the offer was a direct result of the claimant’s solicitors being informed the claimant’s condition was critical; they immediately knew this would affect the value of the case yet the defendant was not informed until after the offer was accepted. There was a disparity in the parties’ knowledge which was significant.

Whilst the change in prognosis “would not in itself justify departing from the normal rules for a Part 36 offer”, it was “critical to any fair assessment of the value of the claim”. Furthermore, the settlement would have generated a substantial benefit to the estate, with a greater sum being recovered by the estate the actual claimant had the prognosis been known.

The judge therefore concluded that it would be unjust for the defendant to be bound by the accepted offer made in 2014. Final determination as to whether the settlement offer or withdrawal should be approved by the court is to be determined once the claimant’s solicitors have provided the claimant’s medical records and further information.

What can we learn?

  • The court’s approval under CPR 21.10 was necessary in circumstances where the protected party had died. The judge rejected the suggestion that “the court’s supervision is no longer necessary”. As the settlement offer was accepted before the Claimant’s death “CPR 21.10 is engaged and remains relevant”. However, it was acknowledged “the estate’s interests do not require the same protection as that of a protected party”.
  • Although the defendant submitted that the acceptance would result in a windfall the court found that it would be “undesirable” to investigate whether there was a financial windfall and the “court is not policing the compromise to see to see whether it is too generous to the protected party (or his estate)”. However, it “may go into the balance” if it is clear the protected party or estate would be significantly financially better off than if the matter proceeded to trial.
  • It was acknowledged that the litigation friend was in an “exceptionally difficult situation” and the offer was accepted “somewhat hastily”. Had the claimant pulled through it would have been unjust to hold him to the acceptance of the Part 36 offer and the litigation friend would have easily been able to justify resiling from it.

End

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