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IN THE SUPREME COURT OF JUDICATURE CCRTI 98/0130/2

IN THE COURT OF APPEAL (CIVIL DIVISION )

(MRS RECORDER SHIPLEY )

Royal Courts of Justice

Strand

London W2A 2LL

Monday 22nd June 1998

B e f o r e

LORD JUSTICE STUART-SMITH

LORD JUSTICE SWINTON THOMAS

LORD JUSTICE WARD

TREVOR BLACK Respondent

v.

DONCASTER METROPOLITAN BOROUGH COUNCIL Appellants

(Computer Aided Transcription of the Stenograph Notes of

Smith Bernal Reporting Limited, 180 Fleet Street

London EC4A 2HD Tel: 0171 421 4040

Official Shorthand Writers to the Court)

MR JOHN McNEILL (instructed by Messrs Hammond Suddards, Leeds) appeared on behalf of the Appellants (Defendants).

MR TIMOTHY HIRST (instructed by Messrs Frank Allen Pennington, Doncaster) appeared on behalf of the Respondent (Defendant).

J U D G M E N T

(As approved by the court)

©Crown Copyright

LORD JUSTICE STUART-SMITH: This is an appeal from an order of Mrs Recorder Shipley made on 24 October 1997 whereby she ordered payment out of court of the sum of £2,500 and made consequential orders as to costs. The defendants now appeal against that order.

The background to the appeal is this. The plaintiff was employed by the defendants as a ganger. He alleged in his particulars of claim, which were served in May 1995, that he developed tenosynovitis as a result of the use pneumatic and percussion mechanical tools. The defendants denied liability. There was a substantial dispute on both liability and quantum. By an amended schedule of loss dated 16 June 1997 the plaintiff claimed loss of earnings of over £150,000 plus general damages.

In a counter-schedule dated 5 September 1997 the defendants submitted that the plaintiff had suffered no loss of earnings. In order to protect themselves against a finding for the plaintiff on liability the defendants had meanwhile, on 13 March 1997, paid into court the sum of £2500. It was the defendants' case that they had a strong defence both on liability and quantum but the payment into court protected them against an award where the judge found for the plaintiff on liability but only awarded him a small sum of general damages and no special damages principally on the basis that he could and should have returned to work without any loss of pay.

The payment into court was made pursuant to the Social Security (Recoupment) Regulations 1990, regulation 3(1). The effect of those provisions is that, where an offer or payment into court of £2500 or less is made, it could be accepted by the plaintiff; and, if he did so, the defendants would not have to repay recoupable benefits to the Compensation Recovery Unit. Recoupable benefits in this case amounted to £15,247.15. It is common ground that that was the position.

The plaintiff did not accept the payment into court. Consequently the matter proceeded towards trial. A trial date was fixed for 27 October 1997. The trial was fixed for three days. On 6 October 1997, only 22 days before the trial, the law in relation to recoupable benefits was changed. New legislation pursuant to the Social Security (Recovery of Benefits) Act 1997 came into force. It was retrospective legislation in that it applied to existing claims as well as new claims (section 2 of the Act). It also removed the limit of £2500 and by section 6(1) it provided:

"A person who makes a compensation payment in any case is liable to pay to the Secretary of State an amount equal to the total amount of the recoverable benefits."

it is common ground amongst the parties that the effect of this legislation is that, if the plaintiff is allowed to accept the payment into court, the defendants would now have to make a payment of recoupable benefits of £15,247.15. That is also clearly the understanding of the Compensation Recovery Unit because they so stated in a letter dated 14 May 1998 to the defendants' solicitor. I am grateful to counsel for reaching this common ground since it saves the court from an examination of the somewhat impenetrable provisions of the two Acts and sets of regulations in question.

On 22 October 1997, less than three working days before the trial was due to start, the plaintiff's solicitor issued a notice of acceptance of the payment into court. Payment into court is governed in the county court by Order 11. Rule 1(1) in so far as it is material provides as follows:

"In any action for debt or damages any defendant may at any time before judgment pay a sum of money... into court in satisfaction of the plaintiff's cause of action..."

Rule 3 deals with acceptance and provides:

"1. Where the defendant pays a sum of money into court under rule 1(1)... the plaintiff may-

(a) ... accept the money in satisfaction of [his cause of action]

by giving notice of acceptance to the proper officer and to every other party to the action within 21 days after the receipt by the plaintiff of notice of payment into court but in any case not less than 3 days before the hearing of the action begins."

The plaintiff obviously did not comply with that provision.

Sub-rule (3) deals with the consequences of acceptance in accordance with rule 3(1) and provides: "On receipt by the proper officer of the plaintiff's notice of acceptance, proceedings... shall be stayed except for the purpose of this rule."

Under sub-rule (5) the plaintiff may lodge for taxation a bill of costs incurred by him up to the time of giving notice of acceptance. Where notice of acceptance is given within the time allowed by rule 3(3), the plaintiff is entitled to payment out of the money in court.

Rule 4 provides:

"Where proceedings are stayed under rule 3(3), the plaintiff shall, subject to the following paragraphs of this rule, be entitled to have paid out to him the sum paid into court in satisfaction of his claim or, if the stay is in respect of some only of the plaintiff's causes of actions, in satisfaction of that cause or those cause of actions."

Rule 5 deals with late acceptance and is the relevant rule here. Sub-rule (1) provides:

"If in a case to which rule 3(1) relates the plaintiff fails to give notice of acceptance within the time limited by that rule, he may give notice at any subsequent time before the hearing of the action begins and thereupon, subject to the provisions of this rule, rule 3 shall apply as if the notice had been given within the time so limited."

Sub-rule (2) provides:

"Paragraph 5(a) of rule 3 [which entitles the plaintiff to lodge his bill for taxation] shall not apply but... the plaintiff may apply for an order for the costs..."

Sub-rule (3) provides:

"Notwithstanding the provisions of rule 4(1) the money in court shall not be paid out without an order of the court."

An application for costs and payment out must be made on notice to the defendant and the court may make such order as to costs as it thinks fit, including an order that the plaintiff pay any cost reasonably incurred by the defendants since the date of payment into court; see sub-rule (4) and (4)(b).

The first question that arises is this: in what circumstance should the court make an order for payment out of the money in court? Mr Hirst's submission is that, unlike the equivalent position in the High Court where money is not accepted within time, the plaintiff is nevertheless entitled as of right to an order for payment out. This is only subject to the provision of rule 5(4) paragraphs (a) and (b), which relate to questions of adjustment of the recoverable benefits and the question of costs. I observe in passing that under the law prior to 6 October 1997, sub-rule (4)(a) could have had no application to a payment into court of £2500 or less.

If I have correctly understood Mr Hirst's argument it is as follows. Where acceptance is out of time rule 5(1) applies. The provisions of rule 3 apply except and in so far as rule 5 provides to the contrary. Thus rule 3(3), which is not affected by the rest of rule 5, imposes an automatic stay; so far so good. But that does not assist the plaintiff. He is no further forward if his action is stayed and he has no order for payment out. Mr Hirst puts great emphasis on the word "notwithstanding" at the commencement of rule 5(3). He argues that that means that "notwithstanding that the plaintiff has not taken the money out in time, he is entitled to take the money out of court". By virtue of rule 4, he has to get an order to that effect, even though he is entitled to do so.

I cannot accept this construction which seems to me to be hopelessly strained. It seems to me to be quite clear that the plaintiff is not entitled as of right to payment out if he is late. If that is so then the court must have a discretion as to whether or not payment out should be ordered.

In what circumstances should the court exercise its discretion to make an order for payment out and in what circumstances should it refuse to do so? Guidance is to be found in two decisions of the Court of Appeal under the corresponding provisions of the Supreme Court rules, which are Order 22, rule 5. Gaskins v. The British Aluminium Co Ltd [1976] 1 All ER 208 is the first case. That was a personal injury case. Liability was in dispute. The defendants had paid £5500 into court which was not accepted within the 21 days. The trial began. The first day went badly for the plaintiff and it looked as though he was going to lose. The next day the plaintiff applied to the judge to take money out of court. The defendants opposed the application and the judge refused leave to take the money out. The plaintiff appealed. The Court of Appeal dismissed the appeal. At page 211 Lord Denning, Master of the Rolls, said this:

"I think a distinction must be drawn between an application made before the trial, and one made at or after it. When the application is made before the trial, it will usually be made to the master. He can make an order allowing it. If the chances of success or failure - or of greater or less damages - are substantially the same as they were at the time of the payment into court, the master may allow the payment out to the plaintiff, but he will usually allow it only on the terms that the plaintiff pays all the costs from the date of the payment into court. If the chances have substantially altered, then the master should not allow the plaintiff to take the payment out: for the simple reason that it would be unfair to hold the defendant to a sum which he offered in different circumstances. He can say: ´ Non haec in foedera veni '."

That was a case where the application to take the money out was made after the trial had started. So strictly speaking that part of Lord Denning's judgment is obiter dicta .

But a similar decision was reached in the case of Proetta v. Times Newspapers Ltd [1991] 1 W.L.R. 337. That was a libel action. The defendants made a payment into court. It was not accepted within the time limit. The defendants' prospect of success improved when they were able to obtain evidence in support of a plea of justification. The plaintiff applied for an extension of time in which to take the money out. The judge allowed it but the Court of Appeal reversed him. At page 340 Lord Justice Neill said this:

"Once there is a substantial alteration in the risks, the time for acceptance should not be extended. This was laid down in Gaskins v. British Aluminium ... in the Court of Appeal, a decision which, in my judgment, is binding on this court."

Then the learned Lord Justice cites the passage from Lord Denning's judgment to which I have just referred.

These are cases where the balance of risk had changed either in the course of the trial or because the defendants had obtained stronger evidence. A case where the balance of risk had altered because of a change in the law is Cumper v. Pothecary [1941] 2 All ER 516, where the law was altered by the House of Lords decision in Benham v. Gambling so that damages for loss of expectation of life were henceforth to be assessed on a modest and conventional method.

Mr Hirst sought to distinguish these cases on the basis that the language of the Rules of the Supreme Court's Order 22, rule 5 is different from the corresponding rules in the county court, and on the County Court Rules he founded the argument which I have just rejected. While it is true that the language of the High Court and the County Court Rules are different, in my view their effect, at least in this respect, is the same. Mr Hirst acknowledged that if his submission were correct the note in the County Court Practice is wrong. It reads as follows:

"Payment out to plaintiff

No application to take money out of court should be made by a plaintiff during the trial of an action without the defendant's consent. If it is the judge has discretion whether or not to continue the trial. In any event such an application will not be granted where there has been a significant alteration of the risks either during the trial ( Gaskins...) or before trial ( Proetta...)."

It is plain that the editor of the Green Book considered that the same provisions apply in the county court as in the High Court. Mr Hirst could not suggest any reason why an entirely different principle should apply in the county court when its effect would be to deprive the court of doing substantial justice as in a case like Gaskins or Proetta.

I have not found the learned recorder's process of reasoning altogether easy to follow. But since she accepted Mr Hirst's submission, I think it must follow that she considered that the plaintiff was entitled, as a matter of law in the county court, to take the money out of court. In that she was wrong for the reasons that I have indicated. If on the other hand she treated the matter as one of discretion, she appears to have been influenced by the consideration that the defendants could, and in her view should, have applied to withdraw the money in court and that, having failed to do so, the money was there for the taking. In this respect also she was, in my judgment, in error. The defendants wished to protect themselves not only from having to pay £15,247.15 to the Compensation Recovery Unit but also to protect themselves against a finding of liability but with a modest award (under £2500) of general damages and no loss of earnings, and a consequent order in favour of the plaintiff for the costs of the action.

Our attention has been drawn to the case of Garner v. Cleggs [1983] 1 W.L.R. 862. The defendants had paid money into court but later they applied successfully to withdraw it, thinking they would win the action altogether. The case proceeded to trial and the plaintiff won, but was awarded less than the money which had been, but was no longer, in court. The defendants argued that they should have the costs after the date of payment in because the plaintiff could have accepted it in time. The judge rejected this submission and his decision was upheld by this court. The situation was not the same as if the money had remained in court all the time. Lord Justice Robert Goff put the matter very clearly at page 871 where at the bottom of the page he said:

"... a plaintiff, faced with a payment into court, has time to consider his position. Obviously the 21-day period is important to him, because he should know that if he does not take the money out in satisfaction of his claim within that period he will thereafter be on risk as to costs. But subject to his taking that risk and subject to his also taking the risk that there may thereafter be some good reason, in particular a material change of circumstances, to prompt an application by the defendant for leave to withdraw his notice of payment in and to justify the granting of such leave, the plaintiff knows that the money will remain in court. Until the tempo of preparation for trial increases as the time for trial approaches, the amount expended in costs may not be extravagant. The plaintiff may wish for further time for consideration. He may wish to study the defendant's discovery of documents; he may wish to search for further evidence; he may anticipate an increased payment into court by the defendant; and he has the right to change his mind. Subject to the two risks I have mentioned, he can delay his decision whether or not to take the money out of court, in the knowledge that the money will still be available to him for that purpose until the time of the commencement of the trial.

That being so, if, before the commencement of the trial, the defendant does in fact withdraw (with leave) his notice of payment into court, it appears to me that it would be wrong in principle to order that the plaintiff should bear all the costs of the action from the date of payment in if the plaintiff, in the outcome, wins but recovers less than the sum previously paid in. True, the plaintiff had at one time the opportunity of taking the money out of court and, if he had done so, no further costs would have been incurred by either party. But he was entitled to wait and consider his position after the expiry of the 21-day period, though on risk as to costs incurred meanwhile."

It is necessary therefore for this court to exercise its discretion afresh. It is common ground that, because of the change of the law effected from 6 October 1997, the effect of the plaintiff being able to take the money out of court is that the defendants will have to pay £15,247.15 more to dispose of the plaintiff's claim than they were prepared to do. That on the face of it is an injustice to them, especially when their case is that they are not liable at all, or at most for a modest sum for general damages. It is one thing to settle a grossly inflated claim, or one you believe to be grossly inflated, for £2500; it is another to do so for seven times that sum. It might be thought that if the plaintiff were prepared to compromise a claim for over £150,000 special damages for loss of earnings, together with general damages for £2500, he was abandoning his claim for special damages and that the necessary linkage between the settlement and the benefit paid was not established. But perhaps, not surprisingly, the Compensation Recovery Unit will not accept that. The arrangement between a plaintiff and a defendant might be collusive to avoid recoupment by the CRU. But if the matter is taken to trial and the judge were to accept the defendants' case on quantum, then he would award a small sum of general damages, less than £2500, and nothing for loss of earnings because the plaintiff was in fact paid for the first month and, so the defendants say, he should not have been away any longer or indeed as long as a month.

If the judge makes findings to that effect, the defendants would be in a position to challenge the CRU's right to any recoupment.

This is because, as a result of section 8 of the 1997 Act and the second schedule, there must be a linkage between the compensation for loss of earnings during the relevant period and the relevant benefits such as sickness benefit or unemployment benefit. If there is no loss of earnings there is no entitlement to recoupment. We were told by counsel that in practice this is how the CRU operates. They will accept the finding of a judge to this effect but not the say-so of the parties. While therefore it may be said that disposal of litigation without trial is a desirable end, it should not be pursued if it involves injustice to the defendants. The recorder's order plainly involves injustice to the defendant brought about by the change in the law. Moreover there is in my view no corresponding injustice to the plaintiff if the order for payment out is refused. True it is that he is now locked into a trial the outcome of which he plainly has little faith in. His alternative is to discontinue the action. But the fact is he had ample opportunity to assess his chances of success and take the money out of court before the change in the law. He chose not to do so and in my judgment he ought not to have been allowed by the recorder to do so now.

For those reasons I would allow this appeal.

LORD JUSTICE SWINTON THOMAS: I agree that this appeal should be allowed for the reasons given by Lord Justice Stuart-Smith. As to the exercise of discretion, I would also exercise my discretion in favour of the defendants on the ground given by my Lord.

LORD JUSTICE WARD: I agree.

Order: Appeal allowed with costs; 14 days for repayment

of money paid out of court, with interest from

date of payment out; application for leave to

appeal to the House of Lords refused.