In a decision which should give comfort to insurers, the Court of Appeal has clarified, to some extent, the costs consequences of late acceptance of a claimant’s Part 36 Offer under the fixed costs regime.
Background to the case
In April 2014, following a road traffic accident, the claimant brought a personal injury action through the low value claims process (the Portal). Liability was disputed and the claim was subsequently removed from the Portal. In July 2014, the claimant made a Part 36 Offer to settle her claim and, in the absence of acceptance, issued proceedings in September 2014.
In October 2014 the defendant made her own Part 36 Offer and the claimant responded in November 2014 with a second, reduced Part 36 Offer. The claimant expressly stated, “The offer is intended to have the consequences of Part 36 of the Civil Procedure Rules. If accepted within a period of 21 days from the date of receipt of this letter, then such acceptance is on the basis that your client be liable for our client’s costs in accordance with Part 36.10… Part 36.14 provides for costs to be awarded on the Indemnity basis together with enhanced interest following Judgment.”
Following exchange of witness evidence and further negotiations, on 2 June 2016, less than seven days before trial and 19 months after the claimant’s second offer, the defendant reconsidered her position and wrote to the claimant to say, “We confirm that the Defendant accepts the Claimant’s Part 36 Offer to settle her claim in the total sum of £1,500 made on 11 November 2014”.
In the time between the offer and acceptance all the necessary work had been carried out by the claimant to prepare the matter for trial. The claimant, therefore, responded stating, “The offer is accepted on the condition that you accept responsibility for our costs and disbursements to be calculated on the fixed recoverable costs and indemnity costs basis.…”
The defendant refused to pay indemnity costs so the claimant applied for costs to be awarded on the indemnity basis in respect of the period following expiry of the Part 36 Offer’s relevant period.
The first instance decision- fixed costs only
In his Judgment, DDJ Lenon QC referred to the commentary to Part 36 stating, “There is no presumption that the Court would order a late accepting party to pay the other’s costs on the indemnity basis so it is the standard basis unless there are some special factors”. The DDJ found that the criteria for making an order for indemnity costs had not been made out as there was nothing abnormal about the case that would justify indemnity costs. Fixed costs were, therefore, ordered to apply throughout.
The claimant appealed, arguing that the defendant’s acceptance of the Part 36 Offer so long after it was made, and so close to trial, meant that she had incurred substantial costs that could have been avoided.
The first appeal-claimant gets assessed costs
In allowing the appeal, HHJ Walden Smith said, “The appropriate order for costs in a case where a Part 36 Offer has been accepted outside the relevant period is fixed costs until the end of the relevant period and assessed costs thereafter until date of acceptance. Whether those costs are assessed on the standard or the indemnity basis is a matter for determination of the Judge exercising his discretion judicially.”
The Court of Appeal- back to fixed costs!
In the Judgment allowing the appeal of the defendant, handed down on 23 July 2018, Lord Coulson said, “In relation to the costs consequence of the acceptance of a Part 36 offer prior to judgment, the old rules were r.36.10 and r.36.10A. R.36.10A expressly provided that “this rule applies where a claim no longer continues under the RTA or EL/PL Protocol…. Accordingly, that is the rule which applies to the Hislop claim and that rule, like the new r.36.20, does not allow the claimant to make any additional claim in consequence of late acceptance.”
Lord Coulson went on to say, “I do not consider that Ms Hislop can now argue that a 19 month delay with no apparent justification triggered the ‘exceptional circumstances’ provision in r.45.29J… the District Judge’s conclusion that there was nothing out of the norm in this case applies a fortiori to any suggestion that there were exceptional circumstances under r.45.29J. If it is not out of the norm, it certainly cannot be exceptional.”
The Court of Appeal’s decision should not actually come as a surprise in the current climate where reasonableness is paramount. It makes good sense for the parties involved in fast track litigation to have the certainty brought by the fixed recoverable costs regime. These actions are not subject to the close costs management that is the norm for higher value matters and to allow claimants to proceed to ramp up costs unchecked would be contrary to Lord Jackson’s intentions.
The fixed recoverable costs regime gives a predictable framework within which litigation can be conducted. Whilst the provisions of r.45.29J allow the Court to depart from the general approach in exceptional circumstances, clearly, litigation that appears to have followed its natural course is not considered to be “exceptional”.
That said, it is likely that further litigation will follow in an effort to clarify just what is meant by “exceptional”.
In the meantime, today’s outcome reiterates the importance of parties making sound offers to compromise, and keeping these under consideration throughout the progression of any claim.