CA: Part 36 offer did not contract out of fixed costs

Hoe: Call for clarity

A defendant who settles a claim that leaves the RTA protocol with a part 36 offer including the usual wording about paying costs on the standard basis is not contracting out of fixed costs, the Court of Appeal has ruled.

But the court stressed the importance of defendants being more careful with how they phrase their offers in such circumstances.

Lord Justice Newey said the court was told its decision could affect “many other cases”.

Ho v Adelekun [2019] EWCA Civ 1988 started off in the RTA protocol but left when the defendant did not admit liability. The claim was allocated to the fast-track, but the claimant applied for re-allocation to the multi-track on the basis that the value of the claim had increased.

Shortly before the hearing, the defendant made a part 36 offer of £30,000. The letter said that, if it was accepted within 21 days, “our client will pay your client’s legal costs in accordance with Part 36 Rule 13 of the Civil Procedure Rules such costs to be subject to detailed assessment if not agreed”.

The offer was accepted in time and a Tomlin order was made by consent.

“The parties subsequently parted company over costs,” Newey LJ recounted. The defendant said the claimant was entitled to no more than fixed costs, which were estimated at £14,500 to £16,000. The claimant, in contrast, argued that she was not limited to fixed costs and claimed £42,000.

At first instance, Deputy District Judge Harvey in Central London County Court ruled that the fixed costs regime applied, but he was reversed on appeal by His Honour Judge Wulwik. The defendant appealed.

In the Court of Appeal, the focus was on the terms of the part 36 offer. The claimant argued that the reference to part 36.13, rather than 36.20 (which deals with part 36 offers where the protocol applies), and to detailed assessment meant a standard costs order should be made.

But Newey LJ said the offer letter, “correctly construed”, did not offer to pay conventional rather than fixed costs.

He gave several reasons for this conclusion, including that the reference to part 36.13 rather than 36.20 was not of “any great significance”. Indeed, “CPR 36.13 itself highlights the fact that CPR 36.20 applies to a claim formerly under the RTA protocol and, in effect, sends the reader on to that latter rule”.

The letter, the judge added, would not have complied with part 36 if it proposed anything other than the fixed costs regime.

While the reference to detailed assessment was “far from ideal if the appellant intended the fixed costs regime to apply, it was not wholly inapposite”, as the fixed costs regime did involve an assessment of some kind, particularly in relation to disbursements and where the court was satisfied that exceptional circumstances existed.

“I do not think, therefore, that reference to ‘detailed assessment’ should be taken to imply an intention to displace the fixed costs regime where there are other indications that that was not intended.”

Further, Newey LJ said it was “inherently improbable” that a reasonable recipient of the letter would think the defendant intended to offer conventional rather than fixed costs, given that this would cost them more.

But he cautioned: “For the future, a defendant wishing to make a part 36 offer on the basis that the fixed costs regime will apply would, of course, be well-advised to refer in the offer to CPR 36.20, and not CPR 36.13, and to omit any reference to the costs being ‘assessed’.”

The claimant’s fallback position was that the claim should still have been re-allocated to the multi-track, with a direction disapplying the fixed costs regime with retrospective effect.

Judge Wulwik was not persuaded by this argument and neither was Newey LJ: “If, as I consider to be the case, it was no part of the agreement that the parties had reached that the fixed costs regime should be displaced, to make an order subsequently having that effect would run counter to the agreement.”

Lord Justice Males gave a brief concurring judgment, saying it was “unfortunate” that it had “taken a trip to the Court of Appeal” to determine that the letter was not sufficiently clear to demonstrate an intention for conventional costs to apply.

He said that it was “easy enough to say” in a settlement that fixed costs would be payable, and that parties “would be well advised to avoid reference to assessment ‘on the standard basis’ in any offer letter or consent order which may be drawn up”.

Sir Geoffrey Vos, Chancellor of the High Court, agreed with both rulings.

The defendant’s solicitor, Matthew Hoe, director of dispute resolution at Peterborough firm Taylor Rose TTKW and a member of the costs sector focus team at the Forum of Insurance Lawyers, said: “The judgment is not some call to mischief in trying to hoodwink one’s way out of the ordinarily applicable fixed costs, but rather a call for clarity.

“It shows that where there is a disagreement about what has been agreed about costs, the agreement will be determined on normal contractual principles. Agreeing costs to be assessed on standard basis, or similar, might henceforth be an indication it was not an agreement for fixed costs, but court will consider all the factors.

“In Adelekun, such words did not displace fixed costs in all the circumstances. But nevertheless, carelessness in this regard going forwards may have a significant impact on indemnity spend.”

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