Beware the terms when settling claims

In Lai Ho v Adelekun [2019] EWCA Civ 1988, the Court of Appeal provided guidance regarding the applicable costs regime on claims that are subject to fixed costs, the implications of CPR 36.13 and the use of the words ‘assessed’ or ‘standard basis’ within a settlement offer. 

The facts

This claim arose out of a road traffic accident which happened in June 2012. The claim was notified on the RTA portal but subsequently exited and proceedings were commenced in January 2015.

Upon the claim being allocated to fast track, the claimant applied for an order for allocation to the multitrack. Prior to the application hearing, the defendant made an offer, stated to be in accordance with part 36, in the sum of £30,000. This offer stated,

“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 claimant accepted the offer and a consent order was drawn up vacating the application hearing and reciting the settlement of the claim stating that the defendant would pay,

"the reasonable costs of the claimant on the standard basis to be the subject of detailed assessment if not agreed".

A dispute then arose as to whether fixed recoverable costs or hourly rate costs applied to the claim.

The parties positions

The defendant argued that the claimant was entitled to no more than fixed costs in the order of £14,000. Whereas, the claimant contended an entitlement to hourly rate costs in the region of £42,000.

The decision that fixed recoverable costs were applicable was overturned upon appeal. The defendant appealed to the Court of Appeal who considered the principle issue to be,

“Did the defendant’s (appellant’s) solicitors by their letter of the 19th of April 2017, offer to pay conventional (hourly rate) rather than fixed costs? “

The claimant contended that the letter, offered conventional rather than fixed costs relying upon the reference to the consequences of acceptance of an offer under CPR 36.13 rather than CPR 36.20. CPR 36.20 deals with consequences of acceptance in a case which has exited the RTA portal. The claimant placed reliance upon the words, "such costs to be subject to detailed assessment if not agreed" as being conceptually different from fixed costs.

Judgment

The Court of Appeal found that the offer was not an offer to pay conventional rather than fixed costs. 

Newey LJ said that the reference to “detailed assessment” was far from ideal and it was likely that the hearing would not have occurred had it not been mentioned at all.  

The Court of Appeal noted that some “assessment” takes place in relation to disbursements in fixed recoverable costs claims. As a result, a reference to “detailed assessment” should not be assumed to imply an intention to displace the fixed cost regime where there are other indications in the offer wording that this was not intended.

In allowing the defendant’s appeal Newy LJ gave a warning to defendants as to the terms of their offers saying,

“a defendant wishing to make a Part 36 offer on the basis that the fixed costs regime will apply would, 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".

Males LJ concurred with the judgment and whilst the issue of whether the consent order varied the agreement, he warned parties as to the terms used in consent orders. He said,

“I will merely say, therefore, that parties who wish to settle on terms that fixed costs will be payable 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 following acceptance of an offer.”

What does this mean for Keoghs clients?

We were hopeful that this judgment would have provided more certainty as to the application of fixed recoverable costs in cases that settle by acceptance of a part 36 offer or by way of a consent order. However, if the Court of Appeal had been addressed on whether the consent order was a counter offer or variation of the original agreement, the use of the term assessment “on the standard basis” may have been sufficient to displace the application of fixed recoverable costs.

Keoghs recommends that careful consideration is given to the terms of the offer being made on such claims as well as to the terms of any consent order.

If you have any concerns over the terms to be used in an offer or consent order then please contact a member of the Keoghs costs team for guidance.