A large gap in the rules surrounding the costs consequences when a defendant accepts a claimant’s Part 36 offer out of time has now been plugged with the Court of Appeal’s decision in the above cases. The decision provides much needed clarity in cases which are subject to the Fixed Recoverable Costs Regime under Section III of CPR 45.
The two appeals were heard in the Court of Appeal whereby the parties were disputing whether indemnity costs rather than fixed costs should apply upon late acceptance by the defendant of the claimant’s Part 36 offer.
In Hislop the claim was notified on the Portal under the Pre-Action Protocol for low value personal injury claims (“PAP”). The claim exited the PAP but remained subject to fixed costs under Section III of CPR 45. Proceedings were issued and a month later on 11 November 2014 the claimant made a Part 36 offer of £1,500. The defendant made several offers but on 2 June 2016 (a week before the trial was due to commence), the defendant accepted the claimant’s Part 36 offer of 11 November 2014. The claimant sought fixed costs up to the end of the relevant period of their Part 36 offer and standard basis, hourly rate costs, thereafter.
At first instance the court allowed fixed costs only. On appeal the court allowed hourly rate costs to be assessed on the standard basis from expiry of time for acceptance. The defendant appealed to the Court of Appeal.
The facts in Kaur were slightly different in that the claim was notified on the Portal under the PAP. The claim exited the portal as liability was denied, but remained subject to fixed costs under Section III of CPR 45.
The claimant had made a Part 36 offer of £2,000 on 7 September 2016. The defendant decided to settle the claim at a late stage but was concerned that acceptance out of time would result in a liability to pay indemnity costs. The defendant made a Part 36 offer of £3,000 which was accepted by the claimant. The claimant sought fixed costs to the end of the relevant period of their offer and indemnity costs thereafter.
At first instance, the Court awarded the fixed costs to the end of the relevant period for acceptance and standard basis costs thereafter, indicating that this was an “exceptional case.” The defendant’s appeal was leap frogged to the Court of Appeal to be heard with the case of Hislop.
In Soloman v Cromwell [2011] EWCA Civ 1584 the Court of Appeal decided that the Fixed Costs Regime was mandatory unless there was an express exception.
The Court of Appeal Broadhurst v Tan [2016] EWCA Civ 94 found that there was an express exception under CPR 36.21 allowing the costs penalties under CPR 36.17 to apply where the judgment against a defendant was at least as advantageous as the claimant’s Part 36 offer.
It dealt expressly with what should happen when a claimant beat a Part 36 offer after judgment, even in a case to which the fixed costs regime would have otherwise applied.
Lord Justice Coulson said that there was a fundamental difficulty for a claimant to say that something very similar to Broadhurst should happen where the defendant has delayed before accepting the claimant’s Part 36 offer. Different rules apply to late acceptance than those that apply after judgment.
In cases which no longer proceed under the PAP, CPR 36.20 governs the costs consequences following acceptance of a Part 36 offer and CPR 36.21 governs the costs consequences following judgment. CPR 36.21 expressly preserves the general rule under CPR 36.17 providing the claimant’s entitlement to costs on the indemnity basis.
The Court of Appeal considered that the fixed costs regime applies to any party whose offer was not accepted when it should have been. CPR 45.29J allows the court to allow costs in excess of fixed recoverable costs where exceptional circumstances make it appropriate to do so.
This “exceptional circumstances” exception did not arise in Hislop but was raised the Kaur claim. Coulson LJ confirmed in paragraph 56 that: “I do not consider that a defendant’s late acceptance of a claimant’s Part 36 offer can always be regarded as an “exceptional circumstance”.
He said: “…what matters are the particular facts of each case. A long delay with no explanation may well be sufficient to trigger r.45.29J; a short delay with a reasonable explanation will not.”
There can be no presumption that late acceptance triggers indemnity costs as it would be inappropriate to construe the CPR in such a way that would actively discourage late settlements and instead give the offeree a reason to push on to a trial.
The Court of Appeal found that fixed costs applied to both cases.
In the case of Hislop the 19 month delay in accepting the offer was not considered to be exceptional circumstances.
In Kaur Lord Justice Coulson said that the parties had wrongly assumed that late acceptance would result in the defendant having to pay indemnity costs. The exceptional circumstances point fell away as this was not a case whereby the claimant was denied the entitlement of indemnity costs by the higher offer, as no entitlement existed in the first place.
The decision is a sensible one and provides clarification to an area where there have been many conflicting decisions in the lower courts.
An important point to note is that a fixed costs case stays as a fixed costs case, unless a Part 36 offer is beaten at trial or exceptional circumstances exist to escape it.
The certainty that fixed costs brings remains. Whilst some in the industry may disagree with the decision it follows the long standing law surrounding an award for indemnity costs, which Coulson LJ summarised in paragraph 36 of the judgment:
“a) Indemnity costs are appropriate only where the conduct of a paying party is unreasonable ‘to a high degree’. ‘Unreasonable’ in this context does not mean merely wrong or misguided in hindsight.
b) The court must therefore decide whether there is something in the conduct of the action, or the circumstances of the case in general, which takes it out of the norm in a way which justifies an order for indemnity costs.”
Following the reasoning above it is not appropriate to award indemnity costs following a late acceptance of a Part 36 offer in a fixed costs matter.
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