When the CPR came into force in April 1999, the old method of placing your opponent on risk as to costs in litigation, the Payment into Court, was replaced by Part 36 of the CPR. The intention was the same as the payment into court – to put some pressure on your opponent to settle the case, or run the risk of adverse costs findings. Equally it was designed to protect the party making the offers own costs position. Used skilfully either by defendants (or perhaps less commonly) by claimants, it can be a hugely effective tactic in any proceedings. Getting the Part 36 offer just right by not offering too much, whilst not making it so low as to be ineffective, has generally been regarded as one of the factors that makes a good litigation lawyer stand out from the crowd.
The decision of the Court of Appeal in the recent joint appeal in the cases of Hislop v Perde and Kaur v Committee of Ramgharia Board Leicester has made some commentators ask the question – is Part 36 still fit for purpose?
The Case Histories
The Claimant “C” suffered personal injury in an RTA and blamed the Defendant, “D”. After a CNF was served, D did not respond. The matter was removed from the PAP but remained subject to the fixed costs regime. The matter became litigated. A number of offers and counter offers were made both pre and post proceedings being commenced. Then on11th November 2014, C offered to accept £1500. This was done by way of Part 36 offer. D did not respond until 9th January 2015 when D rejected it.
Trial date was fixed for 9th June 2016. On 20th May 2016, D offered £1000 which was rejected by C. On the 2nd June, D accepted C’s part 36th offer of £1500 which had been made over 18 months earlier.
C therefore sought indemnity costs from the date the acceptance period for the part 36 offer expired ie 2nd December 2014.
When the matter went before DDJ Lenon at Willesden CC, he rejected C’s argument that she be entitled to indemnity costs, reasoning, inter alia that;
“I am not satisfied that this is an appropriate case for an order for indemnity costs. I am not satisfied that there is anything here which really takes the case out of the norm. It would have clearly been better had the offer been accepted earlier on, but that is not really the point…. r45.29J”
In agreeing with D’s advocate he went on;
“There has to be a standout point that can be quickly drawn to the court’s attention and which makes it obvious that the case has been conducted abnormally and that, exceptionally, an indemnity costs order is justified. My order, therefore, is that the order for costs should be the fixed costs and not the indemnity costs.”
C appealed and at the appeal Judge Walden-Smith overturned the District Judge’s order, on the basis that he had erred in determining that the order for costs ought to have been fixed costs throughout. She did not interfere with his decision not to award costs on an indemnity basis, but ruled that the costs after 2 December 2014 would be assessed on the standard basis.
D therefore appealed to the CA.
C in this case was injured at D’s premises. As in Hislop this matter was also one that started out under the fixed costs regime. A Claim Notification Form under the PAP was sent on 7 February 2014. On 15 April, liability was denied and so the claim moved outside the PAP, although again the fixed costs regime remained in force.
On 8 January 2016, the proceedings were commenced. On 7 September 2016, C offered to accept £2,000, in accordance with CPR Part 36. That offer was rejected on 15 September 2016. Further negotiations ensued which included the obtaining of a further report parts of which assisted C, but parts of which did not. D wanted to settle but was concerned that it might be penalised in costs if it belatedly accepted her offer of 7 September 2016. So, instead, on 6 February 2017, D made its own, higher Part 36 offer in the sum of £3,000. That offer was accepted by C.
C claimed indemnity costs from the date her Part 36 offer of 7 September 2016 until the date she accepted D’s offer. On 23 August 2017, District Judge Reed, sitting at the County Court at Leicester, decided that the claimant was entitled to £2,450 by way of fixed costs up to the date of allocation, and costs to be assessed on the standard basis thereafter. He concluded that, if the defendant had simply sought to accept the claimant’s earlier Part 36 offer of £2,000 out of time, then the claimant would have been entitled to claim indemnity costs for the period of delay.
In those circumstances, he concluded that C should not be worse off simply because the D had got around that difficulty by making a higher offer months later. He said that such a result did not sit comfortably with the overriding objective and talked about a ‘lacuna’ in the CPR. He also indicated that this was an exceptional case under r.45.29J, which justified departure from the fixed costs regime in any event.
It is perhaps a salient point to make some observations;
- DJ Reed’s point that this was an exceptional case under r45.29J, surely carries some weight? D’s conduct in carrying on negotiations was potentially in the hope that C might give up for fear of what might happen if the matter went to trial. When they realised that she wasn’t going to give up, they tried to get around the problem by making their own Part 36 offer, which was for £1000 more than the C’s own Part 36 offer knowing that there might be an argument that it would be liable for indemnity costs, from the date of her Part 36 offer to the date it then, belatedly, almost a year later, accepted her offer. Therefore, it decided that the way round this problem was to increase slightly on that offer for her to accept and thus ensure that they would only liable for fixed costs up to acceptance of that offer by C and by definition up to conclusion of the case. Is this not a case of D ‘playing the game’ to try and see if C blinked first and then when she didn’t blink, by adopting a further tactic to try and (as it eventually played out, successfully) avoid the prospect of being found liable for indemnity costs by not accepting her Part 36 offer as it could have done to get rid of the matter but in fact increasing on that offer in the form of its own Part 36 offer of a higher amount?
- In respect of DDJ Lenon’s comment in the Hislop case when dismissing D conduct as being nothing which really took the case out of the norm;
“It would have clearly been better had the offer been accepted earlier on, but that is not really the point….”
Surely it is the point. Had D accepted the offer earlier, then the whole raison d’etre for the appeal would have been obviated. Fixed costs were brought in on the assumption that matters would be dealt with more expeditiously as a result of the new portal/fixed costs regime. The conduct of the D’s in both cases was surely not envisaged by the rule makers as being the ‘normal way’ of conducting expeditious costs litigation, especially when the successful party is only going to be able to recover fixed costs?
When the matter came before the CA, the Lords and Lady Justices considered these matters and their conclusions were outlined by Lord Justice Coulson (with his two colleagues concurring), as follows, in summary;
- Solomon v Cromwell Group PLCis authority for the proposition that the fixed costs regime made mandatory by r.45.29B and r.45.29D will continue to apply to those cases covered by it, unless there is an express exception.
- The claimants in Broadhurst vTan moved out of the fixed costs regime because they could demonstrate that what is now 36.21 (then 36.14A) provided an additional exception. 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.
- The fundamental difficulty for a claimant in a fixed costs case seeking to say that something very similar should happen where the defendant has delayed before accepting the claimant’s Part 36 offer is that different rules apply. Whilst the general rule dealing with costs consequences following judgment (r.36.17) is expressly preserved by the particular rule relating to the fixed costs regime (r.36.21), that is not the position in relation to the rules relating to the costs consequences of accepting Part 36 offers before tria For that situation, the general rule (r.36.13, old rule r.36.10) is notpreserved by the rule applicable to fixed costs cases (r.36.20, old rule r.36.10A). Instead, r.36.20 makes plain that it is the only rule which applies to the costs consequences of acceptance of a Part 36 offer in fixed costs cases. It preserves no part of the general rule set out in r.36.13.
- In this way, the interaction between the fixed costs regime and Part 36 is different where the claimant is successful after trial.
- The (CPR) draftsman has always striven to make Part 36 self-contained, so it has always contained some provisions which can also be found elsewhere in the CPR. More generally, the fact that there is some duplication within the CPR is, unsatisfactory though it might be, inevitable. Rules should not be construed in reliance on duplication.
Coulson LJ, though went on to point out why he (and his colleagues) believed that this interpretation of the rules led to a ‘sensible and coherent’ result.
- This interpretation is in accordance with the comprehensive nature of the fixed costs regime in Part 45 and the policy that, subject to limited exceptions, the fixed costs regime is intended to apply to the relevant PAP cases, without further ado or argument.
- He considered that this interpretation preserves the autonomy of Part 45. ‘If a case begins under the fixed costs regime then it should only be in exceptional circumstances that the parties are able to escape it’.
- It should not be thought that this interpretation means that the defendant who makes an offer which the claimant accepts late is in a radically different position to a claimant whose own offer has been accepted late.
- These rules demonstrate that, in the mirror image of the situation in which these claimants find themselves (namely, where a claimant has accepted a defendant’s offer late) there is no question of either indemnity or standard basis costs being awarded to the defendant.
Accordingly, both appeals were decided in favour of the D’s with no award of anything other than fixed costs being applied in each case.
Is it fair that defendants who delay in accepting a claimant’s Part 36 offer escape any costs penalty in fixed costs cases? The Court of Appeal dealt with this by saying that the rules are clear- the fixed costs regime is intended to apply to relevant PAP cases – full stop and that this interpretation means that the autonomy of Part 45 is preserved.
Is there an appetite for a concerted effort to persuade the rule makers to alter the word. As reported in the Law Gazette, Matthew Stockwell a barrister and former APIL President opined;
Any tweaks that provide a further incentive towards narrowing of issues, ongoing appraisal and settlement are likely to be welcome,’ said Stockwell. ‘Areas I’d welcome the CPRC [Civil Procedure Rule Committee] to consider are stronger, but more balanced penalties for late acceptance, whether through costs or interest. Currently things are arguably skewed in favour of defendants, as complained about in Hislop.’
Perhaps a partial solution would be to tweak the rules to ensure that in matters of similar fact to Hislop and Kaur, there is provision to add interest on settlements where there has been a delay in accepting Part 36 offers by defendants (as was suggested by APIL secretary John McQuater in the Law Gazette article referred to above). At the moment, though and unless the cases of Hislop and Kaur are appealed further, even this step seems unlikely.
If you would like to discuss in more depth, the issues discussed in this article, or indeed if you have any other query of a costs nature that you would like answering, our costs experts here at R Costings, will be only too pleased to help. Feel free to call any of the team on 01480 463499 or send an email to Paul Reason firstname.lastname@example.org and we’ll get straight back to you.