Late acceptance of part 36 offers

There are always fashions in litigation: one of them which has occupied roughly two years, have been the arguments about what costs consequences flow, from the late acceptance by a defendant of a part 36 offer made by a claimant, in a personal injury case, often complicated by the presence of the fixed costs provisions.

In the case of conjoined appeals Hislop v Perde and another [2018] EWCA Civ 1726 earlier this year, this issue was ventilated before the Court of Appeal. The decision of the circuit judge from which the appeal was made, can be found here:Hislop v Perde HH Judge Walden Smith County Court at Central London Transcript.

The issue was described in the Court of Appeal thus:

The issue that arises in these two appeals concerns the correct approach to costs in cases under the fixed costs regime in Section IIIA of Part 45 (low value road traffic accident (“RTA”) and employers’ liability/public liability (“EL/PL”) claims), where the defendant eventually accepts, after they should or could have done, the claimant’s offer under CPR Part 36. We are told that the issue is of some significance and will affect the costs outcome in many other cases. In addition to counsel’s submissions, in completing this Judgment, I have taken into consideration detailed written submission by both the Association of Personal Injury Lawyers, and the Forum of Insurance Lawyers.

By reference to two earlier decisions of this court, the issue of principle can be delineated in this way. Where a Part 36 offer is accepted within 21 days, in a case governed by the fixed costs regime, neither party can recover more or less by way of costs than is provided for by that fixed costs regime: see Solomon v Cromwell Group PLC [2012] 1 WLR 1048. Conversely, where a claim that is subject to the fixed costs regime goes on to trial and, by way of judgment, the claimant recovers more than a Part 36 offer, he or she is entitled to indemnity costs from the date that the offer became effective: see Broadhurst v Tan [2016] EWCA Civ 94; [2016] 1 WLR 1928. That leaves what might be called the cases in the middle, where a defendant accepts the claimant’s Part 36 offer many months after it was made, and the case does not then go on to trial. In those circumstances, does the case remain within the fixed costs regime, or can the claimant escape its confines and recover standard or even indemnity costs from the date that the offer became effective?

The court made some general observations on indemnity costs as follows:

Leaving aside the complexities introduced by the fixed costs regime, the general position is that the late acceptance of a Part 36 offer may warrant an order for indemnity costs. But that will always be a question of fact in each case; there is no presumption to that effect. In Fitzpatrick Contractors Ltd v Tyco Fire and Integrated Solutions (UK) Ltd (3) [2009] EWHC 274 (TCC); [2010] 2 Costs LR 115, I said:

“21. Secondly, I consider that the court has to be very careful before inserting into a rule, which is silent on costs, a presumption of this kind, extracted from a different rule altogether. It seems to me that, on this point, Lord Woolf’s remarks in Excelsior are of some relevance (although I acknowledge that he was dealing there with a contrast between the old r36.21 and the old r36.20.) He concluded that, in the absence of any reference to the indemnity basis, an order for costs which the court was required to make under the old r36.20 was an order for costs on the standard basis. It seems to me that precisely the same general reasoning would apply here to CPR 36.10(4) and (5).

Thirdly, I note that r36.10(3), which deals with the situation where the claimant’s offer is accepted within the relevant period, expressly provides that costs will be assessed on the standard basis. If, therefore, there was a presumption that indemnity costs would apply under r36.10(5), when an offer was accepted outside the period, it seems to me that the rule would say so. It does not, and, in my judgment, that is not an oversight or an omission; it is because either standard or indemnity costs may be applicable where an offer is accepted after the relevant period, depending on the analysis under CPR 44.3.

Finally, I am not persuaded that, as a matter of policy, it would be appropriate to import an indemnity costs presumption into r36.10(4) and (5). A defendant is entitled to accept an offer beyond the period of acceptance. In a complex case such as this, a defendant should be encouraged continuously to evaluate and re-evaluate the claim and its own response to that claim, so that even if the defendant had originally concluded that it was not going to accept the offer, it should always be prepared to change its mind. The CPR should be interpreted in a way that encourages such constant re-evaluation.

All those of us involved in civil litigation are conscious of the irony that a well-judged Part 36 offer by one party (whether claimant or defendant) at the outset of proceedings can often make a trial and a fight to the finish more, rather than less, likely, because there will often be instances where, by the time the offeree has belatedly realised that the offer was well-judged, he will have incurred considerable cost, and may feel that he has no option but to go on and fight the case through to the finish in the hope of bettering the offer. Such an outcome is not to be encouraged. There is a risk that, if a defendant belatedly changed its mind as to the acceptability of a claimant’s Part 36 offer, the defendant would be discouraged from formally accepting that offer if it thought that it would have to pay indemnity costs in consequence. It would not be appropriate to construe the CPR in such a way, because that would, in my view, actively discourage late settlements and instead give rise to another reason for the offeree to push on to a trial.

Mr Bacon QC sought to argue, by reference to more recent cases such as OMV Petrom SA v Glencore International AG [2017] 1 WLR 3465 that the ‘carrot and stick’ effect of the new rules, following the Jackson reforms, means that the courts should be much quicker to conclude that a defendant who delays accepting a Part 36 offer should be liable for indemnity costs. In my view, that confuses a presumption in favour of indemnity costs (applicable in every case of late acceptance of a Part 36 offer), and the making of such an order if it is warranted on the facts. All that I was addressing in Fitzpatrick was the absence of any implicit presumption in the CPR in favour of an order for indemnity costs, in every case of late acceptance of a Part 36 offer. That is far from saying that there will not be cases in which, on the facts, late acceptance without proper reason will justify an order for indemnity costs.

The court then went on to consider the position in relation to cases otherwise falling within the fixed costs regime:

Solomon is 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 moved out of the fixed costs regime (even though they could not put themselves within one of the Part 45 exceptions (rr.45.29F, 45.29G, 45.29H and 45.29J)) 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. In this way, although the draftsman had not made the point clear in Section IIIA of Part 45, it did not matter, because he had made it clear in Part 36.

How was the exception made clear? This was achieved by adding particular modifications which were relevant to the fixed costs regime via r.36.21 (old r.36.14A), but at the same time expressly confirming that r.36.17 (old r.36.14) was preserved and continued to apply to fixed costs cases. In other words, the rules expressly provided that, even though the fixed costs regime had brought about a number of specific modifications, the underlying rules in r.36.17 (old r.36.14) also applied to such cases. In this way, the CPR expressly preserved what has been called the ‘enhanced package’ provided for by r.36.17(4), and made that applicable to a claimant within the fixed costs regime, provided that he or she had done better at trial than the Part 36 offer.

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. In my view, those different rules demonstrate that the applicable costs regime in fixed costs case where there has been late acceptance is different to that described in Broadhurst v Tan and, on analysis, very similar to that explained in Solomon.

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 trial. For that situation, the general rule (r.36.13, old rule r.36.10) is not preserved 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.

What is more, r.36.13 itself says that it is “subject to” r.36.20 which, because that rule applies to fixed costs cases and r.36.13 does not, also leads to the conclusion that r.36.13 does not apply to fixed costs cases. Where (without more) a general rule is made ‘subject to’ a specific rule that governs a particular class of case then, in that class of case (here, those subject to fixed costs), it will be the specific rule that applies, not the general rule (see Solomon).

There are other parts of r.36.13 which also demonstrate that it has no application to fixed costs cases. These include the signpost in brackets after r.36.13(1), which makes it clear that it is r.36.20 which “makes provision for” the relevant rules in fixed costs cases, and r.36.13(3), which qualifies the reference to standard costs with the words “except where the reasonable costs are fixed by these Rules”.

In this way, the interaction between the fixed costs regime and Part 36 is different where the claimant is successful after trial (r.36.17 expressly preserved), as compared to where a Part 36 offer is accepted before trial (r.36.13 not preserved, and excluded by the use of the words ‘subject to’ and the other amendments referred to in paragraph 45 above). In this way, the drafting of the interaction between the two pairs of rules is very different. If the sort of twin-track approach applicable to the position after judgment (as described in Broadhurst v Tan) was intended to apply to late acceptance of a Part 36 offer before trial, the same sort of wording in r.36.21, and in particular the express preservation of the general rule, would have been required in r.36.20. There is no such preservation. On that basis, I consider that the correct interpretation of the rules is to say that, in a fixed costs case, r.36.20 applies where an offer is accepted late, and that r.36.13 does not apply at all.

Finally on interpretation, both Mr Bacon QC and Mr Benson in their respective cases argued that r.45.29B and r.45.29J could not be relevant to the costs consequences of acceptance of a Part 36 offer, because if they were relevant, there would be no need for r.36.20(2). That is a bad point, for two reasons. First, the 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. Second and 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.

Having set out my interpretation of the relevant rules, I consider that there are four reasons why that interpretation leads to a sensible and coherent result. It is manifestly not a drafting error nor, with respect to District Judge Reed, a lacuna in the CPR.

First, 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. This means that, in relation to offers made under Part 36, the only way out of the regime is triggered where a claimant beats the Part 36 offer at trial (Broadhurst v Tan). Moreover, that particular circumstance has always been a situation where the rules have striven to reward the claimant: hence the enhanced package provided by r.36.17. It therefore makes sense to say that, even in a fixed costs case, that enhanced package should be available to a claimant after trial, just as it is in any other kind of case.

Secondly, I consider that my 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. The whole point of the regime is to ensure that both sides begin and end the proceedings with the expectation that fixed costs is all that will be recoverable. The regime provides certainty. It also ensures that, in low value claims, the costs which are incurred are proportionate. In addition, whatever the perceived injustice in any given case, the ‘swings and roundabouts’ identified by Briggs LJ in Sharp will still apply.

Thirdly, 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. True it is that, in that situation, r.36.20(4)(b) imposes a specific liability on the claimant to pay the defendant’s costs relating to the period between when the offer should have been accepted and when it was accepted. But r.36.20(12) makes it clear that the costs awarded to a defendant in respect of that delay will be assessed by reference to fixed costs only.

This is important. 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. The defendant’s recovery for the period of delay is limited to fixed costs only. There could be no reason to treat the claimant in a radically different way and to go outside the fixed costs regime, and order standard or even indemnity costs, in circumstances where a defendant in a similar position to these claimants is not permitted to recover costs on that basis. In this way, my interpretation of the rules applies the same fixed costs regime to any party whose offer has not been accepted when it should have been.

Finally, it remains the position that, in an exceptional case of delay, it may be possible for the claimant to escape the fixed costs regime. That arises under r.45.29J. In this way, my interpretation of the specific rules within Part 36 does not lead to a dogmatic or rigid conclusion, because the draftsman of the Rules already had one eye on ensuring that, in an exceptional case, it might be possible for a claimant to escape, at least in part, the fixed costs regime. In that way, there remains a clear incentive for a defendant not to delay in accepting a claimant’s Part 36 offer.

I am anxious not to express detailed conclusions about the scope and extent of r.45.29J because, other than acknowledging that it provides a potential escape route in an appropriate case, I do not consider that its general ambit is directly relevant to this appeal: the point did not arise in the Hislop case at all (so was not argued before us) and, for the reasons set out in paragraphs 65-68 below, I consider that the reference to the rule by DJ Reed in the Kaur case was based on a false premise. However, two particular issues were raised as to the scope of r.45.29J, and I address each briefly.

First, 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”. On the contrary, I take the view that my reasoning in Fitzpatrick as to why there can be no presumption in favour of indemnity costs in these circumstances (see paragraph 37 above) is also applicable, at least in general terms, to the suggestion that there is a presumption that a late acceptance of a Part 36 offer is an exceptional circumstance for the purposes of r.45.29J. Again, 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.

Secondly, I reject the argument advanced by Mr Post QC, in the Kaur appeal, that this provision would only come into play if it could be shown that the exceptional circumstances had caused the litigation to be more expensive for the claimant. In support of this proposition, he relied on r.29J and r.29K which are concerned with the circumstances in which a party seeks to recover more than fixed costs. The rules make that party liable for the costs consequences if the assessment gives rise to a sum which is less than 20% greater than the amount of the fixed recoverable costs.

I do not accept Mr Post’s gloss on r.45.29J. His suggestion that a claimant must demonstrate a precise causative link between the exceptional circumstances and any increased costs would, in my view, lead to an unnecessarily restrictive view of the rule. It goes without saying that a test requiring “exceptional circumstances” is already a high one. It is not a proper interpretation of the rules to suggest that there should be further obstacles placed in the way of a party who wishes to rely on that provision.

A number of wider points can be drawn from this judgment. The first point is to note that just as the Court of Appeal has a planning judge, an intellectual property judge, a personal injury judge, there is always a costs judge and that role is now occupied by Coulson LJ, in succession to Jackson LJ. Undoubtedly one can expect to his decisions on future costs points.

The second point is to note the primacy that is given to the fixed costs regime as having a very wide scope, really as a matter of policy. On the basis of the merits of the construction arguments, my own view was that this decision could have gone either way: as evidenced by the differing constructions afforded to the same rules by thoughtful circuit judges such as HH Judge Wood QC and HH Judge Walden-Smith.

The third point to note is that the consequence of this judgment is really to take the steam out of the issue of the late acceptance of a part 36 offer, particularly in the context of modestly valued personal injury cases. In many such cases, late acceptance will now carry no costs consequences whatsoever. If there is to be any consequence, it must lie in other factors, which may or may not be present in an individual case, particularly if they may fall within rule 45.29J.

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