Late acceptance of claimants’ part 36 offers II

The issue of late acceptance of a claimant’s part 36 offer in personal injury proceedings, by a defendant, and whether this in turn permits escape from the regime of fixed costs is continuing to attract interest, with the respective claimant and defendant interests, arguing the toss vigorously.

In this post, which I note with angst, is already far too long, I shall first of all look at the arguments from the defendant’s perspective, and leave the very respectable arguments that exist for those who represent claimants in abeyance, for a later blog post.

The starting point in the context of a modestly valued claim for damages for personal injuries sustained in a road traffic accident is rule 45.29:

45.29B

Subject to rules 45.29F, 45.29G, 45.29H and 45.29J, if, in a claim started under the RTA Protocol, the Claim Notification Form is submitted on or after 31st July 2013, the only costs allowed are—

(a) the fixed costs in rule 45.29C;

(b) disbursements in accordance with rule 45.29I.

There is an escape clause: rule 45.29J affords the court discretion to allow more than fixed costs, but the exercise of the discretion is tightly prescribed by the rules. There must be something “exceptional” to justify a departure from the fixed costs regime:

(1) If it considers that there are exceptional circumstances making it appropriate to do so, the court will consider a claim for an amount of costs (excluding disbursements) which is greater than the fixed recoverable costs referred to in rules 45.29B to 45.29H.

(2) If the court considers such a claim to be appropriate, it may—

(a) summarily assess the costs; or

(b) make an order for the costs to be subject to detailed assessment.

(3) If the court does not consider the claim to be appropriate, it will make an order—

(a) if the claim is made by the claimant, for the fixed recoverable costs; or

(b) if the claim is made by the defendant, for a sum which has regard to, but which does not exceed the fixed recoverable costs, and any permitted disbursements only.

This is a provision which repays careful consideration: there is very little law, on what constitutes “exceptional” at the current time.

Turning to consider part 36, rule 36.11 provides so far as is material:

(1) A Part 36 offer is accepted by serving written notice of acceptance on the offeror.

(2) Subject to paragraphs (3) and (4) and to rule 36.12, a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer), unless it has already been withdrawn.

Turning to rule 36.13 that states as far as is material:

(1) Subject to paragraphs (2) and (4) and to rule 36.20, where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings (including their recoverable pre-action costs) up to the date on which notice of acceptance was served on the offeror.

(Rule 36.20 makes provision for the costs consequences of accepting a Part 36 offer in certain personal injury claims where the claim no longer proceeds under the RTA or EL/PL Protocol.)

(2) Where—

(a) a defendant’s Part 36 offer relates to part only of the claim; and

(b) at the time of serving notice of acceptance within the relevant period the claimant abandons the balance of the claim,

the claimant will only be entitled to the costs of such part of the claim unless the court orders otherwise.

(3) Except where the recoverable costs are fixed by these Rules, costs under paragraphs (1) and (2) are to be assessed on the standard basis if the amount of costs is not agreed.

(Rule 44.3(2) explains the standard basis for the assessment of costs.)

(Rule 44.9 contains provisions about when a costs order is deemed to have been made and applying for an order under section 194(3) of the Legal Services Act 20073.)

(Part 45 provides for fixed costs in certain classes of case.)

(4) Where—

(a) a Part 36 offer which was made less than 21 days before the start of a trial is accepted; or

(b) a Part 36 offer which relates to the whole of the claim is accepted after expiry of the relevant period; or

(c) subject to paragraph (2), a Part 36 offer which does not relate to the whole of the claim is accepted at any time,

the liability for costs must be determined by the court unless the parties have agreed the costs.

(5) Where paragraph (4)(b) applies but the parties cannot agree the liability for costs, the court must, unless it considers it unjust to do so, order that—

(a) the claimant be awarded costs up to the date on which the relevant period expired; and

(b) the offeree do pay the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.

(6) In considering whether it would be unjust to make the orders specified in paragraph (5), the court must take into account all the circumstances of the case including the matters listed in rule 36.17(5).

(7) The claimant’s costs include any costs incurred in dealing with the defendant’s counterclaim if the Part 36 offer states that it takes it into account.

It will be noted that rule 36.13(5) does not specify that the costs are to be awarded on the indemnity basis in contrast with rule 36.17 which expressly does prescribe when indemnity costs can be awarded under part 36: when a claimant’s part 36 offer is beaten at trial.

Rule 36.17 provides:

(1) Subject to rule 36.21, this rule applies where upon judgment being entered—

(a) a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer; or

(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer.

(Rule 36.21 makes provision for the costs consequences following judgment in certain personal injury claims where the claim no longer proceeds under the RTA or EL/PL Protocol.)

(2) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.

(3) Subject to paragraphs (7) and (8), where paragraph (1)(a) applies, the court must, unless it considers it unjust to do so, order that the defendant is entitled to—

(a) costs (including any recoverable pre-action costs) from the date on which the relevant period expired; and

(b) interest on those costs.

(4) Subject to paragraph (7), where paragraph (1)(b) applies, the court must, unless it considers it unjust to do so, order that the claimant is entitled to—

(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;

(c) interest on those costs at a rate not exceeding 10% above base rate; and

(d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is—

(i) the sum awarded to the claimant by the court; or

(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs—

Amount awarded by the court

Prescribed percentage

Up to £500,000                                           10% of the amount awarded

Above £500,000                                         10% of the first £500,000 and (subject to the limit of £75,000) 5% of any amount above that figure.

(5) In considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4), the court must take into account all the circumstances of the case including—

(a) the terms of any Part 36 offer;

(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

(c) the information available to the parties at the time when the Part 36 offer was made;

(d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and

(e) whether the offer was a genuine attempt to settle the proceedings.

The rules noted above cross refer to two further rules, which apply in the context of a case which started but did not continue under the RTA Protocol, in order to ensure that part 36 and the fixed costs rules in part 45 read seamlessly. Rule 36.20 specially deals with the costs consequences of acceptance of a part 36 offer:

(1) This rule applies where a claim no longer continues under the RTA or EL/PL Protocol pursuant to rule 45.29A(1).

(2) Where a Part 36 offer is accepted within the relevant period, the claimant is entitled to the fixed costs in Table 6B, Table 6C or Table 6D in Section IIIA of Part 45 for the stage applicable at the date on which notice of acceptance was served on the offeror.

(3) Where—

(a) a defendant’s Part 36 offer relates to part only of the claim; and

(b) at the time of serving notice of acceptance within the relevant period the claimant abandons the balance of the claim,

the claimant will be entitled to the fixed costs in paragraph (2).

(4) Subject to paragraphs (5), (6) and (7), where a defendant’s Part 36 offer is accepted after the relevant period—

(a) the claimant will be entitled to the fixed costs in Table 6B, Table 6C or Table 6D in Section IIIA of Part 45 for the stage applicable at the date on which the relevant period expired; and

(b) the claimant will be liable for the defendant’s costs for the period from the date of expiry of the relevant period to the date of acceptance.

(5) Subject to paragraphs (6) and (7), where the claimant accepts the defendant’s Protocol offer after the date on which the claim leaves the Protocol—

(a) the claimant will be entitled to the applicable Stage 1 and Stage 2 fixed costs in Table 6 or Table 6A in Section III of Part 45; and

(b) the claimant will be liable for the defendant’s costs from the date on which the Protocol offer is deemed to have been made to the date of acceptance.

(6) In a soft tissue injury claim, if the defendant makes a Part 36 offer before the defendant receives a fixed cost medical report, paragraphs (4) and (5) will only have effect if the claimant accepts the offer more than 21 days after the defendant received the report.

(7) In this rule, “fixed cost medical report” and “soft tissue injury claim” have the same meaning as in paragraph 1.1(10A) and (16A) respectively of the RTA Protocol.

(8) For the purposes of this rule a defendant’s Protocol offer is either—

(a) defined in accordance with rules 36.25 and 36.26; or

(b) if the claim leaves the Protocol before the Court Proceedings Pack Form is sent to the defendant—

(i) the last offer made by the defendant before the claim leaves the Protocol; and

(ii) deemed to be made on the first business day after the claim leaves the Protocol.

(9) A reference to—

(a) the “Court Proceedings Pack Form” is a reference to the form used in the Protocol; and

(b) “business day” is a reference to a business day as defined in rule 6.2.

(10) Fixed costs shall be calculated by reference to the amount of the offer which is accepted.

(11) Where the parties do not agree the liability for costs, the court must make an order as to costs.

(12) Where the court makes an order for costs in favour of the defendant—

(a) the court must have regard to; and

(b) the amount of costs ordered must not exceed,

the fixed costs in Table 6B, Table 6C or Table 6D in Section IIIA of Part 45 applicable at the date of acceptance, less the fixed costs to which the claimant is entitled under paragraph (4) or (5).

(13) The parties are entitled to disbursements allowed in accordance with rule 45.29I incurred in any period for which costs are payable to them.

This rule contains no provisions for the costs consequences of acceptance of a part 36 offer to the defendant made by the claimant outside the “relevant period” i.e the 21 days. The effect therefore is that the court is thrown back onto the general provision under rule 36.13(4)(b) and 36.13(5): it has a discretion as to whether to order costs or not.

However, there is an important pointer in the rules to what was contemplated to be the just result: where a claimant accepts a defendant’s part 36 offer out of time, so that the claimant is entitled to costs until 21 days after the date of the offer, and the defendant to its costs thereafter, pursuant to rule 36.20(12) the costs the claimant must pay, are not costs on the standard basis, but costs which cannot exceed an amount calculated by reference to the fixed costs in table 6B, 6C or 6D.

In effect, although the costs liability is split between the parties, both sets of costs are calculated by reference to the tables for fixed costs.

Rule 36.21 deals with the costs consequences after judgment is obtained in a case which started in the RTA Protocol. It has no application to a case that settles before trial and is stayed, pursuant to rule 36.14, without judgment being entered.

The origin of the rule in rule 36.13(5) is that it represents the codification of the approach and principles set out in Lumb v Hampsey [2011] EWHC2808. The origins of the rule are therefore grounded in the need in some cases, to adjust the normal “before and after” rule for the allocation of costs: eg where a claimant accepts a defendant’s part 36 offer late, because of belated disclosure by the defendant or other conduct justifying disapplication of the normal rule.

The rule gives the court jurisdiction to potentially make an award of indemnity costs or standard basis costs. The issue is what criteria would justify an award of other than fixed costs.

The leading case on when it is appropriate to award indemnity costs remains that of Excelsior Industrial and Commercial Holdings v Salisbury Hammer Aspden and Johnson [2002] EWCA Civ 879 where Lord Woolf LCJ made a number of observations. As a statement of principle binding upon the lower courts, mere late acceptance of a settlement offer, without more is not conduct justifying an award of indemnity costs.

Similar considerations drove the decision in the case of  Fitzpatrick Contractors Ltd v Tyco Fire and Integrated Solutions [2009] EWHC 274: there has to be something more than late acceptance. The case is important for the very detailed and careful exposition of Coulson J, forming part of the ratio of the case, as to why mere late acceptance of a claimant’s part 36 offer did not generate a presumption in favour of indemnity costs.

19 First, I am bound to note that there is no reference at all within CPR 36.10(4) and (5) to a presumption that, unless it is unjust to do so, the court will order a late-accepting defendant to pay the claimant’s costs on an indemnity basis. The absence of such a provision is important. The usual basis for the assessment of costs is the standard basis; if there is an entitlement to seek indemnity costs, then it is expressly spelled out in the CPR , either as a rebuttable presumption (such as the presumption in r36.14 ) or by way of conduct ( r44.3 ). There is no rebuttable presumption expressed here.

20 Although it is always dangerous to speculate how and why the rules say what they do, it seems to me that there is a relatively straight forward explanation for why this part of the CPR is in its present form. A claimant’s entitlement to indemnity costs when it beats its own offer after a trial was first enshrined in the old r36.21 and was plainly designed to deal with the situation where a trial had taken place and costs had been wasted because the defendant should have accepted the Part 36 offer. For the reasons explained by Lord Woolf in Excelsior , this was more advantageous than the defendant’s position under r36.20 . On the words of the old r36.21 the situation argued for here could not have arisen, because r36.21 applied only where the defendant was held liable “for more” than the amount of the offer. Following the decision in Read v Edmed the rule was changed so that it expressly covered the situation where, after a trial, the claimant recovered the same as the amount of its unaccepted offer. But there is nothing on the face of any of the existing rules to suggest that this change was also designed to reward a claimant (whose offer under CPR 36.10 was accepted out of time and before there was any trial) with a rebuttable presumption in its favour in respect of indemnity costs.

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).

22 I accept Mr Thomas’s submission that the other cases relied on by Fitzpatrick, namely Petrotrade , Huck and Read do not offer very much assistance to the central question here, which is whether a rebuttable presumption in favour of indemnity costs, taken from a rule dealing with the situation following a trial where the offer has not been accepted, should be inferred into a rule dealing with the position prior to trial, where the offer has been accepted. I do not accept that the present situation is analogous to those cases. In all three of them, the courts were endeavouring to apply the words of the old r36.21 in a commonsense way, to achieve a just and sensible result, and to prevent injustice; they all arose after a trial on the merits (either on a summary or a full basis). In contrast, I conclude that the replacement of old r36.21 – the new CPR 36.14 – does not apply to the present case, because there has been a settlement, and it has occurred before the trial. The claimant has therefore been spared the costs, disruption and stress of the trial.

23 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

24 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.

25 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.

See further the summation by the court in paragraphs 31 and 32:

31 I am unable to accept that proposition. It seems to me that there is no basis for it. As I have said, a party can seek indemnity costs in one of two ways: either because there is a presumption that such costs will apply (such as under CPR 36.14) or because it can demonstrate the necessary evidence of conduct etc. pursuant to CPR 44.3. There is no basis under the CPR, or any authority of which I am aware, which would allow the court to order indemnity costs for any other reason or on any other basis.

 32 Accordingly, Fitzpatrick’s claim for indemnity costs on the basis of either a rebuttable presumption, or a watered-down conduct test, must fail as a matter of principle: in these circumstances, only a case by reference to conduct etc. pursuant to CPR 44.3 could justify such an order. Both parties made detailed submissions on questions of conduct and its relevance to the application for indemnity costs. Accordingly, if I am wrong in my rejection of either Mr Livesey’s primary case, or his secondary case, or if, despite its realistic understanding of the likely outcome, Fitzpatrick maintain an entitlement to indemnity costs by reference to CPR Part 44 , I now set out my views as to the parties’ conduct and the overall justice of the situation.

Heavy reliance is usually placed by claimants, on the County Court judgment in the case of Sutherland v Khan 21st April 2016. District Judge Besford felt able to distinguish the case of Fitzpatrick: he did not however identify any decision which had overruled this case, and was bound to apply it. If District Judge Besford doubted the correctness of Fitzpatrick, his proper course was to apply it and grant permission to appeal: see the decision of the Court of Appeal in the case of Sayce v TNT (UK) Limited [2011] EWCA Civ 1583 at paragraphs 22 and 23, on the application of the doctrine of stare decisis and precedent at common law. The Sutherland decision is both incorrect and was decided in a manner contrary to principle.

An alternative argument, is usually based upon the case of Broadhurst v Tan [2016] EWCA Civ 94 but that case is not in point: that concerns a judgment after trial and the application of rule 36.17, which does expressly provide for an award of indemnity costs.

It is anticipated that when the authorities of Excelsior and Fitzpatrick have been considered, as a fall back position, an award of standard basis costs will often be sought by those representing claimants.

Such an award could be said to be wrong in principle. Although the court retains a discretion, it must be exercised pursuant to the rules, in accordance with the statutory purpose and in a way that accords with the overriding objective.

First, and returning to the starting point, Rule 45.29B makes it clear that pursuant to rule 45.29J only in “exceptional” circumstances will an award in excess of fixed costs be made.

Secondly, the true ratios of both Excelsior and Fitzpatrick noted above, are that there is nothing culpable in a party re-evaluating its case and accepting a part 36 offer late, or out of time. Indeed to do so, runs with the grain of the CPR which requires parties to consider settlement as an alternative to a contested trial (see in particular paragraphs 24 and 25 of the judgment) noted above.

Thirdly, the internal construction of part 36, in particular the way a defendant’s costs are dealt with when a claimant accepts a defendant’s part 36 offer late and pursuant to rule 36.20(12) the claimant is only exposed to costs capped at the level of fixed costs. This is a powerful pointer, for a defendant only to be exposed to a greater quantum of fixed costs, for late settlement.

Fourthly, the claimant’s position in an appropriate case is in any event protected by the rules: under rule 36.13(5) or rule 45.29J, misconduct on the part of the defendant or exceptional circumstances can ground an application for standard or indemnity basis costs.

2 thoughts on “Late acceptance of claimants’ part 36 offers II

  1. Thank you Andrew for this comprehensive run though the Part 36 costs consequences in normal conditions. Is there any guidance on what might amount to ‘just circumstances’ to depart from the normal rule in the application of Part 36.21? I’m thinking in terms of withholding by the Defendant of video evidence an earlier disclosure of which might have resulted in less expenditure on both sides of expert’s reports.

  2. Its always a fact sensitive exercise. Late disclosure, non-compliance with Orders due to delay, would be grist to the mill. Withholding of video surveillance evidence, might warrant a more nuanced response: after all, a fraudulent or malingering claimant has only himself to blame.

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