We reported in edition 125 on a spate of conflicting decisions on whether a party who beats a part 36 offer in a case where fixed fees apply is eligible for indemnity costs as well.
This week we consider the similar issue where a Claimant’s part 36 offer is accepted out of time and where the claim is subject to the fixed costs regime of CPR 45. In the case of Hislop, the claimant appealed against the first instance decision of Deputy District Judge Lenon QC, refusing the claimant’s application for indemnity costs and allowing the relevant fixed costs down to the date of acceptance, three days before trial.
The substantive claim in this case arose from a road traffic accident which occurred on 17 December 2013. The claimant brought a claim for damages for personal injury on 7 April 2014, initially commenced under the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (PAP).
The defendant did not respond in respect of liability and so the claim was removed from PAP in May 2014. In July 2014, the claimant made her first Part 36 offer in the sum of £2,100. The defendant responded by saying that liability was in issue and that the offer was rejected. Proceedings were then issued on 18 September 2014.
On 10 October 2014, the defendant made a Part 36 offer for £1,800, subject to liability being established and on the basis of a 50/50 split on liability. The claimant rejected this offer on the basis that she did not consider herself responsible in any way.
On 11 November 2014, the claimant made her second part 36 offer in the sum of £1,500. The offer letter expressly set out that:
‘The offer is intended to have the consequences of Part 36 of the Civil Procedure Rules. If accepted within a period of 21 days from the date of receipt of this letter, then such acceptance is on the basis that your client will be liable for our Client’s costs in accordance with CPR 36.10… Part 36.14 provides for costs to be awarded on the Indemnity Basis together with enhanced interest following Judgment’.
This offer was rejected in January 2015. Subsequent to this, witness evidence was exchanged and the claimant wrote to the defendant on 9 March 2016, pointing out that the evidence showed that the defendant was in the incorrect lane for her direction of travel and as such put to the defendant:
‘…we invite you to reconsider our offer of the 11th November 2014 and remind you that in the event that our client equals or betters her part 36 offer at Trial, indemnity costs will be sought following the recent decision in Broadhurst (discussed below)’.
Following several discussions, the defendant sent a letter to the claimant on 20 May 2016 which confirmed an offer of £1,000 inclusive of interest. The letter stated:
‘Take notice the Defendant offers to settle the claim pursuant to Section 1 of Part 36 of the Civil Procedure Rules and this offer is intended to have the consequences attached to the same. If the offer is accepted within 21 days of service of this notice the Defendant will be liable for the Claimant’s costs in accordance with Rule 36.13 of the Civil Procedure Rules’.
The claimant rejected this offer and made clear that they intended to proceed to trial. Shortly before the trial, the defendant then wrote to the claimant stating:
‘We confirm that the Defendant accepts the Claimant’s Part 36 offer to settle her claim in the total sum of £1,500 made on 11 November 2014’.
The claimant responded to this acceptance stating, ‘the offer is accepted on the condition that you accept responsibility for our costs and disbursements to be calculated on the fixed recoverable costs and indemnity costs basis…’
Those costs amounted to £2,372 with respect to fixed recoverable costs up to the expiry of the part 36 offer made on 11 November 2014 (namely 2 December 2014) and £5,534 from 4 December 2014 until the conclusion of the claim, a total costs bill of £7,906.
First Instance Decision
At first instance, DDJ Lenon QC found that by accepting the offer at the very late stage before trial, the defendant had avoided the application of indemnity costs and other penalties that Part 36 provides.
The DDJ referred to CPR 36.13(4)(b) providing that where a part 36 offer is accepted after expiry of the relevant period, the liability of the costs must be determined by the court and that there is no guidance in the rule itself as to the basis on which the court’s discretion is to be exercised. He held it to be an apparently unfettered discretion and referred to the commentary on the rule stating that ‘there is no presumption that the court would order a late accepting party to pay the other’s costs on the indemnity basis so it is the standard basis unless there are some special factors. An authority for that bit of commentary is the decision of Mr Justice Coulson in Fitzpatrick Contractors v Tyco Fire and Integrated Solutions  EWHC 274.’
DDJ Lenon QC proceeded to say that the starting point from both parties’ perspectives is that in order to justify indemnity costs it has to be shown that there is something out of the norm in the way that the case has been conducted by the party against whom indemnity costs are sought.
The claimant argued that the fact that no explanation was given for the defendant’s sudden change of heart towards the original Part 36 offer and this took the case out of the norm and justified an order for indemnity costs. The defendant explained the late change of heart on the basis that it was close to trial and that it was a serious taxing ordeal for the defendant to go through. Counsel for the claimant pointed out that was no explanation as the nature of the trial and the fact that litigation could be an ordeal was obvious from the outset.
The DDJ rejected the claimant’s argument that there was a particular standout point which brought this case out of the norm so as to justify the application of indemnity costs against the defendant. As such, the claimant was liable for the additional costs, thereby wiping out the damages she had recovered.
However, the claimant appealed and argued that as a result of the defendant’s acceptance just days before the trial, she incurred substantial costs in preparation and that those costs would not have been incurred had the defendant accepted the offer within the relevant period of the offer.
She submitted on appeal that the outcome of the first instance decision offends against fairness and encourages parties to delay in settling matters as the consequences of delaying until the eve of trial is to load the costs upon the claimant who is likely to have a conditional fee arrangement that results in there being a higher success fee closer to trial which will reduce the damages in fact recovered. The Defendant who waits until the last moment to accept the Claimant’s part 36 offer can accept out of time knowing that it will only be liable for a proportionate contribution towards the Claimant’s costs.
HHJ Walden Smith, agreed that the application of indemnity costs in such a scenario is subject to judicial discretion. At para 37 he held:
‘In my judgment, CPR 36.10 makes clear that if the offer is accepted within the relevant period then, within the fixed costs regime, fixed costs will be awarded; if accepted outside the relevant period then costs will be fixed within the relevant period and the court will make an order as to costs if those costs are not agreed between the parties and the “offeree [either claimant or defendant] will be liable for the offeror’s costs [either defendant of claimant] for the period from the expiry of the relevant period until date of acceptance”. Whether those costs are standard or indemnity is a matter for the discretion of the judge’.
He rejected the notion that there was a presumption in favour of costs being on the standard or indemnity basis, pointing out that the CPRC would have been aware of the potential for such a scenario and could easily have given specific guidance on the matter, instead they remained silent on the issue, so as to give the deciding judge a wide discretion.
CAN COSTS BE ASSESSED ON THE INDEMNITY BASIS?
The costs consequences of the acceptance of a part 36 offer are set out in CPR 36.10, of particular relevance here is CPR 36.10 (4) which states:
‘(4) Where –
- A Part 36 offer that was made less than 21 days before the start of the trial is accepted; or;
- A Part 36 offer is accepted after expiry of the relevant period, if the parties do not agree liability for costs, the court will make an order as to costs.
(5) Where paragraph 4(b) applies, unless the court orders otherwise –
(a) the claimant will be entitled to the costs of the proceedings up to the date on which the relevant period expired; and
(b) the offeree will be liable for the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance’.
Also of relevance is CPR 36.10A, relating to costs consequences of acceptance of a Part 36 offer where fixed fees apply and the claim no longer continues under the RTA or EL/PL Protocol. . This states:
‘(4) Subject to paragraphs (5), (5A) and (5B), 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 (5A) and (5B), 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 be made to the date of acceptance.
The claimant relied on the decision in Broadhurst v Tan which dealt with the point of construction arising from the apparent tension between the rules fixing costs in most lower value personal injury cases pursuant to section IIIA of Part 45 of the CPR and the provisions in Part 36.14 which specifically apply to such claims where judgment has been entered. In this claim it was held:
‘The effect of rules 36.14 and 36.14A when read together is that, where a claimant makes a successful part 36 offer, he is entitled to costs assessed on the indemnity basis. Thus, rule 36.14 is modified only to the extent stated by 36.14A. Since rule 36.14(3) has not been modified by rule 36.14A, it continues to have full force and effect…Where a claimant makes a successful Part 36 offer in a section IIIA case, he will be awarded fixed costs to the last staging point provided by rule 45.29C and Table 6B. He will then be awarded costs to be assessed on the indemnity basis in addition from the date that the offer became effective’.
Rules 36.14 and 36.14A can be compared with 36.10 and 36.10A. As such, HHJ Walden Smith followed the interpretation in Broadhurst and held:
‘He contends, and I agree with this, that the rule in CPR 36.10(4) was not modified or dealt with by CPR 36.10A and that the rule must therefore continue to apply. As a consequence of that finding, I also find that “unless the court finds otherwise” the claimant will be entitled to the costs of the proceedings up to the date on which the relevant period expired; and the offeree will be liable for the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance. I further agree with the submission that CPR 36.10A limits the application of fixed costs to where a Part 36 offer is accepted in time or where the Claimant accepts the Defendant’s Part 36 offer and abandons the remainder of the claim or where the Defendant’s Part 36 offer is accepted late (CPR 36.10A(2) and (3)). There is no such imposition of fixed costs for the period from the date of expiry of the relevant period to the date of acceptance, being the period of the Defendant delaying in accepting the Claimant’s part 36 offer. The Claimant is entitled to assessed costs – either on the standard or indemnity basis. There is no presumption for costs to be awarded on the indemnity basis where a Claimant’s offer has been accepted prior to trial albeit shortly before the trial. That presumption is reserved for when the Claimant obtains a judgment which is at least as advantageous to the claimant as the proposals contained in the Claimant’s part 36 offer. That is not this case.’
As such it is clear that whilst there is no presumption, in the scenario when a defendant does not accept the claimant’s Part 36 offer until a very late stage and just before trial that indemnity costs will apply.
So when will costs be assessed on the indemnity basis?
It was agreed that the appropriate test for whether costs should be awarded on an indemnity basis is whether conduct has been ‘out of the norm’ as per Excelsior Commercial & Industrial Holdings v Salisbury Hammer Aspden & Johnson  CP Rep 67.
The claimant contends that ‘it would be intolerable’ for the court to conclude that the conduct of the Defendant in this matter, waiting 19 months before accepting the offer and then accepting that offer a matter of days before the trial, is not ‘out of the norm’ in a post Mitchell/Denton world.
The defendant on the other hand argued that a party who settles a claim, albeit shortly before trial, should not be discouraged from doing so by the imposition of costs on an indemnity basis.
HHJ Walden Smith held that whether conduct has been ‘out of the norm’ is a matter for the discretion of the judge of first instance.
So did DDJ Lenon QC apply the correct test at first instance?
In considering this question, HHJ Walden Smith noted at para 51:
‘While DDJ Lenon QC did not consider assessing the costs, he did consider the issues as to whether this was a case in which indemnity costs should be awarded… The DDJ went on to say that he was not satisfied that this was a case which was “out of the norm” and he accepted the submission that in order for there to be an order for indemnity costs there had to be a “standout point” that can quickly be 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’.
He went on at para 53:
‘While I accept that the DDJ was wrong to suggest that in order for indemnity costs to be awarded there needs to be a standout point, he did properly consider whether this was a case where he felt, on the evidence before him, that it was out of the norm such that an order for costs assessed on an indemnity basis was appropriate’.
As such the Judge held that the conclusion reached by DDJ Lenon QC, that this was not a case where indemnity costs ought to be awarded, was a conclusion which could properly be said to be outside a proper exercise of discretion. However, he was wrong to conclude that the order for costs ought to have been fixed throughout.
As such it was concluded that:
- In a fixed costs case the appropriate order for costs in a case where a Part 36 offer has been accepted outside the relevant period, is fixed costs until the end of the relevant period and assessed costs thereafter until date of acceptance.
- Whether those costs are assessed on the standard or the indemnity basis is a matter for determination of the Judge exercising his discretion judicially.
- There is no presumption for either standard or indemnity costs, but the Judge in determining that assessment in accordance with the provisions of CPR 44 must apply the correct legal test and take into account relevant matters, while disregarding the irrelevant.
[i] Gordon Exall, ‘Costs After Claimant’s Part 36 Offer Accepted Late: Fixed Costs, Assessed Costs or Indemnity Costs? Circuit Judge Decision’ (Civil Litigation Brief 9 August 2017)< http://www.civillitigationbrief.com/2017/08/09/costs-after-part-36-offer-fixed-costs-assessed-costs-or-indemnity-costs-circuit-judge-decision/> accessed 30 August 2017.