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Indemnity costs do not follow late acceptance of a Part 36 offer

Since the decision in Broadhurst v Tan (2016) Claimant solicitors have been trying to persuade courts that there should be a penalty for accepting a Part 36 offer late. In McKeown & Anor v Venton (2017), HHJ Wood QC, sitting with Regional Costs Judge, District Judge Jenkinson as assessor, decided that there should be no penalty, upholding the decision of Deputy District Judge Haisley to only allow fixed recoverable costs.

DWF's Will Mackenzie looks at this important decision for Defendants, in an area where there have been previously been a number of first instance decisions going in favour of both Claimants and Defendants. It is hoped that this decision might now see an end to this dispute.

Background

In Broadhurst v Tan the court looked at whether a Claimant might be allowed to recover more than fixed recoverable costs (FRCs) where the Claimant beat their own Part 36 offer, with the Court of Appeal concluding that it was appropriate in those cases for Claimants to also recover hourly rate costs from 21 days after the last day the offer could have been accepted.

Since that decision, Claimants had been arguing that hourly rate costs should also be recoverable in cases where a Defendant accepted an offer late and their position had been emboldened by the decision of Regional Costs Judge Besford in the case of Sutherland v Khan (2016), who agreed with them. Contrary to that first instance decision, came the judgment in Anderson v Ladler (2017).

Litigants have been waiting for a while for the issues to be considered on an appeal.

In McKeown & Anor v Venton (2017), the Claimants brought proceedings following a road traffic accident which occurred in May 2013. The claims proceeded under the pre-action protocol for low value personal injury claims. They were not resolved within the portal, and accordingly when exiting the portal offers were made by the Claimant's solicitors pursuant to Part 36 in the sum of £1,500 for each claimant. These offers should have been accepted by 5 April 2016 but were not. The Claimants’ solicitors issued proceedings, but very shortly thereafter, the Defendant filed notice of acceptance of both offers, being out of time by several weeks.

As a consequence of the late acceptance the Claimants sought indemnity costs. This was not agreed by the Defendant and as a result the Claimants made an application to the Court pursuant to CPR r.36.13 (4) for the Court to determine the liability for costs.

The matter came before Deputy District Judge Haisley 23 September 2016, who declined to make an award of indemnity costs and only allowed the Claimants FRCs. The Claimants sought to appeal this decision which came before HHJ Wood QC, sitting with Regional Costs Judge, District Judge Jenkinson.

The Appeal

There were two limbs to the Claimants' submissions. The first was that the Court should endorse the decision of District Judge Besford in Sutherland. The second was to refer to the authority of Broadhurst and to persuade the Court to exercise its discretionary power to make an award of indemnity costs “having regard to all the circumstances of the case”. In this respect, it was said that the rationale behind the CPR, which was to create a 'carrot and stick' of incentives and consequences where offers made in a genuine attempt to resolve litigation were unreasonably refused, was a highly relevant consideration.

The Defendant submitted that the mandatory rule in CPR r.45.29B (that FRCs only apply in cases that start in the Portal) had not been displaced by any aspect of CPR r.36.20. Indeed r.45.29B was specifically preserved by sub-paragraph r.36.20 (2), which says this:

"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"

Further, the Court of Appeal in Broadhurst had acknowledged that it is only in relation to CPR r.36.17 (costs consequences following judgment) that the indemnity cost benefit specifically referred to in that rule, should be given precedence over a presumption that fixed costs applied.

If it was right to presume that there would be an entitlement to indemnity costs where a Part 36 offer was not accepted in time, that presumption could create a reverse incentive for a Defendant to press on to trial, in the hope that it could do better than the claimant’s offer and avoid the penalty of late acceptance.

Had the Civil Procedure Rules Committee wanted to indicate a greater sanction for late acceptance by a defendant of a claimant’s offer, in the context of the FRC regime (or even generally) it could have done so.

Where a claim is subject to FRCs, the Defendant accepted that there might be circumstances when a Defendant accepted an offer right at the end of one of the stages, but conversely there would be those cases where a Claimant could make an offer right at the start of the next stage, when it was more profitable to do so. It had to be accepted that there was an element of 'swings and roundabouts'.

The Decision

Giving judgment on 24 July 2017 and upholding the decision of DDJ Haisley, HHJ Wood QC held that the Claimants should only get FRCs and gave several reasons as to why only fixed costs should apply:

  • Generally, where a Part 36 offer had been made, the court only had the power to award indemnity costs after judgment in accordance with r.36.17

  • There was nothing about the claim being in the FRC regime that meant a different approach could be followed

  • Part 45 was drafted in way that provided a sufficiently clear and concise matrix of applicable costs which enabled a Claimant, whose claim was brought to an end by the Defendant’s acceptance (whenever that might be) to determine easily the costs entitlement under the appropriate tables.

  • There were several reasons why Claimants who pursue a claim subject to the FRC regime are not dis-incentivised from making a Part 36 offer:

    • A Defendant who fails to accept an offer runs the risk of tipping the case into the next fixed costs stage.

    • A Claimant who beats their Part 36 offer at trial will be allowed to recover indemnity costs, on top of the FRCs

    • CPR r.45.29J provides for a court to make an award in excess of FRCs, where there are exceptional circumstances

  • The FRC regime is 'rough and ready' by nature. There will be swings and roundabouts but a Claimant solicitor should be able to identify the optimum time to make a Part 36 offer.

  • Where any issue of conduct arises the Court has discretionary powers under CPR r.44.2 to award costs, including indemnity costs, but such cases are likely to be few and far between.

In arriving at this judgment, HHJ Wood QC also made reference to a decision of HHJ Gosnell in the unreported case of Richardson v Wakefield Council, where His Honour had made an order for costs to be paid on the standard basis, where standard basis had meant costs were to be paid on an hourly rate.

HHJ Wood QC disagreed with this approach and it was also accepted by both parties that any reference to costs on the standard basis should be interpreted as a reference to fixed costs in accordance with r.45.29B.

Commentary

The very nature of fixed costs is that it is a rough and ready process (something Briggs LJ remarked upon earlier this year in Sharp v Leeds City Council (2017)); designed to give certainty and finality.

In arriving at this decision HHJ Wood QC followed the earlier relevant judicial authorities such as Fitzpatrick Contractors Ltd v Tyco Fire and Integrated Solutions and Others (2009). In that case Coulson J, held that where a Part 36 offer is accepted late, there should be no presumption that indemnity costs would be granted.

It is important to remember, that where a Claimant goes on to beat a Part 36 offer at trial, then indemnity costs will apply.

Whilst this decision is not binding, it should go a long way in putting this dispute to bed. Where Claimants seek to rely on the case of Broadhurst v Tan or the decision of Sutherland v Khan (which was, respectfully, wrong in law) this case should be cited in response.

This was a well-reasoned and thorough judgment from HHJ Wood QC who had District Judge Jenkinson sat with him as an assessor and it would now take a bold Claimant to take this issue to the Court of Appeal.

Contact

Should you require any further information please contact:

William Mackenzie on 020 7645 9507

Jamie Dunn on 0161 603 5100

By William Mackenzie

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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