Mercel Hislop v Laura Perde & Kundan Kaur v Committee of Ramgarhia Board Leicester  EWCA Civ 1726
The consequences of a Part 36 offer at Trial are clearly set out at CPR 36.17 and include an award of costs on the indemnity basis, punitive interest at 10% above base rate and an additional 10% of damages. The question of the outcome where a Defendant accepts a Claimant’s Part 36 offer out of time but before Trial is governed by CPR 36.13(4) and requires the Court to decide the appropriate Order. That question has been answered differently by several County Court Judges at first instance and on first Appeal. Some Judges have awarded costs on the indemnity basis for the period post expiry of the Part 36 offer and therefore following the decision of Broadhurst v Tan the Claimant has recovered hourly rate costs as opposed to the usual fixed costs for that later period.
This has become any increasingly prevalent tactic of Claimants seeking to maximise their costs recovery by escaping the fixed costs that would otherwise be awarded to them. The issue is therefore of great importance to Defendants as this escape from fixed costs can have meaningful implications to reserves and litigation strategy generally.
The Hislop case was a modest value Road Traffic claim where the Defendant accepted the Claimant’s Part 36 offer out of time and shortly before Trial. The Kaur case was a modest value Public Liability claim where following unfavourable expert opinion the Defendant instead of accepting the Claimant’s Part 36 offer at £2,000 made their own Part 36 offer at £3,000 which was accepted by the Claimant. In both cases the Judges below had decided that the Claimant was entitled to assessed costs rather than fixed costs, but such costs should be assessed on the standard basis not the indemnity basis.
The Court accepted as a starting point the encompassing nature of Part 45 and the rather limited exceptions and escapes to that regime. The Court considered the previous authority of Broadhurst v Tan and clarified that the situation following judgment at Trial and an offer accepted late but before Trial were very different. The Broadhurst decision was founded upon CPR 36.17, however, that Rule was of no assistance to a Claimant who did not proceed to Trial.
In considering the general approach to late acceptance of Part 36 offers the Court said that “.. 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.”
The Court held that the effect of the Rules is that (aside from a case proceeding to Trial and thus invoking CPR 36.17) the fixed costs regime in Part 45 applies rather than the general provisions of Part 36. Therefore on late acceptance the power to order assessed costs under CPR 36.13 does not arise. The Court finding that CPR 36.20 makes provision for costs consequences in fixed costs cases and such qualifies the reference to standard costs with the words “except where the reasonable costs are fixed by these Rules.”
Therefore it was held that the only escape from fixed costs is by reference to CPR 45.29J invoking exceptional circumstances. It was held however, that late acceptance of a Part 36 offer should not give rise to a presumption that exceptional circumstances were made out, but rather each case was fact specific. The Court said “A long delay with no explanation may well be sufficient to trigger rule 45.29j; a short delay with a reasonable explanation will not.”
The Court rejected the argument that this provision would only come in to play if it were shown the exceptional circumstances had caused the litigation to be more expensive as this would lead to “An unnecessarily restrictive view of the rule.” The Court did however, acknowledge that “It goes without saying that a test of exceptional circumstances is already a high one.”
The appeals in both cases were therefore allowed with the Claimants awarded only fixed costs.
The only escape from fixed costs pre-trial is exceptional circumstances under CPR 45.29j. Late acceptance itself may well not be enough to trigger that. The test generally is a high one. If the Claimant fails on that test the Defendant will be awarded the costs of that exercise with such costs likely to be offset against the fixed costs awarded.
In non-fixed costs cases it will not now be enough for Claimants to simply rely on late acceptance for indemnity basis costs awards, the reason and length of delay are crucial. This will have impact on cases where indemnity basis assessments are desirable due to obviating the operation of the test of proportionality or seeking to escape the restrictions of a low budget/Costs Management Order.
If you would like to know more about this matter, please speak to your contact at Plexus Law:
Chris White, Technical Director
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