Contracting Out of Fixed Costs, or Not!

This blog is written by Henry King, a member of 12 King’s Bench Walk’s Costs Team and is our “Costs Christmas Cracker”, considering three important judgments from 2022 which look at when you can contract out of fixed costs.

In the furore over the Supreme Court decision of Ho v Adelekun (No. 2), the Court of Appeal’s decision in Ho v Adelekun (No. 1) might be left unduly forgotten, which is that, in certain circumstances, it is possible to contract out of fixed costs. Three cases in 2022 have dealt with this issue in detail and are the subject of this blog:

Soares v Wilson (unreported) SCCO

Doyle v M&D [2022] EWCA Civ 927

McGreevy v Kiramba [2022] EWHC 2561 (SCCO)

By way of background, a short history of the case law is helpful.

History

2012: Solomon v Cromwell [2012] Costs L.R. 314
At paragraph 22: “There is nothing in the Rules to prevent parties to a dispute settling it on whatever terms they please, including as to costs.” Accordingly, if parties agreed standard basis costs in a fixed costs matter, that agreement would be enforceable by ordinary process.

In Solomon, the parties had settled by way of part 36 in a fixed costs regime (under the old fixed costs rules) case. The Court of Appeal held that in the circumstances, i.e., settlement by way of Part 36, fixed costs applied.

2019: Ho v Adelekun (No. 1) [2019] Costs L.R. 1963
The wording of the offer is important. The wording in Ho was an offer: to pay £30,000 in full and final settlement, with costs to be paid “in accordance with Part 36 rule 13 of the Civil Procedure Rules, such costs to be subject to detailed assessment if not agreed”. CPR 36.13 references costs on the standard basis.

It was held that because it was a Part 36 offer, the Part 36 regime applied, and thus fixed costs applied as it was a fixed costs case.

However, the Court of Appeal issued words of warning to (Defendant) practitioners:
At paragraph 37, per Newey LJ:

“For the future, a defendant wishing to make a Part 36 offer on the basis that the fixed costs regime will apply would, of course, be well-advised to refer in the offer to CPR 36.20, and not CPR 36.13, and to omit any reference to the costs being ‘assessed’.”


At paragraph 44, per Males LJ:

“I will merely say, therefore, that parties who wish to settle on terms that fixed costs will be payable would be well advised to avoid reference to assessment “on the standard basis” in any offer letter or consent order which may be drawn up following acceptance of an offer.”

Ho (No. 1) and Solomon make clear that if a matter is a fixed costs matter and it settles by way of part 36 it will be subject to fixed costs. However, it remains good law that a party can contract out of fixed costs, as expressly noted by the Court of Appeal in Ho (No. 1).

Attempts to Get Around Fixed Costs in Fixed Costs Cases – a Year in Review

Soares v Wilson (2022, unreported)

The relevant facts were as follows:

• Pre-Issue, a CNF was sent. A claim was issued for in excess of £100,000.

• Following allocation to the Multi Track, the matter was allocated to the Fast Track.

• Thereafter, the Defendant made an offer of £9,000 to settle the claim. It offered to pay the Claimant’s fixed costs and reasonable disbursements.

• Five days later, this offer was accepted. The Claimant sought a notice of part 36 offer in the same terms.

• The Defendant forwarded a Part 36, as requested. This was accepted.

• The Claimant served a Bill of costs seeking costs on the standard basis up to the point of reallocation, then fixed costs thereafter. The Defendant resisted this. It contended that only fixed costs were recoverable.

• On provisional assessment, the Claimant was successful. On oral assessment, the Claimant remained victorious. The point in issue became whether the agreement reached was then displaced by the Part 36 offer.

• The Defendant successfully appealed.

It was held that the agreement was binding, and the Part 36 offer merely formalised the position in a cost-effective manner i.e. staying the claim immediately, rather than requiring a consent order (see paragraphs 44-58). In so deciding, reliance was placed on the judgment in Ho (No.1).

Doyle v M&D [2022] Costs L.R. 1055

In Doyle, a fixed costs claim was settled and that settlement was recorded way of consent order. The order provided for the Defendant to pay the Claimant’s costs, and such costs to be subject to detailed assessment if not agreed.

The Court of Appeal held that because the order had made express provision for the costs to be assessed by way of detailed assessment (rather than pursuant to the self-contained code of part 36), standard basis costs were recoverable.

Per Philips LJ at paragraph 44:

“In my judgment, and contrary to the appellant’s contention, there is no ambiguity whatsoever as to the natural and ordinary meaning of “subject to detailed assessment” in an agreement or order as to costs. The phrase is a technical term, the meaning and effect of which is expressly and extensively set out in the rules. It plainly denotes that the costs are to be assessed by the procedure in Part 47 on the standard basis (unless the agreement or order goes on to provide for the assessment to be on the indemnity basis).”

Thus, agreements and, indeed, orders that provide expressly for detailed assessment are likely to yield standard basis costs and not fixed costs.

McGreevy v Kiramba [2022] EWHC 2561 (SCCO)

The relevant facts were as follows:

  • Following a RTA, the Claimant submitted a CNF limited to £10,000. The Defendant admitted liability within the portal.
  • The claim form was limited to £50,000. Following service of the particulars of claim (with the six medical reports), the Defendant made a Part 36 offer in the sum of £50,000. This was not accepted.
  • The Defendant made a further “time bomb” offer of £100,000 with provision that the Defendant would pay the Claimant’s costs subject to CPR 45.29C (i.e. just the fixed costs). Two hours before expiry, the Claimant accepted on the following terms: the Claimant “accepts the defendant’s Calderbank offer of £100,000 in full and final settlement of his claim together with his legal costs.”
  • Thereafter, the Defendant made a Part 36 offer in the sum of £100,000. The Claimant purported to accept this offer, but stated that he was entitled to standard basis costs for a variety of reasons. The matter had not yet been allocated.
  • At the hearing, the Claimant contended that he should be awarded standard basis costs by reason of CPR 45.29J.

Costs Judge Leonard held that there was a binding agreement to pay damages and fixed costs under CPR 45.29C: the subsequent Part 36 offer did not change matters. It was meant to act as a device to save costs “albeit not a notably successful one”. Further, and in any event, the acceptance of the Part 36 pre-allocation meant that only fixed costs were recoverable.

As to the CPR 45.29J argument (which was by that juncture academic), the mere fact of the matter now being valued in excess of usual fast track provisions was not enough. There was nothing exceptional about the claim.

Comment
Parties are free to contract out of fixed costs as they see fit. The position in Solomon is still good law (and is likely to remain so). However, both Claimants and Defendants would do well to watch their wording when making Calderbank offers or orders, such that the law of unintended consequences does not come into play.

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