Part 36

TRX v Southampton Football Club [2022] EWHC 3992 (KB): Retainers, lawful CFAs and Rule 47.20

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This blog by Dan Tobin examines the Court of Appeal decision in TRX v Southampton Football Club [2022] EWHC 3392 (KB).

The Claimant sought to appeal the decisions of Costs Judge Brown in respect of three rulings, namely:

  1. the finding that there was no valid retainer between the Claimant and his solicitors until 17th October 2019, thereby resulting in the exclusion of costs for this period;
  2. that the CFA could not be effective until signed by the Claimant’s solicitors on 17th October 2019 (despite being signed by the Claimant on 3rd October 2019); and
  3. the finding of no order as to costs in respect of the costs of the detailed assessment hearings.

Chronology of events

The Claimant brought proceedings against the Defendant for sexual and emotional abuse by a Youth Development Officer of the Defendant between 1987 and 1988.

On 16th September 2016 BL Claims Solicitors were instructed under a CFA.  Despite serving a letter of claim on 14th February 2017 the case failed to settle and Hudgell Solicitors were then instructed on 22nd June 2017, also under a CFA. Again no settlement was reached.

On 17th June 2019 the Claimant contacted BBK solicitors and they agreed to take the case from Hudgell.  Pending delays in the file being transferred, the Defendant, in correspondence dated 10th September 2019, denied liability and sought to terminate the limitation moratorium.  When BBK received the file of papers on 1st October 2019 they secured an extension of limitation from the Defendant and subsequently issued proceedings.

The Claimant signed the CFA with BBK on 3rd October 2019 but BBK did not receive and sign it until 17th October 2019.

Despite denying liability the Defendant made, on 10th March 2020, a Part 36 Offer of £4,000 plus reasonable costs on the standard basis. This was accepted by the Claimant.

Costs claimed

The Claimant’s solicitors sought costs of £65,523.36 in their acceptance letter to the Part 36 Offer and £36,000 on account of costs.

On 16th March 2020 the Defendant stated that they would make a payment on account of £15,000 but would otherwise request a bill of costs.

On 4th May 2020 the Claimant’s solicitors made a Part 36 offer in respect of costs of £33,500 plus interest, which was not accepted by the Defendant.  A bill of costs was then served on the Defendant and so began the assessment process.

Following points of dispute and a reply being served the first hearing before Costs Judge Brown occurred on 2nd March 2021.  This was adjourned part heard and on 8th and 9th September 2021 Costs Judge Brown ruled in principle on the retainer and indemnity principle points.

On 6th October 2021 the Defendant offered £35,000 in a full and final drop hands settlement which was not accepted and on 28th October 2021, the day prior to the final costs assessment hearing, the parties agreed individual and generic costs of £23,008.15, subject to appeals and challenges.  This was 65% of the costs claimed. The reductions included hourly rates, as well as the costs claimed from 17th June 2019 to 17th October 2019 which Costs Judge Brown had disallowed as the CFA was not entered into until 17th October 2019.

Therefore at the hearing on 29th October 2021 Costs Judge Brown only considered the costs of the assessment and ordered the Claimant to pay the Defendant 50% of the costs relating to the retainer or indemnity issue and no order for costs in relation to other aspects of the costs assessments.

The Costs Judge’s Reasons

First decision

Costs Judge Brown considered whether costs before a CFA were entered into were recoverable. It was agreed that there was no valid CFA from 17th June 2019 until 3rd October 2019, and the issue was when the CFA came into effect: the 3rd October when signed by the Claimant or 17th October when signed by BBK?

Costs Judge Brown found that there was no private retainer prior to the CFA and therefore the Claimant was not required to pay for work carried out by his solicitor prior to the CFA coming into force.  Issues had arisen over contradictions in the documentation sent to the Claimant pertaining to terms of business and the Judge had concluded that the Claimant had not been sufficiently advised that he would be liable for any costs prior to the CFA.

Second decision

The second decision to be challenged was when the CFA had become legally binding and whether that was 3rd October 2019 or 17th October 2019?

Costs Judge Brown had concluded that the CFA had not become legally binding until it was signed by both parties on 17th October 2019.

Third decision

The third decision under appeal was that relating to the costs of the detailed assessment. 

Costs Judge Brown considered the cases of Fox, Millbrooke and Mullaraj and noted that the total reduction in the bill was exceptional and dramatic.

He also had concerns about a mis-certification point for BBK had certified that there was a CFA in place during a period in time in which there could be no CFA in place.

He considered the weight to be placed on a Part 36 Offer, before concluding that as the Claimant’s solicitors were clearly well aware that they would not recover an amount anywhere near that which they sought, no order for costs should be available in an exceptional case such as this.  

Analysis and Conclusion

Mrs. Justice Stacey considered the following issues:

  1. The terms governing the contractual relationship prior to the CFA.

HHJ Stacey stated that although the letter of 27th June 2019, with its contradictions, created a problem (it referred to terms of business and parts of the letter were consistent with a general private retainer but then the letter also referred to a no-win no-fee agreement), it needed to be construed against a background in which the Claimant’s solicitors were clearly hoping to be able to offer him a CFA. As such, HHJ Stacey found that looking at the terms of the letter and the subsequent actions on the case the Claimant was a client of BBK on a general private retainer basis during this period with the future hoped for intention of offering a CFA.  The Claimant had therefore instructed BBK on 21st June and HHJ Stacey found that it was wrong for Costs Judge Brown to conclude that there was no general retainer from 21st June.

  • The period between 3 and 17 October

As there was no difference in the hourly rates and material terms relevant to the costs issues as between the private retainer and the CFA, HHJ Stacey stated that it did not matter whether the relationship was one of a CFA or retainer for this period and she did not rule on this.

  • Rule 47.20 and the costs order.

Due to the decision on the first issue, HHJ Stacey held that the costs would now need to be reconsidered and the situation altered as the bill would no longer be reduced by 65%. However, clarity was sought regarding the cases of Mullaraj and Millbrooke in this regard.

HHJ Stacey recognised that the main issue of dispute was whether and if so the extent to which Rule 44.2 and Rule 36 and relevant authorities should apply to Rule 47.20.  It was the Claimant’s contention that Fox and Global Energy applied to the costs of detailed assessment and to the need for a party to protect itself and encourage realistic and early offers and that in this case the Defendant could not have the protection of Part 36 as they failed to make a Part 36 Offer that had not been beaten. The all-inclusive offer of 6th October was unclear because of how it had been structured and the Costs Judge was wrong therefore to make no order for costs.

It was the Defendant’s submission that applying Fox would improperly impose another hurdle on the paying party, which was not appropriate as Rule 47.20 stands alone and that therefore no order for costs was correct. The Judge had had full regard to of all of the factors in 47.20 and had acted within his discretion.

In reaching her decision, HHJ Stacey reiterated the principle that the receiving party is entitled to the costs of the detailed assessment analogous to a successful party in Rule 44.2 unless either 47.20 (1) (a) or (b) applies and in the current case she held that (b) was relevant, namely, “Where the Court make some other order in relation to all or part of the costs of the detailed assessment proceedings.”   She held that although there are three factors for the Court to have regard to when deciding to make some other order, it was not exhaustive and the Court must regard to “all the circumstances”.

Despite being urged to do so, HHJ Stacey did not want to issue guidance to limit the discretion of costs judges. She felt that CPR 47.20 provides a clear code.  Further, as such cases vary, she felt that setting rules would be wrong.

That said, she did accept that there will usually be no difficulties where a Part 36 Offer made in detailed assessment proceedings beats or is beaten by the amount allowed by the Costs Judge.   She conceded that the difficulties arise with ‘near misses’ or other offers but did not accept the Claimant’s argument that in those instances it would be wrong to make no order for the paying party to pay any costs of the receiving party although this could be a relevant but not the most important or only relevant factor.  HHJ Stacey referred to Fox and Global and whilst accepting some relevance they related to Part 36 Offers in damages proceedings and must be viewed through CPR 47.20.

HHJ Stacey accepted that it might be unusual for no order for costs to be made where no successful Part 36 Offer had been made but all the other circumstances must be taken into account; conduct, amount of reduction, reasonableness etc.  She added that Part 36 procedures had their own difficulties not least in that they could prove troublesome for litigants in person.

Accordingly, she did not accept the Claimant’s argument that Costs Judge Brown’s order was wrong in principle.

HHJ Stacey felt it inappropriate to analyse the Judge’s reasoning following her conclusions on issue one but did recognise that the Judge had identified a number of relevant circumstances including a large reduction in the bill.

In summary, HHJ Stacey held that Part 36 Offers must be taken into account and are likely to be relevant to the amount of percentage reduction but she would not go as far as to lay firm rules thus fettering the discretion of Costs Judges beyond the provisions of Rule 47.20. 

Takeaway Practice Points  

  • Claimant firms will welcome HHJ Stacey’s decision on the first issue, for had she found otherwise it may have encouraged Defendants to challenge even more often than is presently the case costs incurred prior to the signing of a CFA;
  • Although HHJ Stacey did not rule on the second issue, namely, whether the CFA came into force when signed by the Claimant or by the firm (these events having occurred in different dates), it seems more likely than not that the latter date must, as a point of basic contract law, be the relevant date. If nothing else, insofar as this may be relevant (if, for example, different rates apply as between the pre-CFA private retainer and the CFA itself), it behoves practitioners to invest in one or other of the many electronic document signing tools so as to ensure that the CFA is signed by both parties on the same date;

HHJ Stacey’s conclusion that CPR 47.20 is a standalone rule and not to be overshadowed by whether or not a party had also made a Part 36 Offer is to be welcomed, for it removes some of the uncertainty that had previously existed and makes clear that consideration must be given to “all the circumstances of the case”.

More bad news for defendants in QOCS claims: no set-off of costs against damages following settlement even where a court order is necessary.

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In this blog Jeremy McKeown considers the Court of Appeal decision of University Hospitals of Derby & Burton NHS Foundation Trust v Harrison [2022] EWCA Civ 1660.

IMPORTANT PRACTICE POINT: This decision (as with all other similar authorities) is currently good law but its shelf-life has been severely limited by the recent published changes in the QOCS rules to take effect from April 2023 (see our recent blog post: Costs Earthquake – QOCS rules to change radically in April).

In this important decision on the impact of QOCS on a defendant’s ability to recover its costs, the Court of Appeal clarified Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654 and confirmed that damages recorded or referred to in a necessary court order, for example where the court’s permission is required to accept a Part 36 offer after the relevant period, is not an “order for damages and interest” within the meaning of CPR 44.14.

If the resulting court order had been considered a qualifying order within CPR 44.14, the defendant could have set-off their costs against the agreed damages. Those costs were considerable since the claimant accepted a Part 36 offer some two years after the end of the relevant period.

The case builds on well-established authority that defendants cannot set-off their costs after the relevant period against damages resulting from acceptance of a Part 36. The rationale for this rule is that acceptance of an offer does not fall within the strict wording of the CPR which allows set-off against damages in QOCS claims only where there is an “order for damages and interest” (CPR 44.14). Where a case settles, there is rarely a court order for damages and therefore no ability to set-off.

However, in Harrison, owing to late acceptance of the offer (CRU had accrued since the offer was made) the court’s permission was required. In granting permission, the court issued an order which the defendants said satisfied CPR 44.14 and allowed them to set-off their costs against the agreement damages.

Decision

On appeal, Coulson LJ made the following key findings:

  • In (1) granting permission for the offer to be accepted and (2) directing the amount of the deduction payable to CRU, the court “was not carrying out any evaluation or assessment of what was due or to be paid. [The Judge at first instance] was not, therefore, making an order for damages in favour of the claimant” [para. 28].
  • Instead, the Judge was simply “directing the amount of deduction” that was to be made to the settlement figure in accordance with the CPR provisions.
  • This was reinforced by the method of enforcement open to the claimant if the defendants did not pay. The party would have to enforce in accordance with the procedure set out in CPR 36.14(7) rather than by claiming the other party had breached a court order. The defendant’s obligation to pay therefore arose from the effect of the CPR and not from the order [paras. 29-30].
  • If it were to be otherwise, “form would be elevated over substance”. It would create a two-tier system where certain (regular) settlements within Part 36 would continue to afford QOCS protection to a claimant whereas other settlements which happened to require the court to issue a certain type of order containing a reference to the damages in the body of the order, as here, would lose QOCS protection. If that were so, all that would matter would be the form of court order required [paras. 36-37].
  • In fact, the concern was said not to be merely hypothetical. There are certain types of claim where Part 36 requires the court to make an order to reflect the settlement between the parties. Those include: cases where the claimant lacks mental capacity, where the claimant is a child, where the claimant is disabled and qualifies for provisional damages or periodic payments, or where a dependant claimant of the deceased is entitled to an apportionment of dependency damages. If the appellant’s argument were to succeed, it would mean that an ‘ordinary’ claimant would keep QOCS protection whereas any of the above would lose it. The court concluded that was not what the CPR intended [paras. 40-41].

In obiter comments, the court also indicated that the following circumstances were also unlikely to entitle a defendant to set-off under CPR 44.14:

  • Approval hearings (CPR 36.14(2));
  • Orders for Periodical Payments (CPR 36.18(7));
  • Disputes over CRU (CPR 36.22(9)(b));
  • Judgment where, following acceptance of a CPR, Part 36 offer, payment is not made within 14 days (CPR 36.14(7)).

Comment

The decision follows closely on the heels of Chappell v Mrozek [2022] EWHC 3147 (QB) which also denied the defendant the ability to set-off its costs (see our previous blog post: QOCS trumps Part 36 – Another Claimant “victory” (for now)?).

The decision offers further proof of the claimant-friendly framing of the QOCS rules following settlement. It is a reminder to defendants that disposal by way of settlement, whether under Part 36 or otherwise, will almost never attract the right to set-off against damages.

Harrison appears to stand in contrast to the recent case of MRA v Education Fellowship Ltd [2022] EWHC 1069 (QB) where the High Court held that an order following approval of a settlement sum did constitute an order of the court allowing the defendants to set-off. That decision must be questioned in light of the Court of Appeal’s recent findings.

The Court of Appeal also addressed the ongoing consultation on changes to the QOCS rules triggered by the Supreme Court’s decision in Ho v Adelekun [2021] UKSC 43. Ironically, the fact that there is said to be a need for changes to CPR 44.14, and that there were known proposed changes in the works, supported the court’s thinking that the appellant’s interpretation of the rule as it currently stands must be wrong.

The decision also helpfully cites the current proposed changes under consideration by the CPR rules committee: At the meeting of the CPRC on 7 October 2022, a fuller amendment was agreed (emphasis added):

“(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for or agreements to pay damages, costs and interest made in favour of the claimant.”

For defendants, this presents a welcome change. As many commentators have noted, the rule as currently written clearly runs contrary to the intention and policy aims when QOCS was being debated:

“As to the second scenario (claimant fails to beat defendant’s offer), the defendant will have adequate protection: the court will be likely to make a costs order against the claimant in respect of the post-offer period in circumstances where (a) the claimant was acting unreasonably in rejecting a proper offer and (b) the costs in respect of the pre-offer period plus the damages recovered by the claimant provide sufficient funds out of which the claimant can reasonably be expected to pay at least some costs” Chapter 19, (4.10) of Jackson’s Review of Civil Litigation Costs: Final Report dated December 2009

Practice points

  • Defendants should go back and reconsider any Part 36 offers in live cases. If there was reliance on the defendants being able to set-off costs based on a reading of CPR 44.14 which the court in Harrison has now contradicted, you may wish to consider a revision of those offers.
  • The case is a useful reminder of the importance of the one strategic advantage held by defendants, namely the ability to severely limit the Claimant’s costs where the defendant makes an early Part 36 offer. In Harrison, the one consequence for the claimant in accepting an offer almost two years after the end of the relevant period was that they were denied all costs after that date.

QOCS trumps Part 36 – Another Claimant “victory” (for now)?

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In this blog Henry King considers the decision of Judge Stevens in Chappell v Mrozek [2022] EWHC 3147 (KB).

Key Takeaways

The key takeaway from Chappell is that in a battle between the two self-contained regimes that are CPR Part 36 and QOCS: it is QOCS which comes out on top. If a Claimant accepts a Part 36 offer after the expiry of the relevant period, the Defendant will not be able to enforce its costs from the expiry of the relevant period against the sum offered under CPR Part 36. However, the editors of this blog note that this could soon be subject to change in light of the comments of LJ Coulson in University Hospitals of Derby & Burton NHS Foundation Trust v Harrison [2022] EWCA Civ 1660 at [51-52] and the proposed changes to CPR 44.14 discussed by the CPRC, see below.

Factual Background

The Claimant was severely injured on 16 December 2016 whilst riding his motorbike. Liability was formally admitted some 6 months after receipt of the letter of claim. Proceedings were served nearly 3 years later, accompanied by a Schedule of Loss totaling £8,432,461.26. On 19 May 2020 the Defendant served a Part 36 offer to settle the claim for the sum of £250,000, that offer was accepted nearly 2 years later on 16 February 2022: well beyond the expiry of the relevant period.

The (Cross)Applications

The Defendant refused to pay the settlement sum of £250,000, thereby attempting to force the Claimant to make an application for judgment pursuant to CPR 36.14(7) which provides that “If such sum is not paid within 14 days of acceptance of the offer, or such other period as has been agreed, the claimant may enter judgment for the unpaid sum.” However, what the Claimant did was make an application pursuant to CPR 34.14(8) which provides, where “a party alleges that the other party has not honoured the terms of the [Part 36] offer, that party may apply to enforce the terms of the offer without the need for a new claim.”

The Defendant cross-applied to enforce its costs against the £250,000 offered; it should be noted that the Defendant did not seek to offset its costs against the Claimant’s costs. The Defendant submitted that this should be done by either (i) treating the Part 36 offer as an order for damages; or (ii) asking that the Court enter judgment for the unpaid sum pursuant to CPR 36.14(7).

The Relevant CPR Provisions

CPR 44.14 provides for the enforcement of costs orders against claimants by way of set-off against “any orders for damages and interest made in favour of the claimant”. The question was whether such a set-off can apply against a “sum of money” tendered by way of a Part 36 offer. The Claimant submitted that it did not given that a Part 36 offer reflects the commercial value a party has placed on resolving a dispute which is markedly different to a judicially determined award of damages supplemented by a judicial calculation of interest. The Defendant submitted that it did.

A written notice of acceptance under CPR Part 36.11, results in a stay of proceedings and automatic obligations on the offeror to pay the settlement sum in a specified timeframe. If there is a breach of those obligations, the claimant contended that whilst the offeree can apply to enter judgment for the unpaid sum under CPR 36.14 (7), the resultant court order is not an “order for damages and interest”, but is a completely different species of order, with a DNA more analagous to that of a Tomlin order.

It was agreed by the parties that the Claimant had his costs up to the expiry of the relevant period and the Defendant had its costs from expiry to acceptance. However, despite both parties being represented by “very experienced” costs counsel it was noted at [11] that:

“Both parties asked me to imply markedly different meanings to words in the civil procedure rules in order to arrive at the respective interpretations which they say reflect the original policy intentions. The battleground in this case, has a focus on the words “settlement sum” or “damages and interest” as the target funding pot for the defendant’s additional costs outlay, beyond the relevant 21 day period for acceptance of their offer. There is a separate issue about which statements in the various judgments to which I was referred establish precedent or are otherwise binding upon me.”

The Decision

Having considered the authorities, including the policy background to QOCS following Sir Rupert Jackson’s Review of Civil Litigation Costs 2009 and the Government’s Response in March 2011, the Judge held that the Defendant’s course of action (deliberately refusing to pay the settlement sum offer under CPR 36) could not result in enforcement against the Claimant’s damages.

LJ Coulson’s judgment in Cartwright was considered in detail and it was noted at [35]:

The court rejected submissions that the addition of wording, (whether implied or express) in CPR 44.14(1)to include, “a sum payable by way of damages which is compellable by court order”, would fulfil the original purpose of the rule and indeed encompass Tomlin orders as well. A conclusion was reached at paragraph 46 “At the very least,…the rule would have to refer, not only to an order, but to an agreed settlement”. Once again, the line of reasoning, even though it did not reference Part 36, would naturally encompass it.

The Supreme Court’s judgment in Adelekun was also carefully considered and it was noted at [42]:

The clear message that I take from Adelekun is that the court was not prepared to imply or infer words into Part 44 to expand the scope for enforcement, where the brief wording of the rule might otherwise seem to produce an unfair result on occasion… the Supreme Court did not consider it appropriate to add words to the QOCS scheme which is currently set out “with commendable brevity” (as noted at paragraph 19), to expand its scope, preferring that words should be given their straightforward meaning and any amplification or further finesses should only be introduced by the CPRC.

The Defendant’s attempts to distinguish Adelekun v Ho [2021] UKSC 43 on the basis that it was a set off of costs against costs whereas this was set off against damages were rejected, see the judgment at [30].

However, MRA v The Education Fellowship [2022] EWHC 1069 (QB) [43; 50] was distinguished. It was noted that the real issue in that case was whether it would be unjust to order the Claimant to pay the Defendant’s costs after the expiry of the relevant period, which was not the issue to be adjudicated upon in this case.

Reference was made (although we are surprised it was only in passing at paragraph 54) to the commentary in The White Book at 36.14.2 which explicitly states: “a claimant is entitled to be paid the offered sum within 14 days, he is entitled to such payment without set off against an unquantified costs liability (Cave v Bulley Davey [2013] EWHC 4246 (QB) (HH Judge Seymour QC)).”

Accordingly, Judge Stevens acceded to the Claimant’s application that the Defendant pay the Claimant the “settlement sum” of £250,000 and that the costs order against the claimant made in respect of late acceptance is not to be set-off against any part of the ordered sums (£250,000) in the claimant’s favour. The defendant’s cross-application was dismissed to enter judgment pursuant to CPR 36.14(7) or to treat a Part 36 settlement as an order for damages.

Comment

Given the sums at stake, the case having been pleaded at over £8m and yet settling for just over 3% of this figure at £250,000, this may not be the last we hear on this matter. We also note that proposed changes to CPR 44.14(1) have already been discussed by the CPRC on 7 October 2022 at [34-40] (proposing the explicit addition of the word “costs” such that a Defendant could enforce a costs order in its favour up to the “aggregate amount in money terms of any orders for damages, costs and interest made in favour of the claimant”.

Contracting Out of Fixed Costs, or Not!

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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.