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High tension

The past few years have seen some tension between CPR Part 36 and CPR Part 45, and judges (and sometimes the same judge) have come to different views on which section wins. Will Balfry takes a look at the various decisions that there have been on the issue, which will hopefully resolved when the case of Hislop v Perde is considered by the Court of Appeal in June.

Background

The starting point throws us back to 31 July 2013 and the implementation of Lord Justice Jackson's reforms.  From this date, the road traffic accident portal, the employers' liability portal and the public liability portal was extended, and for claims dropping from the process, the fixed recoverable costs scheme applied rather than assessed costs on an hourly rate.

Given that profit margins shrunk immediately, it was inevitable that the claimant side of the fence would seek ways of making up the shortfall.  The case of (1) Broadhurst (2) Taylor v (1) Tan (2) Smith [2016] EWCA Civ 94, Lord Dyson MR presiding, established that where a claimant had beaten their own CPR Part 36 offer at trial, they were entitled to indemnity costs from the date of expiry of the relevant period onwards on an hourly rate, potentially a significant sum if the offer was made early in the case.  But what was the situation where the defendant sought to accept the claimant's Part 36 offer out of time?

Late acceptance of claimants' Part 36 offers

Rule 36.20 makes provision for late acceptance in some circumstances, for example, where a case falls from the portal process such as late acceptance by a claimant of a defendant's offer, which leads to assessed costs from the date of expiry.  The rule does not, however, deal with late acceptance by a defendant of a claimant's Part 36 offer.  This has led to a series of cases at county court level where confusion has reigned at every turn, leading to uncertainty for both practitioners and their clients.  Circuit judges and respected regional costs judges have grappled with the intricacies of CPR Part 36 and CPR Part 45 with, sometimes, very different conclusions.

The decisions reviewed

One of the first cases to address the issue in detail was Sutherland v Khan (2016) 21 April, Kingston upon Hull CC (unreported), in which District Judge Besford presided over a costs issue where the defendant had accepted an offer late by a period of around 30 days.  The costs issue could not be decided between the parties, so the claimant issued an application seeking an award of costs under Part 36 CPR.

District Judge Besford noted that Part 36 was silent when it came to late acceptance by a defendant.  Counsel for the defendant submitted that all the court needed to concern itself with was CPR 4529B, this stating that fixed costs are the only costs allowed unless CPR 45.29J was triggered (the exceptional circumstances clause).  Distinguishing the scenario from the well-known pre-rules change case of Fitzpatrick Contractors Ltd v Tyco Fire and Integrated Solutions (UK) Ltd (formerly Wormald Ansul (UK) Ltd (No 3) [2009] EWHC 274 (TCC), District Judge Besford made almost what seemed to be a public-policy decision in deciding that Part 36 trumped fixed costs: there simply had to be a penalty for late acceptance even without poor behaviour on the part of the defendant:' In conclusion, I do not find that the court has to find that the defendant has, in some way been guilty of inappropriate behaviour or conduct capable of censor before I can consider making an order for costs on an indemnity basis' (para 20).  Which is exactly what the judge did.

As no appeal was mounted, this decision led to over a year of contrary decisions, i.e., claimants' citing the decision to some degree of success and county court decisions not being binding, only persuasive.  For example, Whiting v Carillionamey (Housing Prime) Ltd (2016) 10 October, Winchester CC (unreported) was not a fixed costs case but focused on late acceptance and whether very late acceptance (in this case 10 months late) led to an indemnity costs award.  HHJ Hughes QC decided that it did not, and let standard basis costs stand.

Next, in early 2017, in Car Craft Test Centre and Martin v Trotman and Advantage Insurance Co Ltd (2017) 3 February (unreported), District Judge Etherington followed District Judge Besford's lead in awarding indemnity costs.  Again, acceptance was 10 months late, the Part 36 offer being made before the commencement of proceedings.  Then, in June 2017, events shifted to Newcastle County Court where in Anderson v (1) Ladler and (2) Aviva Insurance Ltd HHJ Gargan, a circuit judge, followed suit, with indemnity costs being granted on a 10-month late acceptance.

At that point, the sands started to shift.  HHJ Gosnell sat on the case of Richardson v Wakefield Council in June 2017.  In this instance, the acceptance was 40 days late.  HHJ Gosnell decided that the appropriate award was standard basis costs from expiry of the relevant period, not indemnity costs.

In July 2017, HHJ Wood QC, sitting with Regional Costs Judge Jenkinson on the appeal of McKeown v Denton (2017) 12 June, came to the view that neither indemnity nor standard basis costs applied, fixed costs remaining applicable on late acceptance.  The scenario here was that offers were put forward by the claimant with disclosure of medical evidence, and accepted shortly after proceedings were issued.  The claimant cited both Sutherland and Broadhurst, but to no avail.In August 2017, another contrary decision was made by HHJ Walden-Smith in Central London County Court: the claimant in Hislop v Perde receiving standard basis costs from expiry of the offer.  In this case, the acceptance was very late indeed, i.e., 19 months after the offer, and a few days before trial.

In September 2017, in Parsa v (1) D S Smith plc (2) QBE Insurance Europe Ltd (2017) 8 September, Birmingham CC, with HHJ Tindal presiding, fixed costs won the day.  HHJ Tindal reviewed many of the circuit judges' decisions in coming to his judgment.

By now, it had become almost impossible to foresee what costs outcome a party would achieve on late acceptance, there being no unifying theme and different judges deciding cases in different ways up and down the country.  No party would, at this stage, take the expensive step of appealing up the courts.  Instead, the plan was hatched to bring an appropriate case back before the judge that started the ball rolling in the first place, District Judge Besfor

Late acceptance: all change?

In October 2017, Whalley v Advantage Insurance Co Ltd (2017) 5 October, Kingston-Upon-Hull CC came before District Judge Besford, where he took the decision, to the dismay of claimants, that his ruling in Sutherland 'is unsupported and can no longer stand' (para 47).  Whalley was a liability rather than a quantum offer, and the delay was just under one month.  The claimant sought costs on the standard basis, in accordance with Richardson above.The defendant's stance was that the only costs due to the claimant were those fixed under CPR 45.29A. Again, Fitzpatrick Contractors Ltd above was quoted.

District Judge Besford, on further analysis of the rule tension this time, actually decided that there was no tension, merely silence:

I find that Part 36 is the general rule and Part 45 the specific rule…  it is however not necessarily the case that there is tension between CPR 36.13(5) and CPR 45.298...  by being silent as to the basis of costs arguably does not contradict CPR 45.298.  'Silence' does not equate to 'tension' (para 80).

District Judge Besford reversed his previous decision, and came to the view that only fixed costs applied unless there were 'exceptional circumstances' or conduct justifying indemnity costs (para 91).

Where does this leave us now?

The issue is far from concluded despite District Judge Besford changing his mind: this is still a county court level decision and is not binding.  What exactly is unreasonable conduct?  How poor does 'conduct out of the norm' have to be to justify indemnity costs (para 91)?  These points, among others, need answering and confusion is likely to continue until an appeal a case is heard and decided one way or the other.

The final answer might lie in a rule change, Lord Justice Jackson himself cited a possible solution by way of an 'uplift' on fixed costs depending on how late the acceptance is; for example, an offer made in the first stage of fixed costs and accepted in the third, pre-trial, might be uplifted by 30%.* While this would be in no way comparable to the shift from fixed costs to assessed costs that claimants were hoping for, this would at least bring clarity to the position and the parties to litigation would know exactly where they stood.

Finally, it appears that some clarity may emerge from the uncertainty of first instance litigation: it has been announced that the appeal of Hislop v Perde above will be heard on 20 June 2018 in the Court of Appeal.  No doubt a great many cases will be stacked up, awaiting the outcome with interest.

* Review of civil litigation costs: supplemental report fixed recoverable costs, available at https://tinyurl.com/ydygkwps

The issue is far from concluded despite District Judge Besford changing his mind: this is still a county court level decision and is not binding.  What exactly is unreasonable conduct?  How poor does 'conduct out of the norm' have to be to justify indemnity costs (para 91)?  These points, among others, need answering and confusion is likely to continue until an appeal a case is heard and decided one way or the other.

The final answer might lie in a rule change, Lord Justice Jackson himself cited a possible solution by way of an 'uplift' on fixed costs depending on how late the acceptance is; for example, an offer made in the first stage of fixed costs and accepted in the third, pre-trial, might be uplifted by 30%.* While this would be in no way comparable to the shift from fixed costs to assessed costs that claimants were hoping for, this would at least bring clarity to the position and the parties to litigation would know exactly where they stood.

Finally, it appears that some clarity may emerge from the uncertainty of first instance litigation: it has been announced that the appeal of Hislop v Perde above will be heard on 20 June 2018 in the Court of Appeal.  No doubt a great many cases will be stacked up, awaiting the outcome with interest.

* Review of civil litigation costs: supplemental report fixed recoverable costs, available at https://tinyurl.com/ydygkwps

Contact

For more information please contact Will Balfry, Senior Paralegal at Will.balfry@dwf.law

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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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