UNREASONABLE FAILURE TO USE PROTOCOL WILL LEAD TO FIXED COSTS BEING AWARDED: COURT OF APPEAL DECISION: CPR 44 RULES THE DAY

In Williams v The Secretary of State for Business, Energy & Industrial Strategy [2018] EWCA Civ 852 the Court of Appeal considered the issue of the personal injury protocol and fixed costs.  It was held that CPR 44 has sufficient width to enable a court to order that a claimant is confined to portal fixed costs.

“… the Part 44 conduct provisions provide a complete answer to a case like this. They provide ample scope for a District Judge or a Costs Judge, when assessing the costs in a claim which was unreasonably made outside the EL/PL Protocol, to allow only the fixed costs set out in the EL/PL Protocol.”

THE CASE

  • The claimant sent letters of claim to the defendant seeking damages for hearing loss incurred in the course of his employment.
  • At no stage did the claimant attempt to use the the EL/PL Protocol.  It was argued that there were two potential defendants. (Cases with more than one defendant are not subject to the portal rules).
  • On receipt of the letter the defendant wrote:
“If this claim is not submitted through the Claims Portal and the claim is ultimately settled against our Client alone, the Defendant will seek an order from the Court for fixed costs to be applied under CPR Part 45.24.”
  • The action eventually settled for £2,500.  Settlement was by way of a conventional Part 36 offer.  The claimant had come to the conclusion that there was no viable claim against the other defendant.

THE ISSUE AS TO COSTS

The District Judge concluded that the claimant was only entitled to fixed costs as if the matter had proceeded through the Protocol. It was held that this was, in reality, a one-defendant case and, although there was a lacuna in the rules, the claimant was only entitled to fixed costs.  This decision on the construction of the rules  was overturned by the Circuit Judge.  However the Circuit Judge did observe that it was open to the costs judge to find that fixed costs were the appropriate basis for recovery.  The parties declined the judge’s invitation that he determine the issue of the applicable level of costs. The defendant appealed.

The defendant’s main argument was that there was a lacuna in the Civil Procedure Rules and that they should be construed so as to confine the claimant to fixed costs. The Court of Appeal rejected this aspect of the defendant’s case, finding that it required a strained construction which was not justified. However the defendant succeeded on the discretion point. The court holding that CPR 44 meant that, in these circumstances, a

THE COURT OF APPEAL JUDGMENT

The Court of Appeal considered, and rejected, the defendant’s argument in relation to construction. However the argument in relation to the exercise of discretion was accepted.

“30.However, Judge Godsmark made plain that, in his view, that was not the end of the matter. He said that, although there had to be a provisional assessment, he was not limiting the DJ’s discretion. He said expressly:
“An appropriate sum may well be fixed costs but that is a matter for the district judge. I offered to deal with the matter today but the parties concluded that this was not appropriate. The appeal is allowed and the matter is remitted to the district judge.”3.
31. Judge Godsmark QC may well have had CPR Part 44 in mind when he said this, because Part 44 had been expressly referred to by defendant’s counsel in his skeleton argument. I also consider that, in the light of the modest sum at stake, Judge Godsmark was right to want to get on with it and to have offered to undertake the provisional assessment himself. The defendant’s reasons for refusing this offer have not been explained. On behalf of the claimant, Mr Carter told us, with commendable frankness, that he was unwilling to agree because the Judge’s ‘steer’ (noted above) indicated that he was against the claimant and may well have found that fixed costs was the appropriate basis of recovery. The parties’ failure to accept the Judge’s proposal has since been compounded by their agreement to stay his directions and the delays which have subsequently ensued.
The Proper Interpretation of the Protocol
32. The claimant’s solicitors did not use the EL/PL Protocol (or the Claims Portal) because, at the time of the claim letters, there were claims against two potential employer defendants. On the face of it, therefore, the Protocol did not apply: see paragraph 4.3(6). This exception is not an accident: all of the new-style Pre-Action Protocols are expressly designed to apply only in cases where there is one defendant. The presence of two or more potential defendants makes it difficult to comply with some of the requirements of the Protocol, and makes the Portal impossible to operate efficiently. So, for example, the very recent Package Travel Claims Pre-Action Protocol, which came into effect this month, contains exactly the same exclusion.
33. Before the DDJ, the defendant argued that paragraph 4.3(6) of the EL/PL Protocol should be read as if the reference to “one employer defendant” was in some way qualified. But the judgment of the DDJ, set out at paragraphs 25-26 above, makes plain the difficulties with that approach. Should it be read as referring to more than one “viable” employer defendant? Or should the “claim” be defined as being “more than weak” or “reasonable” or even “compelling”? None of these competing qualifications can be discerned from the EL/PL Protocol itself.
34. Furthermore, it is not hard to envisage the practical difficulties that would arise from any qualification to the provision. What period would be under consideration when looking at the viability or weakness of one or more of the claims? Would it be a subjective or objective test? How are any changing strengths and weaknesses of the various claims to be taken into account? It is easy to envisage a range of satellite litigation that would arise as parties sought to argue whether a claim that was considered but not ultimately pursued against a second employer defendant was ‘reasonable’ or ‘viable’ or ‘weak’.
35. Mr Hutton QC referred to paragraph 7.59 of the EL/PL Protocol and said that it was illogical that a claim which started under the Protocol and was then unreasonably removed from it would attract fixed costs, whilst a claim that was unreasonably never made under the Protocol at all would not attract fixed costs. There is some force in that submission. But any attempt to widen that paragraph would, on its face, require its wholesale rewriting. Moreover, even if that paragraph could be reworded, it is unclear how that could give rise to an automatic legal entitlement on the part of a defendant to pay only fixed costs. The paragraph is simply part of a Protocol. It does not have the force of a statute or a Rule made by SI.
36. For those reasons, I consider that it is inappropriate to start reading important qualifications into the plain words of the EL/PL Protocol. On the findings of the DDJ, the claim should have been made under the Protocol but was not.In such circumstances, the focus shifts to the CPR: what are the Rules which are relevant to the assessment of costs in this case?
The Proper Interpretation of Parts 36 and 45
37. The Part 36 regime is a self-contained procedural code for the making of and acceptance of settlement offers. In the present case, the offer was made in accordance with Part 36. It was accepted in accordance with Part 36, so CPR Part 36.13(1) and 36.13(3) applied. The EL/PL Protocol had not been used at any time, so Part 36.20 did not apply, and would not have applied anyway because r.45.29A(1) (to which it refers) did not apply to disease claims. Therefore, as Judge Godsmark QC found, the starting point under Part 36 was that the claimant was prima facie entitled to its costs assessed in accordance with the usual rules (ie not by reference to fixed costs).
38. The Judge indicated that, if the defendant had wanted to limit its Part 36 offer to fixed costs, because of the argument about the viability of the claim against British Tissues, then it could have said so expressly in their offer letters. Of course, there may then have been arguments as to whether, in those circumstances, it was a Part 36 offer at all: that qualification may have made it a Calderbank letter instead. It might also have meant that the offer was less likely to be accepted. But certainty is impossible where there are arguments about whether or not the Protocol was not reasonably followed, and such a letter would at least have made the point openly at the relevant time, rather than it arising after the claim had been settled. As the Judge said, it would have provided some costs protection to the defendant.
39. Rule 45.24 does cover the position if a claim should have been brought under the EL/PL Protocol but was not. It cannot therefore be said that this was an eventuality that the CPR ignored. On the contrary, r.45.24 is a detailed provision dealing with the costs consequences where the claim was either not made or not continued under the EL/PL Protocol.
40. However, as Judge Godsmark QC found, r.45.24 does not apply to the facts of the present case. There have been no Part 7 proceedings. There has been no judgment. Although Mr Hutton QC sought to argue that in some way the requirement for Part 7 proceedings and a final judgment were simply examples of when the court could exercise its discretion under r.45.24, I am unable to accept that submission. It is clear that r.45.24 is dealing with specific circumstances where the court may exercise its discretion to order the payment of no more than fixed costs. Those circumstances (where there are Part 7 proceedings and a judgment) are not examples, but pre-conditions which have to exist before the rule can be applied.
41. Moreover, it is unsurprising that r.45.24 assumes the existence of proceedings and a judgment. It is part of a wider scheme. With the exception of r.45.23A (which was itself a later addition to fill a perceived gap in the Rules), all of Section III of Part 45, starting at r.45.16 and including r.45.24, applies where proceedings have been commenced and been pursued to judgment. That in turn is consistent with the principal function of the CPR: to govern the conduct of proceedings once they have commenced.
42. The approach of the DDJ involved the significant rewriting of Rule 45.24. Mr Hutton QC’s submission also involved significant additions to aid his purposive construction. To r.45.24(1) he added the words “or the claims settles for payment for a sum of money to the claim before proceedings start” after the words “starts proceedings under Part 7”, thereby immediately widening the entire scope of the rule to encompass anything that happened before proceedings started. He also wanted something similar in r.45.24(2), where he said that the words “where settlement is reached for payment of a sum of money to the claimant or where” should be inserted before the words “judgment is given in favour of the claimant”.
43. As a matter of interpretation, I consider that the sub-rules cannot be interpreted as if these additional words had been incorporated. The new words radically change the meaning and scope of the rule, extending it back in time to the pre-action stage, and circumventing the express requirements for Part 7 proceedings and a judgment.
44. As part of his argument, Mr Hutton QC relied on the decision of this court in Solomon v Cromwell Group PLC [2011] EWCA Civ 1584; [2012] 1 WLR 1048, where there was a discrepancy in the rules between the position of a claimant in a low value road traffic accident who accepted a Part 36 offer, and the position of a similar claimant who accepted an offer to settle made under Section II of Part 45 (r.45.7 and 45.8). The court concluded that, because the CPR contained both general and specific provisions, some of which were in conflict, the general must give way to the specific. That is a conventional approach to drafting conflicts. But that is not relevant to this case. Here, there is no discrepancy, because there are no Rules which deal with the settlement of a claim prior to Part 7 proceedings (and thus prior to judgment), where the defendant wants to argue that the EL/PL Protocol was unreasonably ignored. The next question is: should there have been such Rules?
45. Mr Hutton QC submitted that there should have been. He argued that the Ministry of Justice policy papers put before the CPRC in 2009/2010 showed that this was what was required. So, for example, he referred to a Policy paper for the CPRC on 15 May 2009, which said at paragraph 14:
“To ensure that the new pre-action protocol is followed that Ministry proposes that the fixed recoverable costs applicable under the new process should also be applied by the court (in place of any other costs regime) where it considers that the claim has incorrectly been made outside the new process, or where it has been taken out of the process inappropriately…
18…thus, for example, where claim leaves the process because a request for a interim payment above £1,000 is not agreed by the defendant insurer but the court concludes that the additional interim payment was not reasonably pursued by the claimant, then the court would apply the fixed recoverable costs of the new process. This will ensure that claims are pursued within the process when it is appropriate to do so and avoid behaviour aimed at avoiding the fixed recoverable costs associated with the process.”
Other subsequent policy papers said the same or similar things.
46. In support of his argument that the CPRC had failed to give effect to this policy, and that the rule should be re-written with that in mind, Mr Hutton QC relied on the decision of this court in Qader & Ors v Esure Services Ltd & Ors [2016] EWCA Civ 1109; [2017] 1 WLR 1924. There, “an obvious drafting mistake” by the CPRC meant that, contrary to the recommendation of Sir Rupert Jackson and the unqualified endorsement of that recommendation by the Ministry of Justice, there was nothing in r.45.29 which limited the fixed costs regime to fast track cases, or which excluded that regime when a case was allocated to the multi track. Briggs LJ (as he then was) demonstrated that this was an obvious drafting mistake and that it was not in fact the intention of those legislating for this regime that it should ever apply to a case allocated to the multi track. Applying the three stage test derived from Inco Europe Ltd & Ors v First Choice Distribution & Ors [2000] 1 WLR 586, the Court of Appeal was “abundantly sure” (i) of the intended purpose of the provision in question; (ii) that by inadvertence the draughtsmen in Parliament had failed to give effect to that purpose; and (iii) of the substance of the provision Parliament would have made had the error been noticed.
47. In my view, there are a number of answers to this alternative argument. First, it is arguable that the policy referred to in paragraph 45 above was adopted by the CPRC, and found its way into r.45.24 and some of the costs sanctions within the EL/PL Protocol itself. Secondly, there is no policy document which contains the words which Mr Hutton QC now suggests are inadvertently missing. On that basis, it cannot be said that there has been an obvious drafting error. Thirdly, I consider that Mr Hutton QC’s submission misunderstands the function of the CPRC.
48. The CPRC is a statutory body which is obliged to consider the MOJ policy documents with which it is provided, but has no obligation to accept or implement all or any part of those policies. The CPRC is there to consider the proposals from the MOJ and to make Rules to address any part of those policies which it considers appropriate. Therefore, as a matter of law, the policy documents themselves cannot usually be relied on as an aid to the interpretation of the CPR. At the very least, the minutes and other documents generated by the CPRC would be required, in order to see what the CPRC’s response was to the policy in question. Moreover, the usual practice, if it transpires that there has been a drafting error, is simply for the rule to be corrected, although that is not a process that has retrospective effect (see Qader at paragraph 53).
49. Finally, I should say that, in my judgment, the DDJ’s concerns – echoed in submission by Mr Hutton QC – that any result other than the rewriting of r.45.24 might lead to wholesale avoidance of the EL/PL Protocol, are over-stated. It is not likely that large numbers of claimants will invent bogus secondary or tertiary claims against other employers merely to avoid the EL/PL Protocol. Moreover, for the reasons given in paragraphs 52-60 below in respect of CPR Part 44, I do not consider that the creation of bogus secondary claims would provide a successful escape route in any event.
50. For these reasons, like Judge Godsmark QC, I would not be prepared to rewrite r.45.24 in order to meet the facts of the present case. The absence of Part 7 proceedings and the absence of a judgment means that r.45.24 does not apply to this case. Accordingly, that route to fixed costs is not open to the defendant.
The Proper Interpretation of CPR Part 44
51/ CPR Part 44 contains general rules about costs. These include:
Basis of assessment
44.3
(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs –
(a) on the standard basis; or
(b) on the indemnity basis,
but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.
(Rule 44.5 sets out how the court decides the amount of costs payable under a contract.)
(2) Where the amount of costs is to be assessed on the standard basis, the court will –
(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and
(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.
(Factors which the court may take into account are set out in rule 44.4.)
(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.
(4) Where –
(a) the court makes an order about costs without indicating the basis on which the costs are to be assessed; or
(b) the court makes an order for costs to be assessed on a basis other than the standard basis or the indemnity basis,
the costs will be assessed on the standard basis.
(5) Costs incurred are proportionate if they bear a reasonable relationship to –
(a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party; and
(e) any wider factors involved in the proceedings, such as reputation or public importance.
(6) Where the amount of a solicitor’s remuneration in respect of non-contentious business is regulated by any general orders made under the Solicitors Act 19744, the amount of the costs to be allowed in respect of any such business which falls to be assessed by the court will be decided in accordance with those general orders rather than this rule and rule 44.4…
Factors to be taken into account in deciding the amount of costs
44.4
(1) The court will have regard to all the circumstances in deciding whether costs were –
(a) if it is assessing costs on the standard basis –
(i) proportionately and reasonably incurred; or
(ii) proportionate and reasonable in amount, or
(b) if it is assessing costs on the indemnity basis –
(i) unreasonably incurred; or
(ii) unreasonable in amount.
(2) In particular, the court will give effect to any orders which have already been made.
(3) The court will also have regard to –
(a) the conduct of all the parties, including in particular –
(i) conduct before, as well as during, the proceedings; and
(ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;
(b) the amount or value of any money or property involved;
(c) the importance of the matter to all the parties;
(d) the particular complexity of the matter or the difficulty or novelty of the questions raised;
(e) the skill, effort, specialised knowledge and responsibility involved;
(f) the time spent on the case;
(g) the place where and the circumstances in which work or any part of it was done; and
(h) the receiving party’s last approved or agreed budget.
(Rule 35.4(4) gives the court power to limit the amount that a party may recover with regard to the fees and expenses of an expert.)
Court’s powers in relation to misconduct
44.11
(1) The court may make an order under this rule where –
(a) a party or that party’s legal representative, in connection with a summary or detailed assessment, fails to comply with a rule, practice direction or court order; or
(b) it appears to the court that the conduct of a party or that party’s legal representative, before or during the proceedings or in the assessment proceedings, was unreasonable or improper.
(2) Where paragraph (1) applies, the court may –
(a) disallow all or part of the costs which are being assessed; or
(b) order the party at fault or that party’s legal representative to pay costs which that party or legal representative has caused any other party to incur.
(3) Where –
(a) the court makes an order under paragraph (2) against a legally represented party; and
(b) the party is not present when the order is made,
the party’s legal representative must notify that party in writing of the order no later than 7 days after the legal representative receives notice of the order.”
52. These provisions contain numerous ways in which a party whose conduct has been unreasonable can be penalised in costs (what I shall call “the Part 44 conduct provisions”). In my view, the Part 44 conduct provisions provide a complete answer to a case like this. They provide ample scope for a District Judge or a Costs Judge, when assessing the costs in a claim which was unreasonably made outside the EL/PL Protocol, to allow only the fixed costs set out in the EL/PL Protocol.
53. Mr Carter sought to argue that it was somehow inherent in r.45.24 that Part 44 would not apply at all in cases like this. He argued that, if the same result could be achieved by way of Part 44, then r.45.24 was otiose.
54. I do not accept those submissions. Since r.45.24 does not apply to this case, its existence cannot be relied on as excluding rules which, on their face, do apply. Moreover, r.45.24 would not necessarily be rendered otiose by the provisions of Part 44: it would always depend on the facts. In any event, a situation where, depending on the circumstances, the CPR may provide more than one route to the same result, is hardly uncommon. 
55. More widely, Part 44 provides important general rules about costs and the sorts of matters which, in the exercise of its discretion, a court may wish to take into account when assessing costs. For Part 44 to be disapplied (in whole or in part), as Mr Carter urges, there would have to be clear words setting out the nature and scope of any such disapplication. There are none here. Accordingly, I consider that Part 44 applies to this case. The unreasonable failure by the claimant to follow the EL/PL Protocol, as found by the DDJ, triggers the Part 44 conduct provisions.
56. In my view, it is at this point that paragraphs 2.1, 3.1 and the warning at 7.59 of the EL/PL Protocol, become relevant. Taken together, those paragraphs comprise a clear indication that, if a claim should have been started under the Protocol but was not, and it was unreasonable that the claim was not so started, then by the operation of the Part 44 conduct provisions, the claimant should be limited to the fixed costs that would have been recoverable under the EL/PL Protocol. 
57. I consider that support for this approach can be found in O’Beirne v Hudson [2010] EWCA Civ 52; [2010] 1 WLR 1717. In that case, there was a claim for general damages just above the small claims track limit of £1,000 and the claim settled for £400. The judge said that there was nothing in the consent order which precluded the costs being assessed by reference to the small claims track. The Court of Appeal agreed, holding that, even where a consent order provided for costs to be assessed on a standard basis, Part 44 meant that the assessment of costs could proceed on the basis that, in respect of each item, the costs judge asked whether it was reasonable for the paying party to pay more than would have been payable had the case been allocated to the small claims track.
58. Mr Hutton QC sought to distinguish this case on the basis that there was no unreasonable avoidance of a Protocol. In my view, whilst that might a difference on the facts, it does not affect the applicability of Part 44 to any case where the payee might otherwise recover more than is reasonable in all the circumstances. Indeed, in another case relied on by the defendant (Javed v British Telecommunications PLC [2015] EWHC 90212 (Costs)), where the claimant had failed to follow a Protocol, Master Simons, Costs Judge, again approached the assessment under Part 44 and found at paragraph 42 that “had the claimant acted reasonably then her solicitors would not have been entitled to recover any more than fixed recoverable costs and it seems to me that it would create injustice if they were to profit as a result of their unreasonable conduct”. 
59. In both O’Beirne and Javed, the assessment was to be undertaken by reference to what is now Part 44.4 (which, at the time of both those cases, was Part 44.5), namely by having regard to all the circumstances of the case, including conduct. It seems to me that, in a case where a claim was not reasonably made under a Protocol, Part 44.11 (Misconduct) is of equal, if not more, importance. It will very often be because of misconduct on the part of the claimant or the claimant’s legal representatives that a claim was made which unreasonably avoided the relevant Protocol altogether. In addition, I note that, whilst O’Beirne favoured an item by item approach to the assessment, Master Simons in Javed said that that was unnecessary in these sorts of circumstances. For my own part, I prefer the approach of Master Simons. If the judge has concluded that, as a result of unreasonable conduct, the relevant fixed costs represent the maximum recovery, then an item by item approach is unnecessary. 
60. Mr Hutton QC accepted that Part 44 provides a mechanism which achieves the result he seeks. His principal complaint was that it was a less certain remedy than the automatic application of the fixed costs regime. I have already said that that criticism is unrealistic: any dispute about whether or not the EL/PL Protocol should have been used, and whether its non-use was unreasonable, will inevitably introduce a level of uncertainty which cannot be cured by the CPR, at least until that dispute has been resolved.
61. For these reasons, I consider that Part 44 provides a complete answer to the issues raised on this appeal. In a case not covered by r.45.24, such as this one, a defendant can rely on the Part 44 conduct provisions to argue that only the EL/PL Protocol fixed costs should apply. 
62. As I have already indicated, Judge Godsmark QC appeared to be attracted by this approach. However, he made no findings in respect of Part 44. In my view, he should have done. For the reasons that I have given, it will usually follow that a claimant who, on this premise, has only incurred a higher level of costs because he or she has unreasonably failed to follow the EL/PL Protocol, will be restricted under Part 44 to the fixed costs and disbursements encompassed by that Protocol. 
63. We were also asked to indicate the best way in which an argument about whether or not the costs should be restricted in this way should be raised and addressed. I note that, pursuant to CPR 46.14, it is envisaged that, following settlement, costs-only proceedings can be issued under Part 8. That is what happened here. In my view, a defendant who wants to argue that the claimant should be restricted to fixed costs only should raise that submission as soon as possible in the Part 8 proceedings. Under 46PD 9.7 that would probably be when the defendant files an acknowledgement of service stating its intention “to contest the claim or to seek a different order”.
Conclusions
64. For these reasons, I would dismiss the appeal on the first ground. Neither the EL/PL Protocol nor r.45.24 provides a mechanism which automatically applies the fixed costs regime in circumstances where a claim has not been started under the Protocol and/or has not been the subject of a Part 7 claim and a judgment. There is no drafting error, obvious or otherwise, in the CPR.
Although Judge Godsmark QC may have had Part 44 in mind, I would allow the appeal on the second ground. In a case where the Protocol should have been used, and its non-use was unreasonable then, pursuant to the Part 44 conduct provisions, the claimant will usually be entitled to recover only the fixed costs and the disbursements permitted by the Protocol”