FIXED COSTS NOT OVERTURNED BY THE TERMS OF AN AMBIGUOUS PART 36 OFFER: COURT OF APPEAL DECISION TODAY

November 19, 2019 · by · in Appeals, Costs, Fixed Costs, Part 36

In  the judgment today in Ho v Adelekun [2019] EWCA Civ 1988 the Court of Appeal held that fixed costs still applied to a case  where an offer of settlement did not expressly refer to costs being fixed.

“…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.”

THE CASE

The claimant brought an action for personal injury damages.  The defendant made an offer to settle in the sum of £30,000. The offer stated:

“If the offer is accepted within 21 days, our client will pay your client‟s legal costs in accordance with Part 36 Rule 13 of the Civil Procedure Rules, such costs to be subject to detailed assessment if not agreed.”

ACCEPTANCE OF A PART 36 OFFER

The day after the offer was made the defendant agreed to the matter being moved from the fast track to the multi track. Re-allocation never took place.

The offer was then accepted by the claimant.

THE TOMLIN ORDER

The parties then drew up a Tomlin Order, this included the provision:

“The defendant do pay the reasonable costs of the claimant on the standard basis to be the subject of detailed assessment if not agreed…”

THE DECISION OF THE DISTRICT JUDGE

The District Judge held that the action was subject to the fixed costs regime, the claimant appealed.

THE CLAIMANT’S SUCCESSFUL APPEAL TO THE CIRCUIT JUDGE

The claimant’s appeal to the Circuit Judge was successful.  That judgment is discussed here. 

THE DEFENDANT’S SUCCESSFUL APPEAL TO THE COURT OF APPEAL

The defendant’s appeal to the Court of Appeal was successful.

THE JUDGMENT OF LORD JUSTICE NEWEY

The Court of Appeal did not accept the approach of the Circuit Judge.

The scope of the dispute
    1. Both parties focused their submissions on the offer made in the appellant’s solicitors’ letter of 19 April 2017. Neither Mr Roy nor Mr Roger Mallalieu, who appeared for the respondent, sought to argue that the respondent’s solicitors’ response to the letter represented a counter-offer or that the consent order was important. Each side essentially approached the case on the footing that the respondent had accepted the 19 April offer and, hence, that that was key. By way of fallback, Mr Mallalieu invoked CPR 26.10 and 46.13. The claim ought, he said, to have been re-allocated to the multi-track with an order applying the costs rules applicable to that track retrospectively.
    2. Two principal issues therefore arise:
i) Did the appellant’s solicitors, by their letter of 19 April 2017, offer to pay “conventional” rather than fixed costs? [Issue 1]
ii) If not, should the claim be re-allocated to the multi-track with retrospective disapplication of the fixed costs regime? [Issue 2]
    1. The issues were very well argued on both sides.
Issue 1: The offer letter
    1. Issue 1 turns on the correct interpretation of the offer letter of 19 April 2017. That involves assessment of the “objective meaning of the language” (to quote Lord Hodge in Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173, at paragraph 10) or, in the words of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912, “ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.
    2. The respondent’s case is that, properly construed, the letter offered conventional rather than fixed costs. Mr Mallalieu relied on the reference in the letter to CPR 36.13 and, especially, the words, “such costs to be subject to detailed assessment if not agreed”. He suggested in his skeleton argument that CPR 36.5(1)(c) requires someone making a Part 36 offer to specify which out of CPR 36.13 and CPR 36.20 is intended to apply as regards costs and that, here, the appellant’s solicitors could be seen to have selected CPR 36.13, not CPR 36.20. In his oral submissions, Mr Mallalieu was inclined to accept that CPR 36.5(1)(c) was concerned with the period within which the offer was to be accepted rather than the costs regime that would apply. He nonetheless argued that the reference in the offer letter to CPR 36.13 indicated that the appellant was offering conventional costs rather than the fixed costs to which CPR 36.20 relates. He placed particular emphasis, however, on the concluding words of paragraph 3 of the letter (“such costs to be subject to detailed assessment if not agreed”). These, he said, would have confirmed to the reasonable recipient that the appellant was not proposing fixed costs: “assessment”, he said, is conceptually different from fixed costs. Further, the circumstances were such that an agreement to pay costs to be assessed on the standard basis was entirely logical. The value of the claim had come to exceed the normal limit for allocation to the fast track (viz. £25,000 – see CPR 26.6(4)(b)(i)) and the respondent had applied for re-allocation to the multi-track. It could be anticipated that re-allocation would occur and that conventional costs would then become payable retrospectively, either because the Court could be expected to make an order to that effect under CPR 46.13 or because CPR 45.29B applies only “for as long as the case is not allocated to the multi-track”. Alternatively, the Court might consider that there were “exceptional circumstances” within the meaning of CPR 45.29J making it appropriate to depart from the fixed costs regime even as to the events pre-dating re-allocation.
    3. In my view, however, the 19 April letter, correctly construed, did not offer to pay conventional rather than fixed costs. In the first place, I do not think that CPR 36.5(1)(c) is of any help to the respondent. Its concern is not with the basis on which costs are to be determined but with the period within which the offer is to be accepted. What it is saying is that the offeror must specify a period of not less than 21 days during which, if the offer is accepted, the offeror will become liable for costs in accordance with either CPR 36.13 or CPR 36.20, as applicable. It does not impose any obligation on the offeror to say which rule (CPR 36.13 or CPR 36.20) would be in point.
    4. Secondly, I do not think the fact that the 19 April letter refers to CPR 36.13 instead of CPR 36.20 is of any great significance. Mr Roy pointed out that the standard form, N242A, similarly contains a reference to CPR 36.13, and none to CPR 36.20, but, as Mr Mallalieu observed, an offeror is under no obligation to use N242A and the appellant did not merely adopt N242A without modification in the present case, notably because she added on, “such costs to be subject to detailed assessment if not agreed”. What matters more, it seems to me, is that CPR 36.13 itself highlights the fact that CPR 36.20 applies to a claim formerly under the RTA Protocol and, in effect, sends the reader on to that latter rule. Thus, CPR 36.13 provides for paragraph (1) to operate subject to CPR 36.20, a note to paragraph (1) records that CPR 36.20 “makes provision for the costs consequences of accepting a Part 36 offer in certain personal injury claims where the claim no longer proceeds under the RTA or EL/PL Protocol”, paragraph (3) provides for costs to be assessed on the standard basis “Except where the recoverable costs are fixed by these Rules” and a note to paragraph (3) states that Part 45 “provides for fixed costs in certain classes of case”. Mr Roy submitted that, had paragraph 3 of the offer letter stopped after the words “Part 36 Rule 13 of the Civil Procedure Rules”, there could have been no real question of the appellant having offered anything but fixed costs. I agree. Mr Mallalieu himself accepted that a simple reference to CPR 36.13 probably would not have sufficed to take the case out of the fixed costs regime.
    5. A third point arises from the fact that it is abundantly clear from the 19 April letter that the appellant was intending to make an offer to which CPR Part 36 applied. That is evident both from the reference to CPR 36.13 and from the overall description of “Part 36 Offer Letter”. Yet the letter will not, I think, have contained a Part 36 offer if it proposed anything other than the fixed costs regime. The “self-contained procedural code” for which Part 36 provides makes it plain that the fixed costs regime found in Part 45 is to apply “where … a claim no longer continues under the RTA … Protocol pursuant to rule 45.29A(1)”: see CPR 36.20 (1) and also the passages from CPR 36.13 quoted in the previous paragraph of this judgment. If, therefore, a party to a claim that no longer continues under the RTA Protocol offers to pay costs on a basis that departs from Part 45, the offer will be incompatible with Part 36 and cannot be an offer under that Part (see paragraph 17 above).
    6. Fourthly, while the 19 April letter’s reference to “detailed assessment” was far from ideal if the appellant intended the fixed costs regime to apply, it was not wholly inapposite. “Assessed costs” in the sense of costs assessed item by item by reference to work actually done are, as Lord Dyson MR said in Broadhurst v Tan, conceptually different from fixed costs, and such “assessment” as the fixed costs regime may call for is not to be equated with an assessment on the standard basis (see the quotation from Moore-Bick LJ’s judgment in the Solomon case set out in paragraph 20 above). As, however, Moore-Bick LJ also noted, the fixed costs regime “does involve an assessment of some kind (particularly in relation to disbursements and cases where the court is satisfied that exceptional circumstances exist)”. I do not think, therefore, that reference to “detailed assessment” should be taken to imply an intention to displace the fixed costs regime where there are other indications that that was not intended.
    7. Fifthly, it is inherently improbable, as a reasonable recipient of the 19 April letter should have appreciated, that the appellant intended to offer conventional rather than fixed costs. The fixed costs regime could be expected to be considerably more favourable to the appellant than conventional costs and, on the face of it, the appellant would be vulnerable to the latter as regards costs to date only if a Court were persuaded that there were “exceptional circumstances” warranting an award of extra costs under CPR 45.29J or that there should be a direction disapplying the fixed costs regime retrospectively under CPR 46.13 following re-allocation to the multi-track pursuant to CPR 26.10. None of this was obviously inevitable and it is improbable that the appellant would have been willing to concede the higher costs in her offer.
    8. As I have mentioned, Mr Mallalieu also relied on the fact that CPR 45.29B provides for the fixed costs regime to apply “for as long as the case is not allocated to the multi-track” and suggested that, in consequence, the regime would automatically cease to apply from the start on re-allocation. This, however, is very far from obvious. The more natural interpretation of CPR 45.29B might be thought to be that, where a case is transferred from the fast track to the multi-track, the fixed costs regime ceases to apply prospectively, not in relation to past costs, incurred when the case was in the fast track. Nor, as I see it, does Qader v Esure Services Ltd, where the insertion into CPR 45.29B of the words “and for so long as the claim is not allocated to the multi-track” was suggested (see paragraph 56), lend any support to Mr Mallalieu’s contention. The Qader case did not concern a situation in which a claim was transferred to the multi-track from the fast track.
    9. Sixthly, it is of some relevance in construing the 19 April letter that, as Coulson LJ has observed more recently, the fixed costs regime is designed to ensure that “both sides begin and end the proceedings with the expectation that fixed costs is all that will be recoverable” (see paragraph 11 above). That makes it the more unlikely that the letter would reasonably have been understood to be offering something other than fixed costs.
    10. For completeness, I should mention a further argument that Mr Roy advanced by reference to Solomon v Cromwell Group plc. That case concerned two Part 36 offers. In one instance the defendant had expressed willingness to pay the claimant’s “reasonable costs” to be assessed if not agreed, in the other the defendant had said that she would “be liable for your client’s reasonable costs in accordance with CPR 36.10” (see paragraphs 23 and 24). At the time, CPR 36.10 provided for a claimant who accepted a Part 36 offer to be entitled to the costs of the proceedings to be “assessed on the standard basis if the amount of costs is not agreed”. The Court of Appeal nonetheless concluded that neither claimant could recover any more by way of costs than was provided for under the fixed costs regime (paragraph 21). Mr Roy submitted that the decision is binding authority that the fixed costs regime is not displaced by an agreement to pay costs to be assessed on the standard basis. I do not agree. Part 36 not yet having been revised to take account of the fixed-costs regime, there was an inconsistency between CPR 36.10 and Section II of Part 45 which the Court resolved by reference to “the established principle that where an instrument contains both general and specific provisions some of which are in conflict the general are intended to give way to the specific” (paragraph 21). Now that Part 36 has been revised to take account of the fixed costs regime, the basis for the decision in Solomon has disappeared. Parts 36 and 45 are no longer inconsistent. I do not therefore accept this particular contention of Mr Roy.
    11. Even so, for the reasons I have already given, I consider that the 19 April letter, correctly construed, did not offer to pay conventional rather than fixed costs. The parties did not, therefore, contract out of the fixed costs regime and the respondent has no contractual entitlement to conventional costs. It follows that the appeal should be allowed unless the respondent succeeds on Issue 2.
    12. 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”.
Issue 2: Re-allocation
    1. Mr Mallalieu’s fallback position, as I have indicated, was that, notwithstanding the respondent’s acceptance of the 17 April 2017 offer, the claim should have been (and should now be) re-allocated to the multi-track under CPR 26.10 with a direction under CPR 46.13 disapplying the fixed costs regime with retrospective effect. He acknowledged that, once the respondent’s offer had been accepted, the claim was stayed pursuant to CPR 36.14(1), but a stay arising under that rule, he pointed out, does “not affect the power of the court … to deal with any question of costs … relating to the proceedings” (see CPR 36.14(5)). The question whether the claim should be re-allocated with a view to disapplication of the fixed costs regime is, Mr Mallalieu argued, one “of costs … relating to the proceedings” and so unaffected by the stay.
    2. Judge Wulwik was not persuaded by this argument. He said this on the subject in paragraph 53 of his judgment:
“The claimant seeks to rely on the provisions of CPR 36.14(5)(b) which enables the Court to deal with any question of costs notwithstanding any stay under CPR Part 36. However, it appears to me that the claimant is impermissibly trying to piggy back the provisions of CPR 36.14(5)(b) with an application to reallocate the claim to the multi-track. I do not consider that rule 36.14(5)(b) enables the claimant to do this. Further, the terms of the consent order signed by the parties, and embodied in the order dated 24 April 2017, provided in paragraph 2 that the claimant’s application listed for 24 April 2017 be vacated. It would run contrary to the parties’ consent order if that application could be resuscitated subsequently.”
    1. In my view, Judge Wulwik arrived at the correct conclusion. The fact that the stay imposed by CPR 36.14 did not prevent the Court from dealing with “any question of costs … relating to the proceedings” cannot, I think, assist the respondent. The words do not extend to the respondent’s application for re-allocation. The question of re-allocation was not one of “costs … relating to the proceedings” regardless of whether re-allocation was being sought with a view to obtaining a costs direction under CPR 46.13. For good measure, the Tomlin order of 24 April 2017 provided for the proceedings to be stayed except for the purpose of carrying the terms set out in the schedule into effect, and those terms made no reference to either re-allocation or disapplication of the fixed costs regime. Further still, it seems to me that if, contrary to my view, it was open to Deputy District Judge Harvey or Judge Wulwik to entertain an application for re-allocation and disapplication of the fixed costs regime, there was very good reason to refuse it. If, as I consider to be the case, it was no part of the agreement that the parties had reached that the fixed costs regime should be displaced, to make an order subsequently having that effect would run counter to the agreement. Deputy District Judge Harvey was undoubtedly entitled to decline to re-allocate even supposing that he had power to do so.

THE JUDGMENT OF LORD JUSTICE MALES

There are two important points made in this short judgment.

Lord Justice Males:
  1. I agree that the appeal must be allowed for the reasons given by Newey LJ. I wish to emphasise two points.
  2. First, Mr Mallalieu advanced a powerful argument that assessed costs and fixed costs are “conceptually different” (see Broadhurst v Tan [2016] EWCA Civ 94, [2016] 1 WLR 1928 at [30] and [33]), so that the words “costs to be subject to detailed assessment if not agreed” in the offer letter indicated an intention to depart from the fixed costs regime. In the end I have concluded, in agreement with Newey LJ, that taking the letter as a whole those words are not sufficiently clear to demonstrate such an intention and are outweighed by other considerations. It is unfortunate, however, that it has taken a trip to the Court of Appeal for this to be determined. If parties wish to settle on terms that fixed costs will be payable if an offer is accepted, it is easy enough to say so and thereby to avoid any scope for argument.
  3. Second, although the judge decided the case by reference to the terms of the consent order, Mr Mallalieu has taken his stand firmly on the offer letter and has disclaimed any submission that the terms of the consent order should lead to a different result. It has therefore been unnecessary for us to consider whether the appellant’s acceptance of the offer was in fact a counter offer or whether the consent order, with its reference to payment of costs “on the standard basis”, operated as a variation of an agreement previously made in correspondence. 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.
Tags: , , ,