Part 36 offers and Fixed Recoverable Costs – can a party contract out of FRC?

Perhaps one of the most talked about aspects of the most recent reforms (and, let’s be honest, they are not that recent, but yet still remain a controversial topic) has been Fixed Recoverable Costs (“FRC”). Like them (paying parties, mostly) or loathe them (receiving parties, again mostly), far from providing the clarity that they were hoped and intended to do, they have proven fertile ground in which to plant the seeds of required further interpretation and clarification which, with varying degrees of enthusiasm, the Court of Appeal has sought to gather in the resulting harvest and distribute to the waiting and hungry profession.

The latest bounty to be scythed from this rich corner of the Civil Procedure Rules’ comes in the form of the matter of Ho v Adelekun [2019] EWCA Civ 1988, a matter which arose from a Road Traffic Accident which started its life in the RTA Protocol, but which exited the protocol when the Defendant failed to admit liability.

The matter then progressed through allocation, being initially allocated to the Fast Track and, thereafter, an Application by the Claimant under CPR 26.10 following an increase to the value of the claim, to re-allocate to the Multi-track. The matter was not re-allocated however, as the matter settled shortly before the Claimant’s Application could be heard and it was the method of settlement, along with the specific circumstances of the same which gave rise to the dispute between the parties, a dispute which the Court was advised could, potentially, affect “many other cases”, hence it coming to the attention of the Court of Appeal, having initially been determined in favour of the Defendant by Deputy District Judge Harvey in the County Court at Central London, and thereafter being determined in favour of the Claimant upon appeal to His Honour Judge Wulwik.

The factual matrix of the argument arose out of a Part 36 offer made by the Defendant in the sum of £30,000, which was made by letter on 19 April 2017 (with the Claimant’s Application for re-allocation being listed for 24 April 2017) and which stated,

"We are instructed by the Defendant to offer £30,000.00 gross in full and final satisfaction of this claim.

This offer is made in accordance with Part 36 of the Civil Procedure Rules. The terms of the offer are as follows:

1. Our client offers £30,000.00 by way of a gross lump sum in full and final settlement of your client's claim. This offer is made in relation to the whole of your client's claim.

2. The sum is gross of benefits repayable to the CRU….

3. 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.

If your client accepts the offer after the 21 day period then either we will need to agree the costs liability or the court will have to make an order as to costs."

and given the imminent nature of the Claimant’s Application, the Defendant wrote to the Claimant by e-mail on the following day chasing up as to whether they had been able to take instructions upon the Part 36 offer, and further confirming that they could consent to the re-allocation to the Multi-track.

The Claimant responded by e-mail on 21 April 2017, noting

"As discussed, I am pleased to confirm that the Claimant will accept your offer of settlement in the sum of £30,000. I have attached a consent order setting out the terms of settlement.

The court have requested that we submit a consent order so that the hearing on Monday may be vacated. I should be grateful if you could sign the attached consent order and return it to me so that I may file it at court."

with the order enclosed therewith being in the form of a Tomlin Order, setting out that the parties had settled the claim in the terms contained within the schedule, providing for the Application hearing to be vacated and, further, that the Defendant pay "the reasonable costs of the Claimant on the standard basis to be the subject of detailed assessment if not agreed", and the Order was approved on 24 April 2017, concluding the substantive claim save as to the costs.

It was, however, upon the issue of the costs that the parties remained at odds, with the Defendant contending that the Claimant was not entitled to anything more than FRC, and the Claimant contending that they were entitled to costs ‘at large’. The difference between the parties respective positions was considerable, with the Defendant estimating FRC to equate to between approximately £14,500 to £16,000, and the Claimant contending for some £42,000.

As noted above, the matter was initially resolved before the Deputy District Judge in favour of the Defendant, and reversed by the Circuit Judge on appeal, in favour of the Claimant, who further appealed to the Court of Appeal for determination of the position.

The matter was distilled into 2 distinct aspects, namely

“…

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]

…”

which the Court sought to determine following arguments from both parties which were acknowledged by the Court to have been “…very well argued on both sides…”.

As regards Issue 1, the Claimant argued that reference within the letter to CPR 36.13, as opposed to CPR 36.20 gave rise to an automatic disapplication of FRC, thus they were entitled to their costs without restriction.

Newey LJ adopted the approach to the interpretation of the wording of the rules and the offer letter by assessing the "objective meaning of the language" and achieving "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" with reference to both Lord Hodge and Lord Hoffman in the matters of Wood v Capita Insurance Services Ltd [2017] UKSC 24 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 respectively concluding with reference to the relevant rules that

“…

28. In my view…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.

29. 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.

30. 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).

31. 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.

32. 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.

33. 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.

34. 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.

35. 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.

36. 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.

…”

and further cautioning that (at [37])

“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".”

The Claimant’s ‘fall-back position’, Issue 2, relied on the contention that the matter ought to have nonetheless been re-allocated to the Multi-track, with a direction to disapply FRC retrospectively. This argument had not succeeded upon the appeal from the first instance decision heard by His Honour Judge Wulwik, who noted within his judgement that

"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."

nor was Newey LJ persuaded to find to the contrary, noting

“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.”

and accordingly the Appeal was allowed, with Males LJ and Sir Geoffrey Vos, Chancellor of the High Court concurring, restoring the original decision of the Deputy District Judge.

The judgement highlights the necessity to ensure that the contractual context of any Part 36 offer, despite the same being governed by a self-contained code, is made entirely clear and, if any uncertainty as to the same may arise, that it is clarified prior to any acceptance.

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