Late acceptance of Part 36 offers and fixed costs – don’t expect indemnity costs

A much anticipated decision from the Court of Appeal in relation to the interplay between, on the one hand the costs consequences of late acceptance of Part 36 offers and, on the other hand, the fixed costs provisions in Part 45, is now to hand.

In Hislop v Perde [2018] EWCA Civ 1726 (23 July 2018), Coulson LJ delivered the lead judgment and dealt a blow to those wishing for a decision which would favour the precedence of Part 36 over Part 45. Those in that camp felt that a principal aim of Part 36 was to incentivise Claimants to make realistic offers at an early stage and therefore, accordingly, where such an offer was made but accepted “late” then there should be adverse costs consequences for the paying party. The decision was that in general, it will only be fixed costs which apply.

This case fell in the middle ground between 2 decided cases.

In Solomon v Cromwell Group PLC [2012] 1 WLR 1048, it was held that in a fixed costs case where a Part 36 offer is accepted within 21 days, neither party could recover more or less by way of costs than as provided for by the fixed costs regime. In Broadhurst v Tan [2016] EWCA Civ 94, it was held that in a fixed costs case which went to trial and where the Claimant bettered a Part 36 offer, there was an entitlement to indemnity costs from the date that the offer became effective.

In the middle therefore was this case (and an associated case dealt with at the same time by the Court of Appeal) where there is “late” acceptance of the Claimant’s Part 36 offer and the question which arose was whether standard or even indemnity costs from the date the offer became effective could be recovered.

In the judgment, Coulson LJ looked at the rules as to the costs consequences of acceptance of Part 36 offers generally and within the fixed costs regime (36.13, 36.17, 36.20, 36.21) and the application of fixed costs as provided for by Part 45 (45.29B and D) and the provision at 45.29J which provides that in exceptional circumstances the court will consider a claim greater than fixed recoverable costs.

He noted that leaving aside for a moment the complications arising from a matter being within the fixed costs regime, there is no presumption that late acceptance of a Part 36 offer will lead to indemnity costs. That will be a question of fact in each case. He also noted the comprehensive nature of the fixed costs regime and that it had been designed such that there were limited ways of escaping from it (referring to the exposition of these principles in Sharp v Leeds City Council [2017] 4 WLR 3465). The regime will apply unless there is an express exception that can be relied upon.

In Broadhurst, there was no exception within Part 45, but what is now 36.21 provided an additional exception. The difficulty facing a Claimant arguing for something other than fixed costs when the matter settled before trial is that different rules applied. The general rule of 36.13 on costs consequences of acceptance is not preserved by the rule applicable to fixed costs cases (36.20), whereas it does preserve 36.17 dealing with costs consequences following trial:

“On that basis, I consider that the correct interpretation of the rules is to say that, in a fixed costs case, r.36.20 applies where an offer is accepted late, and that r.36.13 does not apply at all”.

He found 4 reasons to support this interpretation.

First, it was in accordance with the comprehensive nature of the fixed costs regime which was intended to apply without further ado or argument. Thus, in relation to offers made under Part 36, the only way out of the regime is triggered where such an offer is beaten at trial.

Second, it preserved the autonomy of Part 45. Where a case commences in that regime, it should only be in exceptional circumstances that it is escaped. Both sides should begin and end the proceedings with the expectation that fixed costs is all that will be recoverable. This provides certainty and ensures proportionate costs. Any perceived injustice in a particular case will just have to be accepted on the “swings and roundabouts” principle.

The same principles would apply in a mirror situation where a Claimant accepts a Defendant offer late. Thus, there would be no expectation that a Defendant would recover anything other than costs related to the fixed costs. Fourth, if there is an exceptional case of delay, then the provisions of 45.29J provide an escape. Given the existence of that rule, there is a clear incentive for a Defendant not to delay in accepting a Claimant Part 36 offer. In essence therefore, the only “sanction” for late acceptance by a Defendant will generally be if the matter has moved into a different phase of fixed costs since the offer became effective. Thus, the argument in favour of certainty of outcome has won the day against the argument in favour of incentives for a Claimant to make early, realistic offers. Nevertheless, the potential benefits available should the matter proceed to trial and the offer be bettered do remain and therefore there is still good reason for the Claimant to make a sensible Part 36 at an appropriate juncture.