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Hislop v Perde, Kaur v Ramgarhia Board – Fixed Costs Only on Late Acceptance of Part 36 Offer

July, 24, 2018

The Court of Appeal has decided that, generally, claimants cannot recover indemnity basis costs when their part 36 offers are accepted late in fixed recoverable costs cases. In a welcome decision for defendants, which should put an end to the outpouring of indemnity costs applications by claimants, the Court of Appeal have confirmed that fixed costs mean fixed costs.

Late in the afternoon of 21 April 2016, District Judge Besford, sitting in the County Court at Hull, heard the case of Sutherland v Khan. He was faced with a difficult costs issue. The claimant had made a part 36 offer, and the defendant had accepted it “out of time”. The claimant sought costs on the indemnity basis as a result of the late acceptance. The defendant said that costs were fixed, because this was a Road Traffic Accident claim that had dropped from the portal system.

Lady Justice

The judge was concerned to give a decision that day, rather than delay the case for a reserved judgment. He considered the decision of the Court of Appeal in the case of Broadhurst v Tan. In that case the Court of Appeal had concluded that a claimant in an RTA fixed costs case was entitled to costs on the indemnity basis where he beat his Part 36 offer at trial. District Judge Besford applied that case to the “late acceptance” situation and awarded the claimant indemnity costs for the period after the offer expired.

Like the falling pebble that sets off an avalanche, that decision was to have some far reaching effects.

Across the country, claimants with fixed costs cases heard about the decision and began to issue applications for indemnity costs where their part 36 offers were accepted late, even where the defendant was only out of time by a matter of days. Some even issued applications where they had accepted a defendant’s offer in time. Claimants’ solicitors gave the impression of being eager to seize any opportunity to obtain any extra costs above the fixed amounts.

Different District Judges made different decisions. Some awarded only fixed costs, some indemnity basis costs and some standard basis costs. There were many appeals to circuit judges. Those decisions contained the same variety of conclusions. District Judge Besford considered those decisions and in a later case on very similar facts, he declined to award indemnity basis costs, and limited the claimant to fixed amounts.

There was no appeal in Sutherland but with a certain amount of inevitability, two of the late acceptance cases that followed it have finally reached the Court of Appeal, which yesterday gave judgment in the conjoined cases of Hislop v Perde and Kaur v Ramgarhia Board.

The Court of Appeal found for the defendants that in a fixed costs case there was no route from a part 36 acceptance to an award of indemnity costs.

The decision

The first case, Hislop, was a straightforward case of late acceptance. In the second case, Kaur, the defendant had sought to avoid the Sutherland v Khan result by making a new offer, higher than the claimant’s, which the claimant promptly accepted. In both cases, the Court of Appeal concluded that the claimants were limited to fixed costs.

The key points from the decision are:

  1. The Court re-affirmed the general position as to late acceptance and indemnity costs in cases where the fixed costs regime doesn’t apply. The Court confirmed that in that regard, nothing has changed as a result of the Jackson reforms. There is no presumption in favour of an indemnity basis order in a late acceptance case, although there might sometimes be cases where the late acceptance is so “indefensible” that it justifies an indemnity basis order.
  1. However, even that limited situation doesn’t apply in a fixed costs case. The regime for cases that start in one of the portals and drop out is comprehensive.  The exceptions to it are very limited. The Court of Appeal were not at all attracted to the idea of creating a new category of exception.  On detailed consideration CPR 36, the Court concluded that CPR 36.13, which contains the general provisions for the costs consequences of part 36 offers, did not apply at all in a fixed costs case. The rule that applied was CPR 36.20, and that rule did allow a claimant to make any additional claim for costs, save where specified in that Rule.
  1. It is still open to a claimant to argue that there were exceptional circumstances under CPR 45.29J which meant that the Court should award indemnity costs (or additional standard costs). The Court was reluctant to go too far into that issue, beyond confirming that it was available in principle.  The Court re-emphasised that only exceptional cases should escape the regime. The principle that there was no presumption in favour of indemnity costs for late acceptance applied equally to suggestions that the late acceptance was an exceptional circumstance. The test was a high one, and it was not met in either of the cases that the Court was considering.

Discussion

This is a welcome judgment for defendants that hopefully draws this particular sequence of collateral attacks on the fixed costs regime to a close, and will allow the considerable number of cases that were stayed pending the decision to be resolved.

We have always felt that the “indemnity costs for late acceptance” arguments were bad ones, and that they were based on a fundamental misapplication of the rules. It is satisfying to see that view vindicated in the Court of Appeal.

It is important to note that the two principal escape routes from fixed costs remain unchanged:

  1. Nothing in the judgment alters the Court of Appeal’s decision in Broadhurst v Tan. A claimant in a fixed costs case who beats his own offer at trial will still be entitled to indemnity costs.
  2. The Court of Appeal have confirmed that it is possible to contend for exceptional circumstances in a late acceptance case. They emphasise that the hurdle is high, but there is no doubt that some claimants will try to get over it. The Court of Appeal were disinclined to give any guidance beyond stating that “a long delay with no explanation may well be sufficient to trigger r.45.29J; a short delay with a reasonable explanation will not” which immediately raises questions.  What will be the position for long delay with a reasonable explanation or a short delay with no explanation? What period is a long delay?

Thus far applications to “escape” fixed costs under CPR 45.29J have been exceedingly rare and it is not, therefore, surprising that there are no binding authorities on what may amount to exceptional circumstances. We anticipate that some firms will now seek to use this route and, ultimately, the Court of Appeal will be called upon to provide some guidance on this Rule.

If you would like to discuss any of these issues please contact Nicola Critchley.

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