The Court of Appeal has overturned a decision which held that fixed costs did not apply to a case where a consent order had stated that costs were to be assessed on the standard basis. The Court agreed with the first instance decision that the fixed costs regime should apply, as the case remained in the fast track at the time of settlement.
This road traffic injury claim was allocated to the fast track. An application to re-allocate the claim to the multi-track due to an increase in the value of the claim was outstanding when the Defendant made a Part 36 offer of settlement by letter ("the offer letter"). In a subsequent email, the Defendant consented to the re-allocation.
Before the matter was reallocated, the Claimant accepted the Defendant's Part 36 offer. The Tomlin Order approved by the Court stated: "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 parties were unable to agree as to whether the fixed costs regime applied. At first instance, DDJ Harvey held that the costs should be decided in line with the fixed costs regime under CPR Part 45.
His Honour Judge Wulwik granted the Claimant's appeal. He noted that the Claimant's application to re-allocate the claim to the multi-track had been agreed by the Defendant prior to the Claimant accepting the offer. He referred to the judgment in Solomon v Cromwell Group PLC, which stated "there was no reason in principle why, if parties choose to agree different terms, the agreement should not be enforceable by ordinary process".
Based on the wording of the Tomlin order, HHJ Wulwik held that "the costs order that was agreed by the parties in paragraph 3 of the consent order was entirely consistent with the parties' agreement that the claim should be reallocated to the multi-track".
The Defendant was ordered to pay costs on the 'standard basis'. The Defendant appealed.
Court of Appeal
The parties focused their submissions on the content of the offer letter, and the claimant argued that the claim should have been re-allocated to the multi-track, with "an order applying the costs rules applying to that track retrospectively." Two issues were to be addressed by the Court:
- Did the Defendant's solicitors, by their letter of 19 April 2017, offer to pay 'conventional' rather than fixed costs?
- If not, should the claim be re-allocated to the multi-track with retrospective dis-application of the fixed costs regime?
The interpretation of the letter required an assessment of the objective meaning of the language, per Wood v Capita Insurance Services. The Defendant's interpretation was clear, that it intended to convey an intention to pay fixed costs.
The Claimant argued the opposite, submitting that:
- CPR 36.5(1)(c) requires a party to specify whether CPR 36.13 or 36.20 is intended to apply to an offer. The reference in the offer letter to 36.13, led to the conclusion that conventional costs were offered.
- In addition, the offer letter referred to 'assessment', which was a conceptually different proposition than offering fixed costs, per Broadhurst v Tan.
- It should have been anticipated that re-allocation would occur and that conventional costs would become payable retroactively.
The Claimant acknowledged that the Tomlin Order had the effect of staying the claim prior to the re-allocation being confirmed. However, Counsel for the Claimant submitted that "the question whether the claim should be re-allocated with a view to disapplication of the fixed costs regime is one 'of costs…relating to the proceedings' and so unaffected by the stay."
The appeal was granted. Lord Justice Newey, giving the leading judgment, held in respect of the two issues:
Newey LJ held the offer letter "correctly construed, did not offer to pay conventional rather than fixed costs". In reaching this conclusion, he found:
- CPR 36.5.1(c) was concerned with the period within which the offer was to be accepted, and was of no help to the Claimant's submissions.
- Whilst the standard N242A (Offer to settle) form refers to 36.13 and not 36.20, and the offeror is under no obligation to use it; the content of 36.13 provides for its operation subject to 36.20, which records that accepting a Part 36 offer in certain circumstances (such as a claim exiting the RTA protocol) will carry certain costs consequences, including fixed costs.
- The letter was intended to make an offer to which Part 36 applied, and the claim was no longer continuing under the RTA Protocol pursuant to 45.29A(1). Therefore, to make an offer on this claim which offered to pay costs on a basis other than the fixed costs regime of Part 45 such would have been incompatible with Part 36; therefore such an offer could not have been a valid Part 36 offer.
- The reference to 'detailed assessment' in the offer letter was "far from ideal". However, the reference to 'detailed assessment' should not have been taken "to imply an intention to displace the fixed costs regime where there are other indications that was not intended".
- It was "inherently improbable" that the Defendant intended to offer conventional rather than fixed costs. Simply put, it would have meant the Defendant having to pay more.
- Referring to the decision in Solomon as relied up by HHJ Wulwik, the Court noted that "Part 36 has been revised to take account of the fixed costs regime, the basis for the decision in Solomon has disappeared".
HHJ Wulwik had previously dismissed this argument. The Court of Appeal agreed. The terms of the Tomlin Order made no reference to re-allocation and/or disapplication of the fixed costs regime, and it was not open to DDJ Harvey or HHJ Wulwik to consider it.
If it was open for them to do so, then they would have been entitled to decline re-allocation as "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."
What can we learn?
- Practitioners have now been provided with clarity on this issue. Best practice is that a defendant wanting to make a Part 36 offer on the basis of fixed costs applying should refer to CPR 36.20 and not CPR 36.13, as well as ensuring that any reference to costs being on the 'standard basis' or 'assessed' be omitted.
- In his supporting judgment, Lord Justice Males stated that "parties who wish to settle on terms that fixed costs will be payable would be well advised to avoid reference to settlement 'on the standard basis' in any offer letter or consent order".
- Parties can still agree to contract out of fixed costs but such agreement should be clear.
- The decision to grant the appeal overturning the decision of HHJ Wulwik is unsurprising. As we highlighted in our analysis of the initial appeal decision, the rationale of the Judge did not appear to follow basic contractual principles. There was a strong argument that there was not the sufficient meeting of minds as to the terms of the contract to say that the parties were ad idem?