The Court of Appeal has held that a claimant who unreasonably fails to follow the Pre-Action Protocol for Low Value Personal Injury (Employer’s Liability and Public Liability) Claims (the “EL/PL Protocol” or “the Protocol”) will normally only be able to recover the fixed costs and disbursements provided for under that Protocol, even if the claim settles before proceedings are issued and therefore does not strictly fall within the fixed costs regime set out in Part 45 of the Civil Procedure Rules (CPR). This is because failure to follow the Protocol constitutes misconduct (failure to follow rules, practice directions and/or court orders) on the part of the claimant, which the court can penalise by way of a costs sanction under Part 44.

In Williams v Secretary of State for Business, Energy & Industrial Strategy [2018] EWCA Civ 852, CMS acting for the successful defendant, the claimant suffered from noise-induced hearing loss (NIHL). His solicitors sent letters before claim to two of his former employers. NIHL claims for less than £25,000 are ordinarily dealt with through the EL/PL Protocol and an associated claims portal. The Protocol specifies fixed costs and disbursements that are recoverable by claimants. However, cases involving more than one employer defendant are exempt from the Protocol. Since the claimant’s initial correspondence sought damages from both employers, his solicitors did not follow the Protocol.

The claimant’s solicitors concluded prior to issuing proceedings that there was no viable claim against the second employer and informed BEIS’s solicitors accordingly. A few days later, the parties entered into settlement correspondence under Part 36 of the CPR, which eventually resulted in the claimant accepting an offer by the defendant. Under the Part 36 regime, the defendant was required to pay the claimant’s costs to the date of acceptance of the offer on the standard basis. The defendant argued that since by the time of settlement the claimant was only pursuing one employer, he should have followed the EL/PL Protocol, and therefore his costs should be limited to the fixed costs only. These amounted to £1,970, whereas the claimant had actually incurred just under £5,000. The claimant therefore issued costs-only proceedings under Part 8 of the CPR.

At first instance, the Deputy District Judge held that if the claimant had given proper instructions to his solicitors, they would have realised at the outset that only the claim against BEIS was viable and that the EL/PL Protocol applied. Part 45 provides that where a claimant unreasonably fails to comply with the Protocol, but obtains a judgment in his favour, fixed costs will apply. The Deputy District Judge concluded that this provision must be read as also applying to a settlement prior to the issue of proceedings, since otherwise there would be a perverse incentive for parties to delay settlement. On appeal, HHJ Godsmark was not prepared to read this implication into the words of Part 45 and remitted the case to the District Judge for an assessment of costs, but indicated that in his view the District Judge would be entitled to exercise his discretion by ordering that the appropriate figure for standard costs in this case was the same as the figure for fixed costs that would have been allowed if Part 45 applied. BEIS appealed to the Court of Appeal on the grounds that:

  1. HHJ Godsmark was wrong to conclude that Part 45 did not apply; and/or
  2. Even if Part 45 did not apply, Part 44 allows a court to take into account misconduct by a party when assessing costs, which in this case should lead to the same result as Part 45.

The Court of Appeal dismissed the first ground, agreeing with HHJ Godsmark that it was not appropriate for the court to redraft Part 45 to disapply conditions that were clearly expressed.

However, the court accepted the defendant’s argument on Part 44. CPR 44.11 set out the court’s powers in relation to misconduct by a party, including unreasonable conduct and/or failure to comply with a rule, practice direction or court order. The court’s powers include the discretion to disallow all or part of the costs that would otherwise be payable to the receiving party. The court held that these provisions provided “ample scope” for a district judge or costs judge to restrict costs to the fixed costs allowed in the EL/PL Protocol where a claim had been unreasonably made outside that Protocol. It was not necessary in such cases to conduct an item-by-item assessment. Rather, a claimant who unreasonably failed to follow the Protocol should “usually” be restricted to fixed costs. A defendant wishing to argue that only fixed costs should be recoverable should raise that issue as early as possible in the Part 8 proceedings, which would ordinarily be when filing its acknowledgement of service.

The claimant requested permission to appeal, which was refused. We are awaiting confirmation that the claimant has applied directly to the Supreme Court for permission.

The Court of Appeal acknowledged that the discretionary basis of Part 44 gives defendants less certainty as to their costs liability than would be the case if the fixed costs regime applied automatically. However, the court considered that some degree of uncertainty was inevitable because there would always be a need to consider whether the failure to use the EL/PL Protocol was unreasonable on the facts.

This remaining uncertainty means that it will be slightly more difficult for defendants to decide at what level to pitch a settlement offer before proceedings are issued than one which is made during the proceedings. However, overall this decision will come as a relief to employers and their insurers, as it provides a clear indication to costs judges that although they retain a discretion to assess costs on an item-by-item basis, the Court of Appeal considers fixed costs to be the default where a claimant has unreasonably failed to follow the Protocol. Employers will need to bear in mind, however, that in order to maximise their chances of restricting the claimant to fixed costs, they must raise the issue as soon as they acknowledge service of the proceedings. Since many employers handle smaller claims in-house in the initial stages, it may be advisable to expressly add this point to any claims-handling protocol used by the in-house legal team.