Udogaranya v Nwagw – acceptance of offer pre-action [2010] EWHC 90186 (Costs) www.bailii.org/ew/cases/EWHC/Costs/2010/90186.html

Where a Part 36 offer is made by the defendant and accepted by the claimant before proceedings are commenced, the claimant is unable to claim costs on the standard basis in accordance with CPR 36.10 because there are no proceedings. Where there is a disagreement about the costs to be paid by the defendant, the claimant’s Part 8 claim to recover costs falls to be dealt with under CPR 44.12A (costs-only proceedings) and not under the Part 36 regime.

This claim arose from a road traffic accident and the agreed damages were less than £10,000. In such a case, CPR 44.12A requires the costs to be dealt with under the fixed costs regime in CPR 45. Under CPR 45.12 it is possible for the court to award additional costs in exceptional circumstances. Master Haworth held that this was not a run-of-the-mill case and fell within CPR 45.12. In his words “the insurers and the defendant’s solicitors scatter their shot somewhat widely as to breach of duty” and causation and liability were disputed. The claimant’s side had been put to considerably more work than would otherwise be the case in this type of claim. However, whilst this entitled the claimant to push forward to a detailed assessment, he would run the risk by so doing of falling foul of CPR 45.13 which provides that he must do better by 20 per cent than the fixed costs he would otherwise have received. As the judge put it, whilst he may win the battle, he may not win the war.

Comment

This decision flags up a problem with the drafting of CPR 36.10 which has been identified by commentators but has not previously come before the courts. When a Part 36 offer is made pre-action in accordance with CPR 36.3(2) and is then accepted by the other side without proceedings being issued, what is the effect of the statement in the offer that the defendant will be liable for the claimant's costs in accordance with CPR 36.10 if the offer is accepted?

CPR 36.10 states:  

“…where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings up to the date on which notice of acceptance was served on the offeror.”

The problem is that where the offer is accepted pre-action, there are no proceedings. Read literally, therefore, CPR 36.10 cannot apply in such circumstances and that is what Master Haworth held in the present case. He said that for the claimant to be able to rely upon CPR 36.10, the defendant’s offer needed to say that “the defendant would be liable for the claimant’s costs, including the costs pre-issue of proceedings in accordance with CPR 36.10”.

The consequence for the claimant in the present case was extremely disadvantageous because he was not entitled to rely upon CPR 36.10 and found his costs being assessed in accordance with the predictable costs regime for low value road traffic cases under CPR 45.  

In another type of case, the claimant would be unable to claim his costs on the standard basis as a matter of right and would have to argue for them under the general costs jurisdiction in CPR 44.3. Not necessarily a problem in a straightforward case, but still an annoying uncertainty.  

The problem arises from the poor drafting of Part 36 and there is a good chance that a higher court would decide to interpret CPR 36.10 as referring to pre-action costs where proceedings were not begun (Goode v Martin is an authority for creative interpretation of the CPR where this is necessary to enable the court to deal with a claim justly). This would give effect to the purpose of Part 36 which is to encourage parties to settle as early as possible. And even if the court did not feel able to be that creative in its interpretation of CPR 36.10, the court would surely give a defendant short shrift were he to argue that, although he had offered to pay the claimant’s costs, he shouldn’t have to pay them, whether at all or in part.

This case concerns a problem for claimants but in general pre-action costs are a problem for defendants. Where a defendant incurs significant costs preparing a response to a letter of claim and instructing an expert to consider the claimant's expert's report, he can recover nothing if the claimant backs down and abandons the claim. The CPR do not entitle a party to recover any costs where they have complied with a pre-action protocol. They do, on the other hand, provide for potentially draconian penalties should a potential defendant fail to comply with a protocol or the protocol practice direction.

The case of McGlinn v Waltham Contractors Ltd is also a problem for defendants. The defendant faced a series of claims arising from a building contract. During the pre-action protocol stage, it incurred costs which ultimately persuaded the claimant not to pursue some of the claims when he issued proceedings. The defendant sought to recover costs relating to those abandoned claims.

Costs can be recovered by a party under s51 of the Senior Courts Act 1981 if they are “costs of or incidental to” the proceedings. Although, on the face of it, these could be said to be costs incidental to the proceedings, the judge held that the costs of abandoned issues and heads of claim cannot be recovered save in exceptional circumstances which give rise to some sort of unreasonable conduct. He commented that it would be contrary to the whole purpose of the pre-action protocols if claimants were routinely penalised if they decided not to pursue claims in court which they had originally included in their protocol claim letters.

The position is likely to be different where the claimant has begun proceedings before complying with the relevant protocol or the Practice Direction – Pre-action Conduct. Where, for example, proceedings have been started prematurely because a limitation period is about to expire, they are required by paragraph 9.6 of the practice direction to apply to the court for a stay of the proceedings whilst they take steps to comply. Points abandoned after following the protocol procedure would in this situation be “costs of and incidental to” the proceedings which will already be in existence and costs incurred in dealing with these points could in principle be recovered.