The Court of Appeal has confirmed that the fixed costs regime continues to apply where a Part 36 offer has been accepted before trial, unless there are exceptional circumstances. The court held that a delay of more than 18 months in accepting the offer did not amount to exceptional circumstances.
The Court of Appeal considered two linked appeals concerning cases that fell within the fixed costs regime, both reported at  EWCA Civ 1726.
Part 36.21 of the Civil Procedure Rules (CPR) specifically provides for the consequences where a party fails to beat a Part 36 offer at trial in a case that falls within the fixed costs regime set out in CPR 45 IIIA. However, the rules do not expressly deal with the situation where a Part 36 offer in such a case is accepted late, with the result that the case does not go to trial.
The defendants in both cases argued that as a result, the provisions of Part 36 dealing with the costs consequences of late acceptance of an offer simply did not apply in fixed costs cases.
In Hislop v Perde, the claimant made a Part 36 offer of £1,500. The defendant accepted the offer nearly 18 months later, a week before trial. The claimant sought fixed costs up to the notional date on which the Part 36 offer should have been accepted (i.e. the end of the standard 21-day period after the date of the offer), and indemnity costs thereafter. The county court initially awarded fixed costs for the entire period, holding that the delay was not out of the norm. On appeal to the High Court, Walden-Smith J awarded fixed costs to the notional date of acceptance and standard costs thereafter. The claimant appealed to the Court of Appeal.
In Kaur v Ramgharia Board Leicester, approximately five months after the claimant made a Part 36 offer, the defendant decided that it wanted to settle the claim, but without risking any possible costs consequences of a late acceptance of the claimant’s offer. Instead, the defendant made its own offer for a higher amount. The claimant accepted, but sought indemnity costs from the notional acceptance date of her offer to the date on which she had accepted the defendant’s offer. In the county court, the district judge concluded that the defendant’s conduct in seeking to avoid any costs consequences amounted to “exceptional circumstances”, which under CPR 45.29J can justify a departure from the fixed costs regime. However, because Part 36 did not expressly provide for indemnity costs in a situation of this kind, the district judge decided to award standard costs. The claimant’s appeal against this order was “leap-frogged” to the Court of Appeal to allow it to be heard with Hislop.
The Court of Appeal held that both claimants were only entitled to fixed costs. Coulson LJ stressed that even where the fixed costs regime did not apply, there was no presumption that the late acceptance of a Part 36 offer would always warrant indemnity costs. It was a question of fact in each case and depended upon whether or not there was a valid reason for the late acceptance.
Coulson LJ reiterated that the exceptions to the fixed costs regime were extremely limited and confined to those stated in the CPR. There was no such exception for cases where a Part 36 offer had been accepted late, but only for cases where it had been beaten at trial, which was a different situation. He held that this was not a drafting error or a gap in the CPR, but was intended to protect the autonomy of Part 45 and to provide certainty to the parties. As a result, late acceptance of a Part 36 offer could only take a case out of the fixed costs regime if the delay was sufficiently exceptional to bring the case within CPR 45.29J. Since the county court had already found that the delay in Hislop was not “out of the norm”, it also could not amount to “exceptional circumstances”, and therefore the court had no power to award indemnity costs.
As regards Kaur, Coulson LJ noted that the district judge had approached the issue on the basis that the claimant would have been entitled to indemnity costs if the defendant had accepted her offer instead of making its own. For the reasons stated above, there was no such entitlement. Nor was there any unfairness to the claimant, who had benefited from the defendant’s higher offer. The district judge had therefore been wrong to conclude that the defendant’s conduct gave rise to exceptional circumstances.
This decision is good news for organisations that regularly face claims under the fixed costs regime, as it is now clear that the fixed costs rules trump the rules in Part 36 on late acceptance of offers. Although fixed costs can still be disapplied in exceptional circumstances, delay in accepting a Part 36 offer will not normally be sufficient.
Nevertheless, the judgment does not rule out the possibility that a truly unusual degree of delay without a valid reason might take a case outside the norm. Parties which decide to accept a Part 36 offer after the expiry of the standard 21-day period should document their reasons for doing so in order to assist in defending any application to disapply the fixed costs regime.