Late acceptance of a Part 36 Offer does not automatically give rise to indemnity costs
Claimants have long argued that where a defendant accepts a claimant’s Part 36 offer outside the 21 day period, indemnity costs should flow.
Hislop v Perde & Kaur v Committee (for the time being) of Ramgarhia Board Leicester 
Court of Appeal – 23 July 2018
It has long been the case that claimants have argued that where a defendant accepts a claimant’s Part 36 offer outside the 21 day period, indemnity costs should flow. This argument has gathered force in recent years in particular in relation to claims otherwise caught by the fixed costs regime, as the rewards under the indemnity basis by way of hourly rates often exceed the fixed costs regime by some margin.
Weightmans LLP acting on behalf of Zurich Insurance sought to test the point but also arguing that delay in itself could not be said to be “exceptional”.
There have been a number of conflicting first instance decisions on this important issue in recent years. The Court of Appeal has now provided certainty to paymasters (as Zurich Insurance was in this case), ending the opportunistic approach of an element of the claimant community to maximize the recovery of costs without cause.
In Hislop the claimant was injured in a road traffic accident. The claim exited the RTA protocol due to liability being denied. Some 19 months after the claimant made a Part 36 offer on quantum, and just a week prior to trial, the defendant accepted the claimant’s offer.
In Kaur the claimant was injured when the roof of the defendant’s Temple was struck by lightning and collapsed. The claim exited the EL/PL protocol due to liability being disputed. The claimant offered to accept £2,000 which was rejected. Several months later (after an expert liability report was received that favoured the claimant) there were further negotiations. The claimant confirmed that she would accept £4,000 but had not withdrawn her earlier offer. The defendant did not accept the claimant’s offer out of time and instead made a higher Part 36 offer in the sum of £3,000 which was accepted.
Both defendants were forced to appeal initial decisions which allowed the claimants’ fixed costs up to the date of their offers, and indemnity (hourly rated) costs thereafter. The defendants argued that there was no discretion to award anything other than fixed costs. Importantly to all practitioners it was within the case of Kaur where it was disputed that delay in acceptance was “exceptional” under r.45.29J, justifying a departure from the fixed costs regime.
Court of Appeal Judgment
The appeals were heard by Lord Justice Longmore, Lord Justice Coulson and Lady Justice King on 20th and 21st June 2018. Both appeals were allowed. In handing down judgment Lord Justice Coulson confirmed:
- the specific rules of Part 45 ‘trump’ the general rules of Part 36 and only fixed costs can be awarded in cases of late acceptance;
- the case of Solomon v Cromwell Group PLC remains authority for the proposition that the fixed costs regime will continue to apply to those cases covered by it, unless there is an express exception;
- the rationale of the regime is to ensure that both sides begin and end the proceedings with the expectation that fixed costs is all that will be recoverable. The regime provides certainty. It also ensures that, in low value claims, the costs which are incurred are proportionate. In addition, whatever the perceived injustice in any given case, the ‘swings and roundabouts’ identified by Briggs LJ in Sharp v Leeds City Council  will still apply;
- the only two ways to escape the fixed costs matrix are those expressly in the rules; namely a claimant beating its own Part 36 offer at trial (Broadhurst v Tan) and those cases which the Court considers to be exceptional (CPR r45.29J).
This is a milestone decision which provides much needed clarification as to the cost consequences in cases of late part 36 acceptance. The Court of Appeal has definitively confirmed that Part 45 ‘trumps’ Part 36 - in any ‘ex-protocol’ case a claimant will only be entitled to fixed costs if their offer is accepted late.
Whilst the decision is definitive, all should still be alert to the possible avenue of escape of arguing ‘exceptional circumstances’ under r.45.29J, which may justify an award of indemnity costs. Whether a party’s conduct is sufficiently unreasonable to trigger this rule will always be fact specific, preventing any meaningful guidance from the Court; however Lord Justice Coulson re-iterated that the threshold for this test is high and that mere delay on its own is unlikely to be sufficient. The 19 month delay in Hislop was not ‘out of the norm’, with Lord Justice Coulson stating “if it was not out of the norm, it certainly cannot be exceptional”.
With the likely wide and wholesale expansion of the fixed costs provisions across the civil jurisdiction in the near future, this case will have a much wider scope and application, a factor which was expressly noted by the Court.
Lewis Hough and Shaun Lavery of Weightmans LLP represented the Defendant in the case of Kaur v Committee (for the time being) of Ramgarhia Board Leicester and its public liability insurers, Zurich Insurance PLC.
For further information about Weightmans LLP or to discuss any of the issues in this update, please contact:
- Peter Forshaw, Partner on 0151 242 7935 or via email at firstname.lastname@example.org.
- Lewis Hough, Solicitor on 0151 242 9448 or via email at email@example.com,
- Shaun Lavery, Costs Specialist, on 020 7822 7145 or via email at firstname.lastname@example.org.