Source: http://disputeresolutionblog.practicallaw.com/fixed-costs-can-you-contract-out-of-the-regime/
Timestamp: 2020-01-22 19:51:49
Document Index: 57646584

Matched Legal Cases: ['art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36']

Fixed costs: can you contract out of the regime? | Dispute Resolution blog
Fixed costs: can you contract out of the regime?
Fixed costs under CPR 45. The upside: the winning lawyer recovers costs in a fixed amount depending upon the stage at which the case has been completed, whether or not work to that value has been done. The downside: the lawyer does not recover any extra costs for doing work which the fixed costs do not cover, so that case will have been run at a loss (note that there is a “safety valve” under CPR 45.29J which allows sums in excess of fixed costs to be recovered in “exceptional circumstances”, but it is an uphill struggle to persuade the court to do so). However, where the fixed costs regime does not apply because the case is proceeding in the multi-track, the party who wins with costs is entitled to have them assessed by the court if they cannot be agreed: see CPR 47. In those circumstances, the sky is the limit, provided those costs are reasonable, necessary and if payable on the standard basis, also proportionate.
A concise judicial exposition explaining the difference between fixed costs and costs to be assessed by the court can be found in Broadhurst v Tan at paragraph 20:
“Fixed costs are awarded whether or not they were incurred and whether or not they represent reasonable and proportionate compensation for the effort actually expended. On the other hand assessed costs reflect the work actually done. The court examines whether the costs were incurred and then asks whether they were incurred reasonably and (on the standard basis) proportionately”. (Per Dyson MR.)
What happens if your case falls within the fixed costs regime and you want to escape from it, not via CPR 45.29J, but, for example, because substantial damages have been recovered even though the case has yet to be allocated to the multi-track? Can you “contract out”?
The short answer is “yes”: see Solomon v Cromwell Group PLC where Moore-Bick LJ spoke at paragraph 21 of parties being unable to recover more or less by way of costs than the fixed costs regime provides for:
“… subject to any agreement between the parties to the contrary”.
So far so clear, but the difficulty then arises about how such an agreement should be formulated. Get it wrong and the party who wishes to escape the regime will find instead that they are stuck with fixed costs. That will be so even though they may have done work valued far in excess of the amount payable under CPR 45, or where the damages recovered have been greater than the limit for normal allocation to the fast track (viz £25,000: see CPR 26.6(4)(b)(i)).
That was the situation in Ho v Adelekun, in which judgment was handed down by the Court of Appeal on 19 November 2019 (Vos C, Newey and Males LJJ). The facts are straightforward. Miss Adelekun was injured in a road traffic accident caused by Mrs Ho. The claim was notified under the RTA protocol but as liability was not admitted, it dropped out of the portal and was allocated to the fast track. Subsequently, Miss Adelekun’s solicitors applied for the matter to be transferred to the multi-track, but before the application was heard, Miss Ho’s insurer’s made an offer (described as a Part 36 offer letter) to settle in the following terms:
“We are instructed by the defendant to offer £30,000 gross in full and final satisfaction of this claim…
If the offer is accepted within 21 days, our client will pay your client’s legal costs in accordance with Part 36 Rule 13 of the CPR such costs to be subject to detailed assessment if not agreed.
Miss Adekuken’s solicitors responded in the following terms:
“As discussed, I am pleased to confirm that the claimant will accept your offer of settlement in the sum of £30,000. I have attached a consent order setting out the terms of settlement.”
That order proved to be acceptable and was approved by the court in the following terms:
“… [for Mrs Ho] to pay the reasonable costs of the claimant on the standard basis to be the subject of detailed assessment if not agreed.”
Below, HHJ Wulwik had decided the subsequent dispute about what had actually been agreed, by reference to the terms of the offer. In the Court of Appeal, that stand was not taken and Miss Adeluken’s case was advanced solely in reliance upon the Part 36 offer letter.
The “subsequent dispute” had arisen in the following way. Mrs Ho’s insurers contended that as the claim had not yet been allocated to the multi-track (even though their consent had been given for that purpose), fixed costs under CPR 45 applied. These were estimated at about £14,500 to £16,000. Miss Adeluken’s case was that she was not limited by CPR 45 and that assessed costs were payable. These she sought in the sum of £42,000.
Before the district judge, Mrs Ho prevailed: on appeal to HHJ Wulwik, Miss Adeluken was the winner. The battle lines were now drawn for a second appeal to the Court of Appeal, in which an issue about whether the case should also be re-allocated to the multi-track also fell to be decided.
At this point it is necessary to digress into the mechanics of Part 36. Under CPR 36.20, the costs consequences of the acceptance of a Part 36 offer where CPR 45 applies are explained. They are that where (as here) the case has exited the RTA portal, the offeree is entitled to fixed costs in Table 6B, Table 6C or Table 6D in section IIIA of CPR 45. That is to be contrasted with the costs consequences of an acceptance under CPR 36.13. They are that the offeree is entitled to the costs of the proceedings, those costs to be assessed on the standard basis in accordance with CPR 47.
In the Court of Appeal, the issue was whether the reference in the letter to CPR 36.13, rather than CPR 36.20, meant that costs were to be assessed rather than fixed costs applied. Expressed differently, had the parties contracted out of the fixed costs regime so the sky was the limit for the costs payable, subject to reasonableness and so on?
They had not, the court held unanimously, albeit it appears with some reluctance by Males LJ. In the first place, notwithstanding that the Part 36 offer letter had selected Part 36.13 rather than Part 36.20 and additionally that “such costs [were] to be subject to detailed assessment if not agreed”, it was not of any great significance, according to Newey LJ who gave the lead judgment:
“CPR 36.10 itself highlights the fact that CPR 36.20 applies to a claim formerly under the RTA Protocol and in effect sends the reader on to that route ….” (paragraph 29).
Moreover, a simple reference to CPR 36.13 would probably not suffice and whilst it was not ideal that the letter had referred to “detailed assessment”, it was not wholly inapposite. The fixed costs regime did involve an assessment of some kind. In addition, it was inherently improbable that Mrs Ho’s insurers had intended to offer costs to be assessed since the fixed costs regime was likely to be much more favourable to a paying party such as them. It followed that the offer had not been one which had offered to pay costs outside the fixed costs regime. Appeal allowed on that point.
What of re-allocation? The argument here was that although the case had not been re-allocated when the offer had been accepted, Mrs Ho’s insurers had consented to that course. Accordingly, the case should be re-allocated to the multi-track under CPR 26.10 with a direction under CPR 45.13 disapplying the fixed costs regime with retrospective effect.
That argument, too, fell on stony ground. Whilst the stay of the proceedings under CPR 36.14(1) did not prevent the court from dealing with any question about costs relating to the proceedings, that did not extend to re-allocation, even if that had been sought with a view to obtaining a costs direction under CPR 46.13.
So Miss Adelekun’s case failed on both counts: fixed costs applied and it was not open to the court to alter that even if it wished to do so.
Lessons for the future? The first point is that when the fixed costs regime is under the judicial spotlight, the direction in which the Court of Appeal wishes to proceed is that fixed costs are just that, costs that are fixed. As Coulson LJ put it in Hislop v Perde at paragraph 50:
“The whole point of the regime is to ensure that both sides begin and end the proceedings in the expectation that fixed costs is all that will be recoverable”.
Little wonder therefore in Adeluken, that where there had been an agreement that the loser would pay “costs to be assessed if not agreed”, the Court of Appeal construed that as meaning, “we agree to pay fixed costs, not costs to be assessed, even though our offer says assessed costs, not fixed costs ”. Indeed, according to Males LJ “other considerations” had been sufficiently clear to demonstrate such an intention. That said, where defendants wished to make Part 36 offers on the basis that the fixed costs regime applied, they would be well advised to refer in the offer to CPR 36.20, not CPR 36.13, and to omit any reference to the costs being “assessed” or to assessment “on the standard basis” in any offer letter.
Not much comfort that to Miss Adeluken’s legal advisers, nor for those for whom they act to settle in future before any application to re-allocate is heard. Merely accepting an offer for costs to be assessed if not agreed, and evidencing that in a consent order, is not enough. To contract out of fixed costs effectively, it is plain that you need also to say that the fixed costs regime in CPR 45 is not to apply: CPR 47 will do so instead. Forget to do that and fixed costs will be what you have contracted for and fixed costs will be what you get, however much was recovered in damages above the normal £25,000 limit.
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