Acceptance of a Part 36 offer creates a deemed order for costs. Right?
Not necessarily.
So far as relevant:
CPR 44.9
“(1) Subject to paragraph (2), where a right to costs arises under –
…
(b) rule 36.13(1) or (2) (claimant’s entitlement to costs where a Part 36 offer is accepted);
…
a costs order will be deemed to have been made on the standard basis.”
Firstly, CPR 44.9(2) expressly states it:
“does not apply where a Part 36 offer is accepted before the commencement of proceedings”
In this situation, it would be necessary to issue costs-only proceedings to obtain the order for costs. (Copies of the Part 36 offer and acceptance would be the evidence required under CPR 46.14(4).)
Where a Part 36 offer is accepted late, there will also be no deemed costs order (see Bayliss v Powys County Council [2021] EWHC 662)).
What about fixed recoverable costs cases?
Under the recent extension of fixed costs matters, acceptance by way of a Part 36 offer is dealt with under CPR 36.23. This deals with various issues including what costs the claimant is entitled to where the offer is accepted in time (CPR 36.23(1)), what costs are payable if a defendant’s offer is accepted late (CPR 36.23(3)) and what costs a defendant is entitled to (CPR 36.23(8)). CPR 36.23(4) deals with the fixed costs where a claim no longer continues under the RTA or EL/PL Protocols.
It will immediately be seen that CPR 36.23 is not mentioned in CPR 44.9. Acceptance of a Part 36 offer in a fixed costs matter does not create a deemed order for costs.
This is not an entirely new problem.
Previously, the rules relating to Part 36 offers accepted in claims that no longer continued under the RTA or EL/PL Protocols were to be found in CPR 36.20. Again, this did not fall within the category of settlement that created a deemed order for costs under CPR 44.9.
Costs Judge Leonard considered this issue in Nema v Kirkland [2019] EWHC B15 (Costs). This was a case which had exited the RTA Protocol and settled by way of a Part 36 offer. The parties were able to agree the amount of the fixed recoverable costs but disagreed over the quantum of some of the disbursements. The claimant served a formal Bill of Costs and Notice of Commencement. The defendant applied to strike this out. The Costs Judge’s conclusions were:
“It also seems to me that, where following acceptance of a Part 36 offer, fixed costs are recoverable under CPR 45 Section IIIA, there can be no deemed order for costs under CPR 44.9. CPR 44.9 applies where a right to costs arises under CPR 36.13(1), but CPR 36.13(1) is expressly subject to CPR 36.20. CPR 36.20 provides that a claimant’s entitlement to costs and disbursements, following acceptance of a Part 36 offer, is dictated by Section IIIA of Part 45. That is quite inconsistent with the existence of a deemed order for costs on the standard basis, as is the requirement that any dispute be resolved by an order under CPR 36.20(11). The logical conclusion is that where CPR 36.20 applies, CPR 36.13(1) is disapplied.
As for the procedure to be followed under CPR 36.20(11), although CPR 36.20(12) refers expressly to costs payable to a defendant it is evident from that provision that the court is under CPR 36.20(11) required to make an order which determines the amount of costs due, whether to a claimant or a defendant. That is neither summary assessment nor detailed assessment. It is a different, self-contained procedure. CPR 44.6 (which excludes orders for fixed costs and is subject to “any rule, practice direction or other enactment”) and the provisions of Practice Direction 44, addressing the choice between summary and detailed assessment, have no application. Any issues will be limited, as will the amount in issue. …
I think that Mr Waszak must be right in saying that, given that CPR 36.20 and Section IIIA of CPR 45 between them provide comprehensive, self-contained provisions for the recovery of the costs to which they apply, that an application for an order under CPR 36.20(11) should be treated as an interim application under CPR 45.29H.”
So, if this analysis is correct:
- Acceptance of the offer created no deemed order for costs.
- The detailed assessment process had no application for determining any disputed costs in fixed costs matters.
- Where there is a dispute, an application should be made to the court (under what would now be CPR 45.8). This is treated as an interim application and the recoverable costs of that application are fixed (with the figures appearing in Table 1 in PD 45 now being applicable)
The decision of Costs Judge Leonard was an entirely sensible and pragmatic one to make given the clear lacuna in the rules. However, it is not intellectually satisfying to try to shoehorn the assessment of costs at the conclusion of a matter into the interim application process.
Further, if acceptance of a Part 36 offer in CPR 36.23 (or CPR 36.20 as was) does not create a deemed order for costs, this creates all kinds of problems. Two immediately spring to mind:
- If there is no deemed order for costs, interest does not begin to run. With the extension of fixed recoverable costs, there are now significant amounts at stake. If there is delay or dispute over the amounts payable, the inability to recover interest could be costly. Will this start to generate applications under CPR 44.2(6)(g) seeking pre-judgment interest? Will the courts start to apply completely different considerations to the issue of pre-judgment interest when CPR 36.23 applies?
- If the only issue is a disputed disbursement (as in Nema), the interim application approach may be sensible. However:
i. What about where a party seeks to escape fixed costs by relying on “exceptional circumstances” (CPR 45.9)? How are these costs to be assessed/determined if there is no deemed order for costs?
ii. In non-personal injury cases suitable for the Intermediate Track which settle “from pre-issue up to and including the date of service of the defence”, the costs are capped not fixed (CPR 45.50(3)) and are therefore subject to assessment if not agreed. Does acceptance of a Part 36 offer in this situation mean the case falls within CPR 36.13, rather than CPR 36.23, such that there is a deemed order for costs?
iii. CPR 45.10(1) allows the court to consider a claim for an amount of costs which is greater than the fixed recoverable costs where a party or witness is vulnerable, that vulnerability has required additional work to be undertaken and by reason of that additional work alone, the claim is for an amount that is at least 20% greater than the amount of fixed recoverable costs. How are these costs to be assessed if there is no deemed order for costs?
Much of the difficulties arise from the current lack of any clear process for resolving costs disputes in matters that are subject (or potentially subject) to fixed recoverable costs. The Civil Procedure Rules Committee is now working on introducing such a process with their recent Minutes reporting:
“Revised proposal for Fixed Costs Determination (‘FCD’). A new Section X is proposed, supported by an accompanying proposed new Precedent form. The initial drafting has been further simplified to cater for, effectively, the new, “determination” concept, as distinct from “assessment”. The intention is that one set of rules should cover Part 8 proceedings (i.e. where a claim has not been started) and Part 23 applications (where proceedings have been started). The drafting has been deliberately cast in reasonably wide terms to allow judges to discharge their discretion in appropriate cases as they see fit.”
I would suggest three key elements of any revised rules:
- CPR 44.9 is amended so acceptance of a Part 36 offer under CPR 36.23 does create a deemed order for costs (and thus an automatic right to interest)
- A clear process is set out dealing with Fixed Costs Determination.
- The process clearly sets out how issues such as CPR 45.9 (“exceptional circumstances”), CPR 45.50(3) (dealing with capped costs) and CPR 45.10(1) (additional costs where a party or witness is vulnerable) are dealt with.
I have every confidence that the new rules will be as clear as mud.
