There is stiff competition as to which part of the new(ish) rules concerning Fixed Recoverable Costs (FRC) have been most poorly drafted. Nevertheless, it would be difficult to find a more confusing set of provisions than those surrounding late acceptance of a defendant’s Part 36 offer.
The problems stem from the way the basic rules as to the amount of the FRC is calculated.
In simple terms, where a party succeeds on their claim, the amount of the FRC becomes progressively greater the further advanced the case was at the point of settlement. A claim that settles pre-issue will attract lower FRC than a claim that settles after exchange of expert reports. A claim that concludes at trial will attract yet higher FRC.
There were a number of potential ways that this could have been achieved. One way would have been to set a FRC for each relevant stage with these being added together as appropriate. So, if a case settled at Stage C, a claimant would be awarded Stage A FRC + Stage B FRC + Stage C FRC. I will call this the A + B approach.
Instead, those drafting the rules adopted an A or B approach. At least so far as a claimant is concerned, if a case settles at Stage 3, they get the relevant Stage 3 FRC. If the case settles at Stage 4, they get the Stage 4 FRC. There is no adding together of the costs for the previous stages. This is explained by CPR 45.50(2)(c):
“the figures in each of stages S1, S3, S4, S5, S6 and S8 are the cumulative totals for costs incurred up to and including that stage”
(I note the authors of Cook on Costs comment: “The word ‘cumulative’ is used to describe these various stages, which is a word used by Sir Rupert Jackson in his report on fixed costs. We had understood this word to mean that the figures would be added together so, for example, if the case settled at S6, the fees for S1, S3, S4, S5 and S6 would be added together. But that is not what is meant by the rules and if the case settles at S6, it is the figures in that box which are relevant and none of the earlier settlement stages.”)
(In fact, matters are not even this straightforward. Although the A or B approach has been adopted for calculating, what I will call, the “core” FRC, there are then other stages (i.e S2, S7, S8, S9, S11, S12, S13, S14 and S15) that are potentially add on stages in addition to the core FRC. There is therefore a messy combination of A or B (+C + D). However, the rest of this post will ignore the add on elements.)
(A further confusing factor is that it remains entirely unclear what damages figure is used to calculate a defendant’s costs. CPR 45.6(2) and (3) provide that a defendant’s FRC are calculated by reference to the damages as claimed in the Claim Form. However, CPR 36.23(6) provides that “Fixed costs shall be calculated by reference to the amount of the offer which is accepted”. Which takes precedence so far as a defendant’s costs are concerned?)
Where a Part 36 offer is accepted within the relevant time, the position is straightforward:
“CPR 36.23(1)
Where a Part 36 offer is accepted within the relevant period, the claimant is entitled to –
(a) the fixed costs in Table 12, Table 14 or Table 15 in Practice Direction 45 for the stage applicable at the date on which notice of acceptance was served on the offeror …”
I have placed emphasis on the words “for the stage applicable” as this makes it clear that it is the full amount of the relevant figure in the box which is recoverable and, as per Cook on Costs, none of the earlier figures are relevant.
The problems arise when a Part 36 offer is accepted late. Outside FRC, normally a claimant would be entitled to their costs up to expiry of the relevant period and the defendant would recover costs thereafter. If the rules for FRC had been drafted with the A + B approach, this would have been straightforward. Therefore, for example, if the relevant period of a defendant’s Part 36 offer expired at the end of Stage C but was not accepted until Stage E, the claimant would get Stage A FRC + Stage B FRC + Stage C FRC. The defendant would then get Stage D FRC + Stage E FRC. The only issue requiring more thought would be where a Part 36 offer is accepted late during the same stage that the relevant period expired.
As it is, it was the A or B approach that was adopted. The position as to the costs the claimant is entitled to appears straightforward:
“CPR 36.23(3)
Subject to paragraphs (4) and (5), where a defendant’s Part 36 offer is accepted after the relevant period—
(a) the claimant is entitled to—
(i) the fixed costs in Table 12, Table 14 or Table 15 in Practice Direction 45 for the stage applicable at the date on which the relevant period expired …”
Therefore, for example, if the relevant period expires in Stage 3 but is not accepted until Stage 6, the claimant is entitled to costs up to, and including, Stage 3 only.
As to the defendant’s entitlement when there is late acceptance:
“CPR 36.23(3)
(b) the claimant is liable for the defendant’s costs in accordance with paragraph (8).”
CPR 36.23(8):
“Subject to paragraph (9) where the court makes an order for costs in favour of the defendant, the defendant is entitled to—
(a) the fixed costs in Table 12, Table 14 or Table 15 in Practice Direction 45 for the stage applicable at the date of acceptance; and
…
less the fixed costs to which the claimant is entitled under paragraph (3)(a)(i) or (4).”
The first problem here is caused by the potential ambiguity as to what the words I have placed in bold mean.
It seems that some commentators, and some courts, are treating this as providing for set off of the final costs awarded to each side. So, for example, if the claimant is awarded FRC of £10,000 and the defendant is awarded £6,000, then this wording simply means that one figure is set off against the other.
The problem with this interpretation is that the defendant’s costs would always be higher than the claimant’s. Kerry Underwood’s invaluable subscriber newsletter gives the following example of a recent court decision where this approach appears to have been adopted:
“These facts are taken from a real case, where a defendant made a Part 36 offer expiring in Stage 3 in a matter in Complexity Band 1 of the Intermediate Track.
Had the claimant accepted the offer in time, then in accordance with the Fixed Recoverable Costs scheme, the claimant would have been entitled to £4,129 plus an amount equivalent to 10% of the damages.
The claimant did not accept the offer then, but did accept it on the day of trial, which is at Stage 8.
The court ordered costs in favour of the claimant in the sum of £4,129 plus an amount equivalent to 10% of the damages.
So far so good.
What the court then did is to order the claimant to pay the defendant’s costs, cumulative to Stage 8, that is from Stage 1 to Stage 8, of £6,813 plus an amount equivalent to 15% of damages.”
This interpretation of the rules is clearly completely inconsistent with the traditional position of a claimant getting their costs up to expiry of the relevant period and the defendant getting costs thereafter.
The answer, at least as I am sure the rules were intended, lies with the words “less the fixed costs to which the claimant is entitled”. This has nothing to do with set off. CPR 44.12 provides more than adequate power to deal with set off. Rather, this wording is about calculating the costs due to the defendant. In Kerry’s example, the claimant is correctly entitled to costs up to Stage 3, being the sum of £4,129 plus an amount equivalent to 10% of the damages. The defendant is entitled to the Stage 8 costs, being £6,813 plus an amount equivalent to 15% of damages, less the FRC due to the claimant (i.e. the £4,129 plus an amount equivalent to 10% of the damages). So, if the damages had been agreed at £25,000 (and assuming the same damages figure is used for calculating both parties’ costs), the amounts recoverable would be:
Claimant – £6,629 (£4,129 plus 10% of £25,000)
Defendant – £3,934 (£6,813 plus 15% of £25,000 less £6,629)
The real confusion comes when a defendant’s Part 36 offer is accepted after the relevant period but is then accepted before the matter has moved onto the next stage. Without any additional provisions in the rules, the matter would be governed by CPR 36.23(3) and CPR 36.23(8). The claimant would get the FRC up to and including “the stage applicable at the date on which the relevant period expired” and the defendant would get the FRC “for the stage applicable at the date of acceptance” less the FRC payable to the claimant.
In fact, there is a further provision to deal with this specific situation:
CPR 36.23(9):
“Where –
(a) an order for costs is made pursuant to paragraph (3); and
(b) the stage applicable at the date on which the relevant period expires and the stage applicable at the date of acceptance are the same,
the defendant is entitled to the fixed costs applicable to that stage.”
It is extremely difficult to work out how this is intended to operate.
As noted above, CPR 36.23(8) (which is the main provision dealing with costs payable to a defendant where a Part 36 offer is accepted late) states that it is “subject to” CPR 36.23(9). I had initially interpreted this to mean that CPR 36.23(8) applied unless the acceptance was in the same stage as when the relevant period expired, in which case CPR 36.23(9) applied. The words “subject to” were intended to signify these being either/or provisions. However, the immediate problem with this, unless there was a major drafting error, was that, unlike CPR 36.23(8), CPR 36.23(9) does not contain the additional words “less the fixed costs to which the claimant is entitled”. It clearly cannot have been the intention that a defendant in these circumstances would get the “cumulative” (if that is the right word) costs for all proceeding stages, with no deduction, where a Part 36 offer might have only been accepted a day or two late.
The February 2024 Minutes of the Civil Procedure Rule Committee attempted to explain this provision:
“Costs consequences of acceptance of a Part 36 offer. A barrister has raised a point regarding the new wording in Part 36 and whether the reference in rule 36.23(9) to the costs that ‘a defendant’ may receive, should in fact be to ‘a claimant’. With the assistance of the lead drafting lawyer, the sub-committee have carefully considered the point and concluded that the language in the rule does not required [sic] amendment because it concerns the fixed costs applicable to that stage, i.e. not up to and including that stage and this was AGREED.”
What is going on here? The sub-committee has conceded that this was so badly drafted they could not work out what it meant. They needed the assistance of an unnamed lead drafting lawyer to explain what was intended. Surely the job of the lead drafting lawyer was to draft this provision clearly and unambiguously, not to explain at a later date what was intended. In any event, I am not sure this can be correct.
On this interpretation, CPR 36.23(9) is only concerned with the costs payable for that stage (not the previous stages). However, as noted above, there is no such thing as fixed costs applicable to an individual stage (ignoring any add on stage). The FRC is the full amount in the relevant box including any work undertaken for earlier stages (less, so far as relevant when it comes to a defendant, the fixed costs to which the claimant is entitled). That is the consequence of the A or B approach. There is no “fixed costs applicable to that stage”. The Civil Procedure Rule Committee should read the wording of their own rules.
The Civil Procedure Rule Committee had another go in their May 2024 Minutes:
| Part 36 & FRC
Some confusion has arisen over the wording with Part 36.23(9).
This provides that if a Part 36 offer was accepted late within the same Stage then “the defendant is entitled to the fixed costs applicable at that stage”. This suggests that late acceptance within the same Stage would nullify any Claimant costs entitlement. This appears to be extremely punitive.
Confusion arises, however, as 36.24(9) provides that where a Part 36 offer is accepted late by a Claimant then the Defendant would be entitled to “applicable fixed costs […] less the fixed costs to which the Claimant is entitled […]”.
This would suggest that a Defendant would receive nothing as their entitlement would be the same as the Claimant, so the Defendant’s entitlement would be nullified. Given the Defendant would be responsible for the same level of FRC irrespective of when an offer was accepted within the same stage then this appears to be logical.
Can the Committee clarify which interpretation of the rules is intended? |
Mr Justice Trower drew attention to the text in the rule, which reads, “to” [that stage], not “at”. This point has been considered by the committee and it was confirmed that the use of the word “to” is intentional.
The inclusion of rule 36.23(9) arose from a query as to who should be entitled to the costs of a stage where both the relevant period had expired and the offer was subsequently accepted within that stage (including whether, and if so how, the costs of that stage should be divided between the parties).
The decision was that, in these likely rare circumstances, the claimant should be entitled to the costs for the stages up to, but not including, the stage when the relevant period expired, and the defendant should be entitled to the costs for the stage when the relevant period expired and the offer accepted.
Without this provision, in these circumstances, paragraphs (3)(a)(i) and the full-out in paragraph (8) would likely mean that the defendant would receive no costs notwithstanding the claimant’s late acceptance of the offer.
The costs for each stage being inclusive of the costs for the preceding stage(s), the defendant’s entitlement to the costs of that stage must be calculated by subtracting the FRC that have accrued in the preceding stages. |
This is all pure nonsense.
Firstly, there is no plausible interpretation of this rule that makes any provision for “subtracting the FRC that have accrued in the preceding stages”.
Secondly, this completely overlooks the fact that CPR 36.23(9) has nothing to do with a claimant’s entitlement to costs. The statement that, in this situation, the “claimant should be entitled to the costs for the stages up to, but not including, the stage when the relevant period expired” is completely unsupported by the rules.
CPR 36.23(3) deals with the claimant’s entitlement to costs on late acceptance. It is only “subject to” CPR 36.23(4) and CPR 36.23(5) (which are irrelevant for current purposes). It is not subject to CPR 36.23(9). CPR 36.23(9) says nothing about a claimant’s recovery.
It is CPR 36.23(8), dealing just with a defendant’s costs, that is subject to CPR 36.23(9). Again, CPR 36.23(9) is completely silent and to what a claimant is entitled. In those circumstances, how can CPR 36.23(9) alter what costs are allowed to a claimant under CPR 36.23(3)?
This is in desperate need of a complete redraft. To have the meaning advanced by the Committee would require something like:
“CPR 36.23
(3) Subject to paragraphs (4), (5) and (9), where a defendant’s Part 36 offer is accepted after the relevant period –
….
CPR 36.23
(9) Where—
(a) an order for costs is made pursuant to paragraph (3); and
(b) the stage applicable at the date on which the relevant period expires and the stage applicable at the date of acceptance are the same,
the claimant is entitled to the fixed costs applicable for the last stage before the stage the relevant period expires and
the defendant is entitled to the fixed costs applicable to the stage the relevant period expired less the fixed costs to which the claimant is entitled.”
Of course, it would be much simpler to abandon the whole concept of A or B. It would make redrafting (and interpreting) the rules much easier.
