Judges have discretion on whether to award indemnity costs in cases which fall out of the protocol and there is then late acceptance of a part 36 offer, a circuit judge has ruled.
Though Her Honour Judge Walden-Smith hinted that she did not agree with the decision of Deputy District Judge Lenon QC in not awarding indemnity costs when the offer was accepted 19 months late because of “litigation nerves”, she said it was within the reasonable exercise of his discretion.
The case involved a road traffic accident that fell out of the portal because liability was not admitted. The costs dispute centred around a part 36 offer made by the claimant in November 2014, which was not accepted until a week before trial in June 2016.
The solicitor for the defendant explained the late change of heart on the basis that it was close to trial and that it was a serious and taxing ordeal for the defendant to go through. Counsel for the claimant pointed out that this was not a proper explanation, because the nature of the trial and the fact that litigation could be an ordeal was obvious from the outset.
The claimant sought £2,372 in fixed recoverable costs up to the expiry of the part 36 offer and £5,534 on the indemnity basis for the period thereafter, a total of £7,906.
At first instance, the DDJ awarded fixed costs for the whole period, and found that the criteria for making an order for indemnity costs had not been made out as there was nothing which took the case out of the norm.
The claimant argued that because the offer was accepted so late, she incurred substantial costs in preparation for the trial, which as a result of the DDJ’s ruling fell on her and reduced or wiped out the damages recovered.
On appeal, Her Honour Judge Walden-Smith said: “To put in summary form, the claimant contends that such an outcome offends against fairness and encourages parties to delay in settling matters as the consequences of delaying until (almost) the eve of trial is to load the costs upon the claimant who is likely to have a conditional fee arrangement that results in there being a higher success fee closer to trial which will reduce the damages in fact recovered.
“The defendant who waits until the last moment to accept the claimant’s part 36 offer can accept out of time knowing that it will only be liable for a proportionate contribution towards the claimant’s costs.”
The judge concluded that CPR 36.10 was clear that if the offer was accepted late, then costs would be fixed up to the point it expired and then assessed until the date of acceptance.
“Whether those costs are standard or indemnity is a matter for the discretion of the judge. In my judgment, the rule creates neither a presumption in favour of costs being on the standard basis or on the indemnity basis.
“The rules committee would have been very well aware of the infinite variety of circumstances surrounding the late acceptance of a part 36 offer and, while acceptance within the relevant period can be given a clear direction as to the consequences, the rules relating to late acceptance deliberately remain silent (in my view deliberately) so as to give the Judge determining the issue (if there is lack of agreement) a wide discretion to do that which he considers appropriate in all the circumstances of the case.”
While the DDJ had been wrong to award fixed costs only, his decision on indemnity costs was not one that could properly be said to be outside a proper exercise of discretion, HHJ Walden-Smith said, even though another judge may have come to a different conclusion.
Costs Lawyer Jonathan Frith, costs manager at the claimant’s solicitors, Winns, said: “Fixed costs do not provide adequate compensation where a defendant accepts a part 36 offer, sometimes months outside of the relevant period.
“While I understand and appreciate the swings and roundabouts approach of fixed costs, it is common knowledge that these sums do not represent the full legal spend of a party. Claimants should not be prejudiced, financially or otherwise, for making sensible offers to settle early on in proceedings. This decision outlines that assessed costs are appropriate in circumstances where part 36 offers are accepted out of time. We welcome this.”