Exceptional circumstances: an escape from fixed costs?

Published in the April edition of the APIL Magazine.

Exceptional circumstances: an escape from fixed costs?

 

Introduction

Claimants solicitors are well accustomed to the fixed costs regime as set out in Section 45 Civil Procedure Rules 1998 (CPR). The recent ruling in Hislop v Perde & Kaur v Committee of Ramgarhia Board Leicester [2018] EWCA Civ 1726 confirms that a Claimant cannot escape fixed costs purely by the late acceptance of a Part 36 offer by the Defendant. Therefore, other than the Claimant matching or beating their own Part 36 offer at trial, they will be limited to fixed recoverable costs. This is unless they can argue that there are exceptional circumstances for the Court to make an order for costs which is greater than the fixed recoverable costs set out in Section 45.29B to 45.29H CPR.

The Law

CPR 45.29 deals with the application of fixed recoverable costs and disbursements and the amounts of those costs are set out within that section.

Section 45.29J deals with claims for an amount of costs exceeding fixed recoverable costs and states as follows:

(1) If it considers that there are exceptional circumstances making it appropriate to do so, the court will consider a claim for an amount of costs (excluding disbursements) which is greater than the fixed recoverable costs referred to in rules 45.29B to 45.29H.

(2) If the court considers such a claim to be appropriate, it may—

(a) summarily assess the costs; or

(b) make an order for the costs to be subject to detailed assessment.

(3) If the court does not consider the claim to be appropriate, it will make an order—

(a) if the claim is made by the claimant, for the fixed recoverable costs; or

(b) if the claim is made by the defendant, for a sum which has regard to, but which does not exceed the fixed recoverable costs,

and any permitted disbursements only.

Sections 45.29K and 45.29L then deal with the consequences of making such an application and the failure to achieve costs greater than fixed recoverable costs and state as follows:

45.29 K

(1) This rule applies where—

(a) costs are assessed in accordance with rule 45.29J(2); and

(b) the court assesses the costs (excluding any VAT) as being an amount which is in a sum less than 20% greater than the amount of the fixed recoverable costs.

(2) The court will make an order for the party who made the claim to be paid the lesser of—

(a) the fixed recoverable costs; and

(b) the assessed costs.

45.29L

(1) Where—

(a) the court makes an order for costs in accordance with rule 45.29J(3); or

(b) rule 45.29K applies,

the court may—

(i) decide not to award the party making the claim the costs of the costs only proceedings or detailed assessment; and

(ii) make orders in relation to costs that may include an order that the party making the claim pay the costs of the party defending those proceedings or that assessment.

 

The fact that Section 45.29J exists at all would suggest that when the fixed costs regime was drafted it was considered that there would be some occasions where cases that fell under this regime warranted an order for costs in excess of fixed recoverable costs. However, no such definition of “exceptional circumstances” is provided within the CPR and there is currently no authority on the operation of this provision.

Case Law

Although the case of Hislop v Perde & Kaur v Committee of Ramgarhia Board Leicester [2018] EWCA Civ 1726 does not deal explicitly with the doctrine of exceptional circumstances, it is a useful case to consider when deciding whether to seek costs exceeding fixed recoverable costs.

This case deals with the late acceptance of Claimants Part 36 offers by Defendants and whether standard or indemnity costs should apply from the date of the expiry of the offer or whether fixed recoverable costs continue to apply. Reference was given to Part 36.20 which contains no provision for the Claimant to claim additional costs in consequence of the late acceptance of their Part 36 offer and as such it was held that delay by itself was not enough to trigger exceptional circumstances and accordingly only fixed costs were allowed.

The exceptional circumstances point did not arise in the case of Hislop and was only briefly considered in relation to the linked case of Kaur. Paragraph 56 of the Judgement of Lord Justice Coulson should be considered where he held that what matters in these cases are the facts of each particular case and he held that a long delay without explanation may well trigger exceptional circumstances but a short delay with a reasonable explanation will not.

It is therefore clear that for an application for costs exceeding fixed recoverable costs to be successful, something out of the ordinary needs to have occurred and that litigation following its natural course will not be exceptional on its own. The fixed costs regime was designed to give both sides certainty as to the costs recoverable in low value claims and to keep costs proportionate and therefore something more than a minor delay will need to have occurred for it to amount to an exceptional circumstance.

The case of Holmes v West London Mental Health Trust (2018), although a clinical negligence claim, still has relevance to an application for exceptional circumstances. In Holmes, the Defendant accepted the Claimants Part 36 offer for liability to be comprised 95% in her favour some 15 months out of time against a background of numerous conduct issues.

His Honour Judge Gore in Holmes was critical of the Defendants conduct throughout the litigation, their failure to engage in ADR or at least respond to invitations to engage in ADR and by them drip feeding offers until they finally accepted the Claimants Part 36 offer some 15 months out of time. The Defendants were held not to have reasonably conducted their defence of the claim and His Honour Judge Gore said that their conduct was out of the norm. He concluded by his judgement by saying “And this therefore is a case in which I am satisfied in accordance with the wide discretion that I have as to costs, that the burden of proof should be shifted by ordering that the costs in this case should be paid by the defendant from the end of the relevant period for acceptance of the Part 36 offer on an indemnity basis.” If the delay and the conduct of the Defendant in this case was sufficient to order indemnity costs rather than standard costs then it could be argued that similar delay with similar conduct issues could result in a successful exceptional circumstances application.

Should an application be made?

It is clear from the above cases that conduct is likely to play a part in any successful applications for exceptional circumstances. Therefore, thought should be given as to putting the Defendant on notice in open correspondence throughout the course of the claim that an application will be made at the end of the case and this correspondence should refer to their conduct which you take issue with. For example, a Defendant may plead that the claim is fraudulent or that the Claimant is fundamentally dishonest. Frequently, these cases are not being allocated to the multi-track and are kept within the fast track and listed for a one day trial. Lengthy additional work is likely to be necessary in order to properly advise the Claimant and defend against such allegations which are of the upmost severity. Clearly, such allegations are out of the norm and this could form the basis for an exceptional circumstances application, particularly where there are also conduct issues on the part of the Defendant.

If you have put the Defendant on notice that such an application is likely to be made then be careful with any settlement offers received. Such offers are likely to be subject to the payment of fixed recoverable costs only which if accepted, the Defendant is likely to argue that you have already agreed the liability for costs. Cases should be settled with the costs liability to be assessed if not agreed so that the costs can be argued at a later stage. Such agreement puts no prejudice on the Defendant as they can still argue for the applicability of fixed recoverable costs whilst not preventing the Claimant from making submissions for costs exceeding fixed recoverable costs. Without prejudice negotiations can then be entered or a formal application made. If quantum is not in dispute but the costs liability cannot be agreed you may want to keep a trial date open for counsel to attend to make submissions and an oral application for exceptional circumstances. Counsel should also be fully prepped to make an oral application if you are successful at trial and wish to raise exceptional circumstances as an argument.

A final word of warning

Clearly, these types of application are not going to be appropriate for the majority of cases. Careful thought and consideration should be had before making an application pursuant to CPR 45.29J in light of the consequences of failing to achieve costs 20% greater than the fixed recoverable costs as set out in CPR 45.29K and 45.29L.

If you are unsuccessful in achieving costs 20% greater than the fixed recoverable costs claimed, then you will only recover the lesser of the fixed recoverable costs and the assessed costs and the Court may order you to pay the Defendants costs of the costs only proceedings or assessment. Furthermore, if the Court considers that the claim for additional costs was not appropriate in the first place then fixed recoverable costs and permitted disbursement only will be allowed.

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