Court success: landmark decision could have big impact on out-of-court settlements

  • Judges have made a landmark ruling in regard to out-of-court-settlement offers and the potential costs incurred
  • It has been agreed that, with very few exceptions, only fixed costs can be awarded in cases of late acceptance by a defendant
  • The decision followed two court hearings in which appellants disputed costs they had been expected to pay after failing to meet the 21-day offer deadline

Background

When a claim is made against an individual or organisation (such as in the event of an injury at work), either the claimant or the defendant can propose a monetary settlement in an attempt to avoid a trial. This is known in the legal industry as a ‘Part 36 offer’.

According to the accepted rule, the opposing party has 21 days to respond to such an offer before costs are incurred. However, the nature of those costs has long been a subject of dispute, with those making the Part 36 offer increasingly arguing that they should be allowed to transfer the full weight of their legal costs to the hesitant party. This has been countered by claims that there are often good – and legal – reasons for delays in responding, and therefore it would be unjust to impose extra costs based on solicitors’ hourly rates.

In recent years, there have been a number of conflicting decisions in the lower courts on this important issue. Helpfully, the Court of Appeal has now clarified the matter, and in doing so should reduce any opportunistic attempts to maximise the recovery of costs without cause.

Legal arguments

In the case of Hislop v Perde, the claimant was injured in a road traffic accident. Their initial Part 36 offer was rejected by the defendant, on the basis that liability was in dispute. It was some 19 months later, and just a week prior to trial, that the defendant finally agreed to pay the sum put forward by the claimant.

In Kaur v Committee(for the time being)of Ramgarhia Board Leicester, the claimant was injured when the roof of the defendant’s temple was struck by lightning and collapsed. As with the previous case, liability was disputed. The claimant offered to accept £2,000, but this was rejected by the defendant. Several months later (after an expert liability report was received that favoured the claimant), there were further negotiations. The claimant demanded £4,000, but had not formally withdrawn her earlier offer. The defendant then made an offer in the sum of £3,000, which was accepted.

Originally, both claimants were awarded fixed costs up to the date of their offers, and extra costs at an hourly rate thereafter. However, both defendants appealed the costs awards, arguing that there was no justification for awarding anything other than fixed costs. The appellants disputed that the delayed acceptance was ‘exceptional’, which allowed the court to depart from the fixed-costs regime.

Decision

The appeals were heard by Lord Justice Longmore, Lord Justice Coulson and Lady Justice King on 20 and 21 June 2018. Both appeals were allowed. In handing down the judgment, Lord Justice Coulson confirmed that only fixed costs can be awarded in cases of late acceptance, unless a) the court considers the case to be ‘exceptional’ or b) the claimant increases their own Part 36 offer at trial.

Commentary

This milestone decision provides much-needed clarification as to the cost consequences in cases of late Part 36 acceptance – that is, a claimant will only be entitled to fixed costs if their offer is accepted late.

Nonetheless, it remains the case that in ‘exceptional circumstances’, extra costs may be justified. As ever, the question of whether a party’s conduct is sufficiently unreasonable to amount to exceptional circumstances will be answered based on the facts of that particular case.

However, Lord Justice Coulson reiterated that the threshold for this test is high, and that mere delay on its own is unlikely to be sufficient. The 19-month delay in Hislop v Perde was not ‘out of the norm’, with Lord Justice Coulson stating: “If it was not out of the norm, it certainly cannot be exceptional.”

Weightmans LLP was instructed by Zurich to represent the Committee (for the time being) of Ramgarhia Board Leicester. The claim was handled by Steve Pickering, Senior Claims Handler, in Zurich’s Leeds office.