Part 36 and Costs – Pre Proceedings
Where a part 36 offer is made by the defendant and accepted by the claimant before proceedings are commenced, the claimant is unable to claim costs on the standard basis in accordance with CPR36.10, as there are no proceedings.
If a disagreement ensues in relation to the costs to be paid by the defendant, the claimant’s part 8 claim to recover costs fails to be dealt with under CPR44.12A (costs only proceedings) and not under the part 36 regime.
The recent Claim in Udogaranya v Nwagw [2010] EWHC 90186(Costs) arose from a RTA and the agreed damages were less than £10,000.00. In such a case, CPR 44.12A requires the costs to be dealt with under the fixed-costs regime in CPR 45.
Under CPR 45.12 it is possible for the court to award additional costs in exceptional circumstances. Master Haworth held in the above case that this was not a run-of –the-mill case and did fall within CPR 45.12. In his words ‘the Insurers and the defendant’s solicitors scatter their shot somewhat widely as to breach of duty’ and causation and liability were disputed.
The claimant’s side had put in considerably more work than would have expected in the case of this nature. However, whilst this entitled the claimant to push forward to a detailed assessment, the defendant may run the risk of falling foul of CPR 45.13, which reads that he must do better by 20% than the fixed costs he would otherwise have received. As the judge pontificated, “whilst he may win the battle, he may not win the war.”
This ruling highlights a flaw with the drafting of CPR 36.10. When a part 36 offer is made pre-action in accordance with CPR 36.3(2) and is then subsequently accepted by the other side without proceedings being issued, what is the effect of the statement of the offer that the defendant will be liable for the claimant’s costs in accordance with CPR 36.10 if the offer is accepted?
CPR 36.10 reads: “where a part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings up to date on which notice of acceptance was served on the offeror.”
Rather self explanatory – The key problem is that where the offer is accepted pre-action, there are no proceedings. Thus, CPR 36.10 cannot apply in such circumstances and this reiterates what Master Haworth held. He said that for the claimant to be able to rely upon CPR 36.10, the defendant’s offer needed to say that “the defendant would be liable for the claimants’ costs, including the costs pre-issue of proceedings in accordance with CPR 36.10.”
The consequence for the claimant was extremely disadvantageous because he was not entitled to rely upon CPR 36.10 and found that his costs being assessed in accordance with the predictable costs regime under CPR 45.
This may not ring true in another type of case, the claimant would be unable to claim his costs on the standard basis as a matter of right and would have to argue for them under the general costs jurisdiction in CPR 44.3. This is not necessarily a problem in every run-of-the-mill case and may be assessed on a case by case basis, but still this holds an understandable level of worrying uncertainty.
The problem arises from the poor drafting of part 36 and there is a good chance that a higher court would decide to interpret CPR 36.10 as referring to pre-action costs where proceedings were not begun (Goode v Martin is an authority for creative interpretation of the CPR where this is necessary to enable the court to deal with a claim justly).
This would give effect to the purpose of part 36, which is to encourage parties to settle as early as possible. Even if the court did not feel able to exercise its creativity in its interpretation of CPR 36.10, the court would surely give a defendant short shrift were he to argue that, although he had offered to pay the claimant’s costs, he should not have to pay them, whether all or in part.
The case concerns a problem for claimants but in general pre-action costs are a problem for defendants. Where a defendant incurs significant costs preparing a response to a letter of claim and instructing an expert to consider the claimant’s expert‘s report, he can recover nothing if the claimant backs down and abandons the claim.
The CPR does not entitle a party to recover any costs where they have complied with a pre-action protocol. They do, on the other hand, provide for potentially archaic penalties should a potential defendant fail to comply with a protocol or the protocol practice direction.
In the case McGlinn v Waltham Contractors Ltd [2007] EWHC 149 (TCC) this highlights some of the problems that defendants may face. Here, the defendant faced a series of claims arising from a building contract. During the pre-action protocol stage, it incurred costs which ultimately persuaded the claimant not to pursue some of the claims when he issued proceedings. The defendant sought to recover costs relating to those abandoned claims.
Costs can be recovered by a party under section 51 of the Senior Courts Act 1981 if they are ‘costs of or incidental to’ the proceedings. Although on the face of it, these could be said to be costs incidental to the proceedings, the judge held that the costs of abandoned issues and heads of claim cannot be recovered save in exceptional circumstances which gives rise to some sort of unreasonable conduct.
He commented that it would be contrary to the whole purpose of the pre-action protocols if claimants were routinely penalised if they decided not to pursue claims in courts which they had originally included in their protocol letters.
The position is likely to alter where the claimant has begun proceedings before complying with the relevant protocol or the practice direction on pre-action conduct.
Where, for example, proceedings have been started prematurely because a limitation period is about to expire, they are required by paragraph 9.6 of the practice direction to apply to the court for a stay of proceedings whilst they take steps to comply.
Points abandoned after following the protocol procedure would in this situation be ‘costs of and incidental to’ the proceedings which will already be in existence and costs incurred in dealing with these points could in principle be recovered.
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