The importance of settlement correspondence when offering fixed costs – be explicit!


17 June 2022

The Court of Appeal has recently considered if an agreement to pay costs, was to pay fixed costs only, and whether this was displaced by a later purported Part 36 offer.

The case (Jan Sergio De Andrade Soares –v- James Wilson – 27 May 2022 (unreported)) related to a road traffic accident which took place in 2016. Such claims are made via a portal but this particular case left the portal as the Defendant did not admit liability.

Proceedings were issued, with the claim limited to £100,000. The matter was originally allocated to the multi-track but later allocated to the fast track. The case settled for £9,000 in damages.

The Defendant offer’s included: an offer to pay the “Claimant’s fixed costs and disbursements”. The Claimant responded: “Please note that your offer in the sum of £9,000 plus fixed costs (pursuant to the Fast Track regime fixed costs regime) is accepted.”

Acceptance of a Part 36 offer will automatically stay proceedings and so avoids the need to lodge a consent order and incur a Court fee. Calderbank offers, such as the Defendant’s original offer, do not have such an effect. Therefore, in order to conclude proceedings, the Defendant, at the Claimant’s request, made a Part 36 offer which included a term that: “our client will pay your client’s fixed recoverable costs in accordance with Part 36.13 to be subject to detailed assessment if not agreed.”

The Claimant subsequently served a Bill of Costs which included: (1) costs to be assessed on the standard basis up to the date of re-allocation of the claim from the multi-track to the fast track and (2) fixed costs thereafter.

On provisional assessment (and at subsequent oral review), the costs judge allowed the costs claimed within the Bill of Costs, on the basis that a binding agreement had been reached via the acceptance of the Part 36 offer.

The Defendant successfully appealed that fixed costs should apply to the whole of the case. Part of the appeal raised the question of whether the costs judge should have found that only fixed costs would be payable, for the case as a whole, and that nothing in the subsequent Part 36 offer “unpicked” that. At paragraph 39 of his Judgment, HHJ Luba QC (sitting with Costs Judge Rowley) stated: "In my judgment, this part of the appeal turns entirely on an analysis of the relevant correspondence and the application of the well-established principles of the law of contract and compromise. Did the Defendant make an offer that provided only for fixed costs and did the Claimant accept that?”

The Judge subsequently held the following: “I am satisfied that the only properly available construction of the correspondence is that the Defendant was offering settlement on the basis that only fixed costs would be payable and the Claimant was accepting that offer.”

In social housing cases, where the estimated cost of the repairs or other work is not more than £1,000 and the claim for damages is not more than £1,000, the claim should be allocated to the small claims track. The vast majority of cases settle pre-action and if the case has settled before allocation, CPR 46.13(3) allows the court to restrict costs to what would have been allowed had allocation taken place i.e. smalls claims costs.

Offers are regularly made in the following terms which constitute an offer to pay costs on the small claims track: “Our client offers to pay your client’s reasonable legal costs pursuant to CPR 46.13(3) and O’Beirne v Hudson [2010] EWCA Civ 52”.

Smalls claims costs are limited to: (1) £260 for legal advice and assistance (2) £95 for loss of earnings or leave of each party or witness due to attending a hearing and (3) £750 for experts’ fees per expert. Costs claimed on the standard basis run into the thousands and so the difference in the costs claim is substantial.

The above case highlights the need to be explicit at the time the settlement is concluded, in order to avoid the need for a later dispute on costs, or be in a position to successfully defend a claim for costs on the standard basis where only small claims costs have been offered. This is not limited to the wording of your own offers – if there is any ambiguity in the subsequent exchange of correspondence at the time of settlement, it is vital that this is corrected.

How can Birketts help?

Birketts have an in house costs team to assist our clients in challenging tenant’s costs. Our expert lawyers can advise on where the costs can be challenged, appropriate settlement parameters and negotiations. If required, we can also assist with the preparation of Points of Dispute/Replies and detailed assessment hearings.

If you have any queries regarding the content of this article or wish to discuss any issue regarding costs, please contact Sarah Burwood, Melanie Bonté or Naomi Chan-Jackson to see how Birketts can help you.

The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at June 2022.

Author

Sarah Burwood

Costs Lawyer

+44 (0)1603 542476

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