Contracting out of fixed costs in low value personal injury claims

13/10/2022

Kriti Upadhyay considers the recent decision in Doyle v M&D Foundations & Building Services Limited [2022] EWCA CIV 927.

In a low value personal injury claim, what is the proper interpretation of the phrase, “such costs to be the subject of detailed assessment if not agreed”? If the parties have agreed such a provision within a consent order compromising the claim, have they effectively ‘contracted out of’ the fixed costs regime that would otherwise be applicable to an ex-Protocol claim? The Court of Appeal considered these questions in this decision.

The facts

This appeal concerned a low value personal injury claim following an accident sustained by the claimant/respondent in 2014 during the course of his employment with the defendant/appellant. The claim was initially commenced under the Pre-Action Protocol for Low Value Personal Injury (Employers’ Liability and Public Liability) Claims (“the Protocol”). The claim was valued at under £25,000. The claimant sent a Claim Notification Form to the defendant on 25 November 2016; the defendant failed to respond to the CNF, but disputed liability for the accident, so the Protocol then ceased to apply to the claim.

Part 7 proceedings were then commenced in May 2017, with the defendant filing a defence in October 2017. The matter was allocated to the fast track, and then listed for trial to take place on 19 July 2018. On 16 July 2018, the parties entered into without prejudice discussions in an attempt to compromise the claim. The defendant made a Part 36 offer of £5,000 in full and final settlement of the claim. This offer was said to reflect a 30% deduction for contributary negligence on the part of the claimant.

The claimant’s solicitors wrote back the same day in response, stating:

“We confirm that the [claimant] is willing to agree quantum…at £5,000 though, for the avoidance of doubt and the reasons which follow, our client is not hereby accepting the [defendant’s] Part 36 offer.

The [defendant’s] Part 36 offer has been made at a very late stage and well within the 21 day period referred to in Part 36.13(4). In these circumstances we consider an Order is required to finalise matters and enclose an Order, accordingly, for you to endorse with consent.”

The draft order sent by the claimant’s solicitors provided that the defendant pay the claimant damages of £5,000, and also provided that the defendant was to pay the claimant’s costs, “such costs to be the subject of detailed assessment if not agreed.”

The defendant’s solicitors made minor amendments to the heading and recital of the draft consent order, and signed the revised version, returning it to the claimant’s solicitors on the same date. The claimant’s solicitors signed this revised draft and filed it with the Court.

The basis of the appeal

Subsequently the claimant’s solicitors lodged a bill of costs for detailed assessment on the standard basis, citing the terms of this consent order. The defendant disputed the need for detailed assessment, contending that as this was an ex-Protocol low-value personal injury claim, the case fell within the fixed recoverable costs regime set out within section IIIA of CPR Part 45. Within that context, the defendant argued, the reference to ‘detailed assessment’ should be interpreted to refer to the process of determining the amount of fixed costs and disbursements, if there was any disagreement.

At first instance, District Judge Rogers rejected this argument by the defendant, holding that the fixed costs regime did not apply because the parties had contracted out of it, as expressly stated within the consent order. He assessed the bill of costs at £14,467.44 with interest to be agreed. The defendant appealed against the decision, and subsequently Her Honour Judge Ingram dismissed the appeal.

The Court of Appeal was asked to consider the second appeal by the defendant/appellant. The Court considered how the consent order should be interpreted within the context of the Civil Procedure Rules 1998 relating to costs, particularly those relating to detailed assessment and to fixed costs in ex-Protocol claim cases: CPR Part 44 (rules 44.1, 44.3 and 44.6 in particular), section IIIA of CPR Part 45, and CPR Part 36.

The Court of Appeal’s decision

Lord Justice Phillips noted that while the rules did not specifically make provision for the parties to ‘contract out’ of the fixed costs regime under section IIIA of CPR Part 45, it has been recognised in a number of cases that there is no bar on them doing so: Solomon v Cromwell Group [2011] EWCA Civ 1584, also cited in Adelekun v Ho [2019] EWCA Civ 1988.

The decision confirmed that the general approach to interpreting a court order is as summarised in Pan Petroleum AJE Ltd v Yinka Folawiyo Petroleum Co Ltd [2017] EWCA Civ 1525, per Flaux LJ, at [41(3)]:

“The words of the Order are to be given their natural and ordinary meaning and are to be construed in their context, including their historical context and with regard to the object of the Order.”

The Court agreed that court orders should be construed ‘objectively and in the context in which they are made’, but noted that in the present case, because the order in question was a consent order and made administratively by the court, there was no judgment to assist in construing it:

“The immediate context of the Order was that it embodied an agreement between the parties, the terms of which had been finalised via a travelling draft between the respective solicitors. For that reason, and because the central question in construing costs provisions in the Order is whether the parties had contracted out of the fixed costs regime, the real question is the true interpretation of the parties’ agreement.”[1]

The ordinary principles applicable to the interpretation of contractual provisions applied, and were summarised by Lord Justice Phillips in his judgment with extracts from key decisions, at [28-30]. He then went on to consider the nature of the fixed costs regime, and its interplay with general costs provisions in a long line of cases including Adelekun v Ho as well as Broadhurst v Tan [2016] EWCA Civ 94.

The appellant in the present appeal relied on the fact that the Court of Appeal in Adelekun had construed the same phrase, ‘subject to detailed assessment’ in a Part 36 offer, as “not referring to conventional costs rather than fixed costs,” with the result that the parties in Adelekun were found to have not contracted out of the fixed costs regime. The appellant pointed out that the reasoning of Newey LJ in Adelekun was that the fixed costs regime “does involve an assessment of some kind.” The appellant accordingly argued that in this context, the only question relating to the ‘detailed assessment’ provided for within the consent order was whether this assessment should be read as relating to standard costs or of fixed costs (including disbursements). The appellant also argued that as this was an ex-Protocol claim where there was no realistic prospect of bringing the case within one of the specified exceptions to fixed costs, the parties “must be taken to have intended that the costs to be assessed would be fixed costs,” and that it was “inherently improbable that the appellant would have agreed to pay standard basis costs when the fixed costs regime was likely to be much more favourable to the paying party.”

The Court of Appeal rejected the appellent’s contention, and concluded at [44] that there is “no ambiguity whatsoever as to the natural and ordinary meaning of ‘subject to detailed assessment’ in an agreement or order as to costs… It plainly denotes that the costs are to be assessed by the procedure in Part 47 on the standard basis (unless the agreement or order goes on to provide for the assessment to be on the indemnity basis). The phrase cannot be read as providing for an ‘assessment’ of fixed costs pursuant to the provisions of Part 45 unless the context leads to the conclusion that the wrong terminology has been used (by the parties or by the Court) so that the phrase should be interpreted otherwise than according to its ordinary meaning.”

Lord Justice Phillips considered that this was clear from the rules themselves, noting that rule 44.3(4)(a) expressly provides that, where an order for costs, or for assessment of costs, does not indicate the basis of assessment, the costs will be assessed on the standard basis, so an agreement to the same effect, must have the same natural and ordinary meaning. He also pointed out that rule 44.6(1), which sets out the court’s power to assess costs either summarily or by way of a detailed assessment, expressly provides that this power does not relate to fixed costs, so an agreement or order for detailed assessment does not relate to fixed costs. The this was further apparent from the wording of rule 45.29, particularly 45.29J and 45.29K which draws a distinction between ‘assessed costs’ and fixed recoverable costs.

The Court of Appeal went on to consider whether, despite the natural and ordinary meaning of the relevant words being ‘entirely clear’, judged objectively, this meaning was truly intended by the parties in the present case. The judgment noted that in this case, both firms of solicitors acting for the parties were specialists in personal injury litigation, and reached agreement in the course of correspondence in which the defendant’s Part 36 offer was expressly rejected by the claimant, but a counter-offer in the form of a draft order and not pursuant to Part 36 was then accepted by the defendant, being returned with minor amendments which were again acceptable to the claimant.

Per Lord Justice Phillips at [51]:

“In so doing, the solicitors must, applying an objective test, be taken to have been aware of the relevant rules and principles, in particular, (i) that the fixed costs regime can be disapplied by agreement and (ii) that an order providing for detailed assessment (without more) entails an assessment on the standard basis (rule 44.3(4)(a)). In those circumstances it is difficult to see any basis on which the use of the term ‘detailed assessment’ could bear anything other than its natural and ordinary meaning as discussed above… There is no objective reason to believe that the solicitors did not intend the term to bear its natural, ordinary (and in my judgment, obvious) meaning, not least because it would be impermissible (and to no avail) to speculate as to the parties’ respective legal or commercial motivations for reaching as settlement on the terms they did.”

In the present case, the agreement reached was not the result of the acceptance of a Part 36 offer, so the parties’ intentions were not to be understood in that “highly restrictive context”: the decision in Adelekun could be distinguished on this basis, as it was rooted within the parties’ use of Part 36.

The appeal was dismissed.

Implications

It is clear from the Court of Appeal’s decision that particular care needs to be taken when agreeing to compromise a claim in ex-Protocol cases, and drafting an order which is intended to reflect the parties’ position on costs: the paying party, usually the defendant in low value personal injury claims such as these, should not assume that it has agreed to pay fixed costs only, particularly where the order includes provision for costs to be the subject of ‘detailed assessment if not agreed’. Equally if the receiving party is intending that the costs it receives are not restricted to fixed costs, it would be prudent to ensure that the agreement reached between the parties properly reflects this, both in terms of the wording of any offer and acceptance, and within the agreed consent order itself.

Note also the distinction drawn by the Court between agreements reached through the acceptance of a Part 36 offer and otherwise: pursuant to CPR 36.13 and 36.20, if the offer that is accepted could be construed and given effect as a Part 36 offer, then even a reference within the offer letter or order to detailed assessments of costs is unlikely to be read as disapplying the fixed costs regime.

[1] Per Lord Justice Phillips at [27]