Part 45 - Fixed costs disapplied when parties contract out in consent order

The Court of Appeal has ruled out the application of Part 45 fixed costs where parties have expressly agreed on a detailed assessment of costs instead.

Background

In Doyle v M&D Foundations & Building Services Limited [2022] EWCA CIV 927, an employee had suffered an injury whilst working on a construction site.

Around three days before trial, the parties engaged in without prejudice negotiations, following which the employer made a Part 36 offer in full and final settlement of the claim. The employee’s solicitors did not return the Notice of Acceptance of that offer, but agreed the quantum. The employee specifically indicated that the defendant’s Part 36 offer was not accepted, since the offer was made at a very late stage of the process, and that an order was required to finalise matters.

The case was settled by a consent order wherein the employer was ordered to pay the employee damages of £5,000, plus costs “to be the subject of detailed assessment if not agreed”. The employer disputed the bill of costs lodged by the employee, arguing that fixed costs applied instead. After the outcome before the district and circuit judges was favourable to the employee, the employer appealed to the Court of Appeal.

Decision

The Court of Appeal rejected the employer’s contention that the fixed costs regime applied. The parties had contracted out of it by agreeing upon a detailed costs assessment.

The court acknowledged that there were significant similarities with the case of Adelekun v Ho [2019] EWCA Civ 1988, where the same wording was construed as an accepted Part 36 offer subject to the application of the fixed costs regime under Part 45. However, the court identified the absence of an accepted Part 36 offer in the current case as a key difference between the cases. The court noted that the employee could not have been any clearer in rejecting the employer’s Part 36 offer.

The court also rejected the employer’s argument that “detailed assessment” could refer to an assessment of the fixed costs due. The structure of the CPR clearly envisaged, by implication in rule 44.3(4)(a) and by drawing an express distinction in rules 44.6(1) and 45.29, that the fixed costs regime was separate from the mechanism for detailed assessment on the standard basis.

Comment

The judgment serves as a useful reminder to parties, on the one hand, to expressly state the costs position they are agreeable to, and on the other hand, to give careful thought to the proposed wording of any agreement in order to ensure that they do not inadvertently contract into an otherwise inapplicable costs regime. If a defendant wishes to preserve the potential for fixed costs to apply, this should be specified in the terms of the order.

Alternatively, it should at least be indicated that the terms of the costs entitlement are in dispute and are to be determined by the court, even if that results in a hearing to determine that basis under rule 36.13(4). Costs of such a hearing would be in issue and could potentially be set off against costs of the claim, subject to the form of the order.

This article was prepared with the assistance of Samyuktha Srikanth, student in the CMS Academy programme.