Contracting out of Fixed Costs - is it possible?

Turner -v- Cole

The question of whether it is possible to contract out of fixed costs and whether such phrases as ‘costs payable on a standard basis’ or ‘reasonable costs’, constitute any such parties’ intentions, has rumbled on for a number of years in costs litigation. However, one of the latest cases on the issue, the case of Turner -v- Cole (16^th December 2019), a well-reasoned decision of District Judge Baldwin (sitting as a Regional Costs Judge), prospectively sheds some helpful light on the topic.

Facts / Circumstances

This case was a road traffic accident (‘RTA’), which initially upon receipt of instructions was determined to fall within the remit of the MOJ Portal for low value RTA’s (under £25,000). The matter subsequently progressed, however, at some point during the life of the case (presumably after medical evidence had been obtained), it came to fruition the case was no longer suitable for the Portal given its prospective value, which now exceeded the threshold, and the matter was dropped out.

Correspondence was exchanged in conjunction with the Claimant’s decision to remove the case from the Portal and it was accepted that the value of the claim was likely to be in excess of £25,000. Given such a development, by means of an email dated 26 June 2017, the Defendant wrote to the Claimant making two offers of settlement. The first offer was made pursuant to Part 36 of the Civil Procedure Rules in the sum of £55,000 inclusive of interest but gross of deductible benefits (nil in any event) and past interim payments and the second, a time-limited offer of £60,000 net of CRU and interim payments. The terms of the second offer were particularly relevant for the case and were as follows: –

Open for 14 days, otherwise, withdrawn, if not accepted by 5pm on 10^th July 2017. The email concluded;
Reasonable costs to be payable, to be assessed if not agreed.

The Claimant responded in conjunction with the second offer by way of letter dated 4^th July 2017, as follows “… we have instructions to accept the time-limited offer indicated within your correspondence of the 26^th June 2017. Acceptance of the offer is strictly predicated on the basis as follows:-

The Claimant does accept the offer of being paid £60,000 net of CRU and interim payments and this payment will be made within 21 days in relation to her claim for personal injury and loss.
In addition, the Defendants will pay the Claimant’s legal costs to be (sic) detailed assessment if not agreed on the standard basis (and it is strictly accepted by the Defendants that costs will be paid on the standard basis and not in accordance with any portal, fixed costs or predictive costs basis). In terms of costs it is also requested that in (sic) interim payment on account of costs be made for the sum of £40,000 …

In response to the Claimant’s correspondence, the Defendant emailed as follows: – “Thank you for your letter indicating acceptance, I confirm I will forward a cheque for £60,000 payable to your client immediately. With regard to your costs, in view of the amount of the interim request, I will be instructing costs draughtsmen (sic) – I would suspect they would want more detail and I will leave the question of any payments on account of costs to them. If you send me details and I will instruct them at that point.”

Issue

Now, crucially, in the Defendant’s response to the Claimant’s acceptance, no issue was raised regarding the basis of costs i.e. the argument that the Claimant should have been limited to fixed costs given the matter started its life on the MOJ Portal and did not progress to Part 7 proceedings and multi-track allocation. This would have usually left the Claimant with the only option of arguing ‘exceptional circumstances’ under CPR 45.29(J).

Instead, the Defendant’s argument later became that it was not open to the parties to contract out of fixed costs, as escaping from the fixed costs regime is highly exceptional. The Claimant on the other hand were of the view their correspondence had been clear and the intention was that costs would be payable on an hourly rate basis. In addition, the authority of Solomon v Cromwell [2011] EWCA Civ 1584, confirmed parties were able to contract out of fixed costs and thus the Defendant’s argument would not succeed.

Decision

District Judge Baldwin agreed with the Claimant. In his judgment he confirmed it was ‘perfectly clear’ that the purpose of the letter from the Claimant of 4^th July 2017, was to convey a willingness to accept the damages figure of £60,000, strictly conditional, upon an agreement by the Defendant to pay conventional as opposed to fixed costs, the same amounting to a counter-offer.

Given such the only reasonable construction of the Defendant’s email on 6^th July 2017, was that the confirmation that £60,000 in terms of a cheque would be forwarded forthwith was an acceptance of the entirety of the terms set out in the 4^th July letter, and the Claimant’s offer was not a divisible contract. Furthermore, the District Judge had no hesitation confirming parties were at liberty to agree to contract out of fixed costs if that be there prerogative.

Conclusion

On that basis, the case acts for useful guidance for Claimants in that, should they want to attempt to agree costs should not be fixed, the terms need be abundantly clear in their intention. If so, it is likely a Court will support such an agreement.

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Contracting out of Fixed Costs – is it possible?