England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LIVERPOOL COUNTY COURT
Judge Mackay
Deputy District Judge McNamara

		Royal Courts of Justice Strand, London, WC2A 2LL
		14th March 2003

Lord Justice Brooke :

1. This is an appeal by the claimant against an order made by Judge Mackay in the Liverpool County Court on 28^th June 2002 whereby he dismissed his appeal against an order made by Deputy District Judge McNamara on 8^th March 2002. The appeal raises a point of general interest which relates to the incidence of costs in costs-only proceedings following the acceptance of an offer to settle the costs claimed in assessment proceedings.
2. The facts of the matter are very straightforward. In July 2000 the parties were involved in a road traffic accident. The claimant's claim was settled, without the need for proceedings, for a little over £1,500 on 8^th January 2001. On 25^th January 2001 his solicitors served a bill of costs in the sum of £4,089.25. Since agreement was not forthcoming they commenced costs-only proceedings (see CPR 44.12A) by a Part 8 claim on 4^th July 2001, claiming costs of £5,310.84. On 16^th January 2002 the defendants' solicitors made an offer under CPR 47.19 in these terms:

"… [W]e would be willing to offer you the all-inclusive sum of £2,650 in respect of your profit costs, disbursements, VAT and interest (your entitlement to which is not admitted) in order to seek an amicable conclusion. Our offer is pursuant to CPR Part 47.19 and remains open for 21 days from the date of this letter."

3. CPR Part 47 contains the procedure for the detailed assessment of costs. Section I (CPR 47.1 to 47.4) contains general rules about detailed assessment, and Section II (CPR 47.1 to 47.10) deals with the commencement of detailed assessment proceedings where costs are payable by one party to another. Section III (CPR 47.11 to 47.12) then contains default provisions, and Section IV (CPR 47.13 to 47.14) contains the procedure when points of dispute are served. Section V (CPR 47.15 to 47.16) makes provision for interim costs certificates and final costs certificates, and Section VI (CPR 47.17 – 47A) prescribes the procedure where costs are payable out of the Community Legal Service fund. Section VII (CPR 47.18 – 47.19) is concerned with the costs of detailed assessment proceedings. CPR 47.18 contains the general rule that the receiving party is entitled to his costs of the detailed assessment proceedings except in the circumstances identified in CPR 47.18(1). CPR 47.19, for its part, is headed "Offers to settle without prejudice save as to costs of the detailed assessment proceedings". It provides, so far as is material, that:

"(1) Where

(a) a party … makes a written offer to settle the costs of the proceedings which gave rise to the assessment proceedings; and

(b) the offer is expressed to be without prejudice save as to the costs of the detailed assessment proceedings,

the court will take the offer into account in deciding who should pay the costs of those proceedings.

(2) The fact of the offer must not be communicated to the costs officer until the question of costs of the detailed assessment proceedings falls to be decided."

4. Section 46 of the Costs Practice Direction ("CPD") now contains guidance on practice in relation to CPR 47.19. The same text was previously contained in Section 7.6 of the practice direction as originally drafted. Paragraph 46.2 provides:

"Where an offer to settle is made it should specify whether or not it is intended to be inclusive of the cost of the preparation of the bill, interest and value added tax … The offer may include or exclude some or all of these items but the position must be made clear on the face of the offer so that the offeree is clear about the terms of the offer when it is being considered. Unless the offer states otherwise, the offer will be treated as being inclusive of all these items."

5. On 5^th February 2002 an order was made in the Part 8 proceedings for detailed assessment, and on 6^th February 2002 the claimant's solicitors wrote:

"Having reviewed the file we accept your Part 47.19 offer of £2,650.

The only outstanding issue is the costs of the Part 8 proceedings details of which we will let you have shortly."

6. The following day they wrote a further letter in which they said that without prejudice to summary assessment they would be prepared to agree the costs of the Part 8 proceedings at £1,022.64. After giving a breakdown of this sum they said:

"Please let us have your proposals within the course of the next fourteen days failing which we will apply on notice for summary assessment of the Part 8 costs."

7. The defendants' solicitors replied on 13^th February in a letter headed "Without Prejudice save as to the costs of a summary or detailed assessment of Part 8 costs". They made a counter-offer for the Part 8 costs pursuant to CPR 47.19, which was not accepted. The matter then came before Deputy District Judge McNamara on 8^th March 2002.
8. The issue she was invited to determine was whether the CPR 47.19 offer which was made on 16^th January 2002 included the costs of the costs-only proceedings. She held that the correspondence indicated a conclusive, final and total offer to settle the matter and she therefore disallowed any costs of the detailed assessment proceedings.
9. On the appeal to Judge Mackay counsel for the claimant took three points. First, that there was an agreement that the costs of the detailed assessment proceedings and the Part 8 costs should be treated separately, and the parties conducted themselves on that basis. Secondly, that the hearing before the deputy district judge was predicated on the basis that they were there to assess the costs, not on the basis that they might be withheld entirely. And thirdly, that there was no proper compromise because the claimant's solicitors and the defendant's solicitors were thinking of different things.
10. Counsel for the defendant, for his part, argued that on the proper construction of CPR 47.19 the expression "the proceedings which gave rise to the assessment proceedings" could only refer to the costs-only proceedings, since there were no other proceedings in this case. His solicitor's letter plainly indicated that what was being offered was an all-inclusive sum. The claimant's solicitor accepted this offer, and then went on to ask for something else.
11. After setting out the rival arguments, and reminding himself that the appeal hearing was a review and not a rehearing, Judge Mackay concluded that the deputy district judge was probably right in finding that there was an all-inclusive offer, which encompassed all the costs in the matter. He was quite satisfied that the letter of 16^th January 2002 could, and perhaps should, be read in the way the deputy district judge read it.
12. Before I describe a particular inconsistency which has arisen recently in the Liverpool County Court, I will say something about the history of the rule we have to interpret. It was a novelty when it was first introduced in April 1999 when the Civil Procedure Rules came into effect. Practitioners were of course familiar with the arrangements for a payment into court or the writing of a Calderbank letter "without prejudice save as to costs" when offers were made to settle a substantive claim, and it has always been a feature of those regimes that a claimant will be entitled, for instance, to his costs of the proceedings up to the time he timeously accepts a payment into court, or that if he does not accept a payment into court which turns out to be greater than the sum awarded to him at trial, he will be liable for the defendant's costs from the last date on which the payment into court could have been accepted. Needless to say, the amount of those costs, in either event, will have to be assessed by the court, if they cannot be agreed.
13. In those contexts the defendant is placing a value on a claim which should have been set out clearly in the claimant's statement of case. In so far as the claimant is claiming money, he should have set out the amount he is claiming, and in so far as he is claiming general damages he should have set out the basis of the claim. The defendant can then value the claim. CPR 36.18(1) then provides that the claimant is entitled to the costs of the proceedings up to the date of serving notice of acceptance, and CPR 36.20(2) provides that the court will ordinarily order him to pay any costs incurred by the defendant after the latest date on which the payment could have been accepted where he has failed to better a Part 36 payment.
14. I mention this procedure because it provides expressly as to who should bear the (as yet unquantified) costs in different eventualities. CPR 47.19 (for which see para 3 above) contains no such simple scheme. When it was originally introduced in April 1999, "costs-only proceedings" under CPR 44.12A had not yet been invented. At that time there should have been no difficulty about the interpretation of the rule. Conventional legal proceedings had given rise to the assessment proceedings as a consequence of an order being made in those proceedings for the costs to be assessed. A copy of the receiving party's bill of costs would have been served when the detailed assessment proceedings were commenced (see CPR 47.6(1)), and CPR 47.19 gives either the receiving party or the paying party the opportunity to write a letter equivalent in effect to a Calderbank letter in the detailed assessment proceedings. The paying party is able to do this because he will have seen the bill of costs on which the claim for costs is based, so that he knows what is being claimed and why.
15. CPR 47.19 does not contain any simple mechanism for deciding how the costs of the assessment proceedings should fall if the offer is accepted or refused (when with hindsight it should have been accepted). It merely provides that where a CPR 47.19 offer is made, "the court will take the offer into account in deciding who should pay the costs of those [viz the detailed assessment] proceedings". Under CPR 47.18(2), which gives guidance to the court when deciding whether to award the receiving party all or part of the costs of the detailed assessment proceedings,

"the court must have regard to all the circumstances, including

(a) the conduct of the parties."

16. It appears that difficulties arose when this rule was introduced, and this led to the subsequent insertion into the predecessor of CPD Section 46 of a provision equivalent to what is now paragraph 46.2 (see para 4 above). This makes it clear that what has been valued for the purposes of the CPR 47.19 offer includes the cost of preparation of the bill, interest and VAT, unless any of these items are expressly excluded from the offer (perhaps because insufficient information has been given to enable them to be effectively valued by the paying party).
17. Subject to this element of transitional uncertainty, CPR 47.19 ought to have given rise to no difficulties in the April 1999 context. An offer would be made valuing the amounts set out in the bill of costs (including the CPD 46.2 items, unless excluded), and unless agreement could be reached the court would then make an order as to where the costs of the detailed assessment proceedings should fall. We have been shown transcripts of two judgments in the Liverpool County Court in April and May 2002 which show that both Judge Marshall-Evans QC, the designated civil judge, and Judge Mackay himself have interpreted the rule in this way in cases where pre-existing legal proceedings have led to an order for the assessment of costs in those proceedings, and a CPR 47.19 offer is then made in the course of the detailed assessment proceedings.
18. What we have to determine on this appeal is whether it is intended that this regime should be significantly different when there have been no prior legal proceedings because the underlying damages claim has been settled without the need to issue proceedings.
19. In order to enable detailed assessment proceedings to be commenced when there are no existing proceedings in which an order for assessment could be made, CPR 44.12A was introduced. It provided, at the relevant time, so far as is material, that:

"44.12A (1) This rule sets out a procedure which may be followed where –

(a) the parties to a dispute have reached an agreement on all issues (including which party is to pay the costs) which is made or confirmed in writing: but

(b) they have failed to agree the amount of those costs; and

(c) no proceedings have been started.

(2) Either party to the agreement may start proceedings under this rule by issuing a claim form in accordance with Part 8.

(3) The claim form must contain or be accompanied by the agreement or confirmation.

(4) In proceedings to which this rule applies the court –

(a) may

(i) make an order for costs; or

(ii) dismiss the claim: and

(b) must dismiss the claim if it is opposed."

20. The Part 8 claim form in the present case read as follows:

"1. On 3^rd July 2000 the Claimant had an accident. The Motor Insurers' Bureau compensated the Claimant in damages without the necessity of court proceedings and agreed to pay the Claimant's reasonable legal fees.

2. The Claimant seeks an Order in the following terms:

(i) The defendant must pay the Claimant's costs of the claim relating to the accident on 3^rd July 2000 in respect of which terms of settlement have been agreed.

(ii) On or before … the Claimant must commence detailed assessment proceedings in accordance with CPR 47.6 for assessment on the standard basis.

(iii) The costs of this application are costs in the assessment.

(iv) The amount of costs claimed in £5,310.84.

(v) Costs are claimed on the standard basis."

21. It will be apparent from CPR 44.12A(4) that the issue to be determined in the Part 8 proceedings is whether the claimant is entitled to an order for costs (or, since a recent amendment to this rule, to an order for costs "to be determined by detailed assessment"). Either a CPR 44.12A(1) agreement was established, in which case the order would ordinarily be made, or it was disputed, in which case the court would dismiss the claim, and the claimant would have to institute more appropriate proceedings in order to establish his entitlement to a detailed assessment.
22. CPD Section 17 sets out the procedure to be adopted in costs-only proceedings. Since they are concerned only with the issue of an entitlement to an order for detailed assessment, the bill of costs does not have to be served with the claim form. CPD para 17.8 provides:

"An order for costs made under this rule will be treated as an order for the amount of costs to be decided by a detailed assessment to which Part 47 and the practice directions relating to it apply. Rule 44.4(4) (determination of basis of assessment) also applies to this order."

23. Once the order for detailed assessment is made in the Part 8 proceedings, then the procedure thereafter is governed by Section II of CPR Part 47. By CPR 47.6(1):

"Detailed assessment proceedings are commenced by a receiving party serving on the paying party –

(a) notice of commencement in the relevant practice form and

(b) a copy of the bill of costs."

24. CPD 32.1 states:

"Precedents A, B, C and D in the Schedule of Costs Precedents annexed to this Practice Direction are model forms of bills of costs for detailed assessment."

25. Each of these four model bills relates to cases where an order for detailed assessment was made in the course of contested proceedings. Each contains an item for "preparing and checking the bill" but no other item relating to any negotiations about the amount of costs to be paid.
26. In this case and against this background we have to determine in the context of costs-only proceedings the meaning of the words "a written offer to settle the costs of the proceedings which gave rise to the assessment proceedings" (see CPR 47.19 (1)(a)).
27. It was common ground between the parties on the appeal that a broad interpretation must be given to the word "proceedings" so that "the costs of the proceedings" embrace all the letters and negotiations between the parties which led up to the making of the CPR 44.12A(1)(a) agreement. Mr Williams, for the claimant, says that this is all the words mean. Mr McKeon, for the defendant, says that they also include all the costs of the Part 8 proceedings up to the time the order for detailed assessment is made.
28. Although there is no model form on the Schedule of Costs Precedents which show those costs being included in a model bill of costs, he submitted that there was no reason why that should not be done if the "costs of the proceedings" which were being assessed had the meaning he attributed to those words. They would include both the "proceedings" leading up to the agreement and the Part 8 proceedings, and the costs draftsman would have to redraw the bill in order to include these additional costs as well. He suggested that this would be valuable because the paying party's offer would be all-inclusive, save as to the costs of the detailed assessment proceedings, which, he said, began when the order for detailed assessment was made and not before.
29. He was not dismayed by the fact that the way he interpreted the rule bundled two disparate sets of "proceedings" together to constitute the "proceedings which gave rise to the assessment proceedings". Nor was he dismayed by the fact that when the CPR 47.19 offer was made in the present case, a year had elapsed since the claim was settled and no order had been made for detailed assessment such as would trigger off the need for his new style portmanteau bill. He said that under the CPR regime defendants are encouraged to make pre-action offers to settle the claim, since the latter may well have favourable costs consequences in due course (see CPR 44.3(4)(c)), and at that stage they may well not have the same amount of detailed information about the value of the claim as they will have once proceedings have commenced. He saw no difficulty in the paying party making an inspired assessment as to the likely costs of the proceedings (which he refused to categorise as "assessment proceedings") between the time the substantive claim was settled and the time the CPR 47.19 offer was made, although the latter might well antecede the drawing up of the new style bill he advocated.
30. In Callery v Gray (No 1) [2001] EWCA 1117; [2001] 1 WLR 2112 this court encountered a comparable problem over the meaning of the words "liability in those proceedings" in section 29 of the Access to Justice Act 1999. This section read as follows:

"Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy." (Emphasis added).

31. The wording of this section will not give rise to any difficulty in the context of the rules as they stood when the section was originally enacted in 1999. After costs-only proceedings were introduced the following year, however, the way was open for an argument that the section only permitted recovery of an ATE insurance premium where there were or had been proceedings in which a costs order was made in the claimant's favour, and those proceedings were proceedings in which he took out an insurance policy against the risk of incurring liability for costs in those proceedings. Because the only proceedings that a claimant might have commenced were the costs-only proceedings, and he did not take out an insurance policy against the risk of incurring liability in those proceedings, it was argued in Callery v Gray that the costs order made by the court in the costs-only proceedings could not include the ATE insurance premium.
32. This court (at paras 44-55) rejected this argument. It interpreted the section as referring to a liability for the costs which would have been recoverable in the proceedings had the proceedings commenced. This ruling was not challenged in the House of Lords (see the report at [2002] UKHL 28; [2002] 1 WLR 2000), where Lord Scott of Foscote took the opportunity of making it clear (at para 104) that he agreed with this court's approach.
33. In my judgment Mr Williams's approach is to be preferred. It has the merit of simplicity. Until the time the substantive claim is settled, the "proceedings" relate to liability and the amount of any compensation. After the substantive claim is settled, the "proceedings" relate to the assessment of the costs the paying party has to pay. Although CPR 43.2 contains no definition of "assessment" as such, the White Book comment on this rule accurately states that "assessment" is "the process by which the court decides the amount of any costs payable".
34. By this route it is easy to see that even when Part 8 proceedings have to be commenced in order to obtain a court order for detailed assessment, the "costs of the proceedings" within the meaning of CPR 47.19 still relate only to the costs leading up to the disposal (on this occasion by agreement) of the substantive claim. They are "the proceedings which gave rise to the assessment proceedings", and the assessment proceedings cover the whole period of negotiations about the amount of costs payable through the Part 8 proceedings to the ultimate disposal of those proceedings, whether by agreement or court order.
35. If the costs judge or district judge considers that the receiving party ought to have accepted an offer made before the Part 8 proceedings commenced, then he is likely to conclude that the paying party should receive all his costs, including any costs involved in the subsequent Part 8 proceedings, pursuant to CPR 47.18(2). This consideration shows vividly that the substantive proceedings and the assessment proceedings are quite different, and that Mr McKeon's attempt to subdivide all the proceedings up to the making of the order for detailed assessment in costs-only proceedings is unsustainable.
36. For these reasons I would allow this appeal.
37. After completing this judgment, it came to my attention that lower courts are encountering similar difficulties over the meaning of the word "proceedings" as used in paragraph 4A.2 of the Practice Direction: Protocols. Although we have of course not heard argument on this point, it appears to me that this word clearly needs to be interpreted along the lines indicated in paragraph 34 of this judgment. In other words, for instance, the dealings between the parties which lead up to the disposal of a clinical negligence claim are to be treated as "proceedings" for the purposes of that paragraph even if the dispute is settled without the need to issue a claim form.

Lord Justice Jonathan Parker:

38. I agree.

Lord Justice Schiemann:

39. I also agree.

Order

40. The Claimant's appeal be allowed and the Order of His Honour Judge McKay made on the 28^th of June 2002 and the Order of Deputy District Judge McNamara made on the 8^th of March 2002 be set aside
41. The Second Defendant do pay the Claimant's costs of the assessment proceedings and of the appeals, to be subject to detailed assessment if not agreed on the standard bases
42. The Second Defendant do pay the Claimant the sum of £10, 000 on account of the costs awarded in paragraph 2 above by 4:00pm on the Friday the 28^th March 2003
(Order not part of approved Judgment)