Predictable or fixed recoverable costs are causing trouble. The idea was simple: low value, basic road traffic claims that settled before trial would attract fees on a set rate. The rates were considered by many claimant firms to be fairly low. However, the advantage would be prompt payment. A simple idea, but the implementation has been anything but. Claimant firms dislike them because the fees are low. No account is taken of any particular complexity that may arise. And often, they complain that defendant firms take too long to pay. The defendant firms consider that the costs are reasonable, but, they say, claimant firms do all that they can to escape the costs regime. Either they issue prematurely or they do not enter into meaningful negotiations.
Claimant firms blame defendant firms for not responding to their offers and defendant firms blame claimant firms for making unrealistic offers and issuing proceedings too early. There is even anecdotal evidence that some claimant firms operate systems that force solicitors to issue proceedings after a set period of time, regardless. However there is still a lack of clear authority as to what is acceptable and unacceptable behaviour on both sides.
Cost scheme conditions
Rule 45.7(2) of the Civil Procedure Rules (CPR) provides that the fixed recoverable costs scheme will apply when four conditions are met. They are:
â— if the dispute arises from a road traffic accident;
â— the agreed damages include damages in respect of personal injury, damage to property, or both;
â— the total value of the agreed damages does not exceed £10,000; and
â— if the claim had been issued for the amount of the agreed damages, the small claims track would not have been the normal track for that claim.
CPR 45.9 provides that the amount of fixed recoverable costs is the total of £800 plus 20 per cent of the damages agreed up to £5,000, plus 15 per cent of the damages agreed between £5,000 and £10,000. By CPR 45.10, the court may allow a claim for disbursements, but only for the costs of obtaining medical records; a medical report; a police report; an engineer’s report; a search of the records of the Driver Vehicle Licensing Authority (DVLA); and the amount of an insurance premium (with limitations on this amount).
Letters that contain an offer of settlement often state that such an offer is conditional upon payment of the claimant solicitor’s “reasonable costs and disbursements on the standard basis”. This is even though the costs of such a claim would be calculated according to the system of fixed recoverable costs.
The fixed recoverable costs scheme provides for a system of fixed fees and percentages. There is no test of reasonableness. The solicitor does not even have to provide evidence of the terms of the retainer and there is no requirement of compliance with the indemnity principle – see Nizami v Butt  2 All ER 140;  RTR 25.
There are only fixed methods for calculating fixed recoverable costs as set out in CPR 45.9. The only items that are assessed are those disbursements that a court may allow pursuant to CPR 45.10. This includes the costs of medical reports, records and insurance premiums. Other than this, there is no concept of fixed recoverable costs on a “standard basis”, on an “indemnity basis”, or on any other “basis” unless there are “exceptional circumstances” pursuant to CPR 45.12.
Asking for costs on the standard basis may cause a court to consider that the solicitor never had any intention of seeking to conduct the claim in accordance with CPR 45(7) as in the first instance, unreported claim of Farmer v Dix  claim no 5RG08511. Such behaviour by the claimant solicitors led to the judge finding that, from the outset of that claim, the claimant’s solicitors wanted all of their costs, not the limited amount of fixed recoverable costs. There should be no real reason for a solicitor to ask for reasonable costs on the standard basis as opposed to fixed recoverable costs and reasonable disbursements.
Threats to issue
Claimant solicitors will often make the first pre-issue offer. It is common for letters containing such offers to contain phrases such as: “Should we receive an unacceptable offer to settle, or not hear from you, we will issue proceedings.” Such words are hardly in the spirit of cooperation or negotiation. They are also incompatible with the spirit of both the CPR and the pre-action protocol. Such sentences are, as District Judge Jack commented in the unreported claim of Binch v Freeman  claim no 5SQ04848, “in no uncertain terms an ultimatum”. He considered such phrases to be an aggressive approach that were incompatible with the principle of reasonable negotiations to try and reach a settlement.
Similar behaviour was also disapproved of in the case of Paul Thomas Construction Ltd v Hyland and Power  CILL 1748. This was a modest claim in the Technology and Construction Court in front of HHJ Wilcox. In a building dispute, the claimant had made an unrealistically high offer to settle. He accompanied it with the threat that if the defendant refused the offer, then the claimant would issue proceedings without further notice. HHJ Wilcox considered this to be a “heavy handed approach” and “unco-operative”. He noted that the relevant pre-action protocol (not the personal injury protocol) put “a strong imperative… on both parties to negotiate, to be frank in disclosing documentation and to talk and discuss them”. The judge considered that it had been “wholly unnecessary” and “wholly unreasonable” for the claimant to commence the litigation in circumstances where the defendants were willing to engage in reasonable negotiations, but where the claimants were not.
Similar behaviour was observed in the unreported, first instance case of Vanovitch v Ajeigb  claim no 6SE05385. In a personal injury claim listed in the fast track, the judge awarded general damages in the sum of £900. Including special damages and interest, the total sum was £968.31. The defendant had failed to respond to the claimant’s initial offer of £2,452 and the claimant solicitors issued proceedings. Despite the fact that the defendants had failed to respond, the judge ordered that the claimant recover only fixed recoverable costs. The defendant had pointed out that even had they responded with a counter-offer of £1,000, the claimant solicitors would still have issued on the basis that the offers were so far apart, that there could have been no resolution without litigation. The judge, HHJ Richardson, held that the offer was not a reasonable one, and that the claimant solicitors had, accordingly, issued at the first opportunity.
It is a common argument put by defendants, similar to that in Vanovitch, that claimants make high initial offers in order to reject lower, and sometimes more realistic, offers made by defendants. The argument for then issuing proceedings is that the difference between the offers is so great that it would be impossible to reach a settlement without litigation.
To paraphrase Butcher v Wolfe  1 FLR 334 at 342A, which was concerned with Part 36 offers, one should ask why a defendant’s offers are rejected and a claimant’s solicitors choose to issue proceedings. Often this is not because a defendant’s offer is too low or that there is no benefit to further negotiation. Instead, it is a common complaint that claimant solicitors issue proceedings so that they can build up further costs than are allowable under fixed recoverable costs.
Where the burden lies
It is not unreasonable to suggest that the burden is on the claimant solicitor and not the defendant solicitor to ensure that reasonable efforts at settlement are made. The personal injury protocol is clear at para 2.16: “The courts take the view that litigation should be a last resort, and that claims should not be issued prematurely when a settlement is still actively being explored. Parties are warned that if the protocol is not followed (including this paragraph) then the court must have regard to such conduct when determining costs” (emphasis added).
It is the claimant solicitor that issues the claim. It is the responsibility of the claimant solicitor to ensure that the claim is not issued prematurely. This requires the claimant solicitor to make all reasonable efforts to engage in proper negotiations and to ensure that when proceedings are issued, it really is as a last resort. A claimant solicitor may be unsuccessful in trying to persuade a court that it was the defendant who should have made a greater effort if they themselves have not entered into reasonable negotiations with a proper starting figure and/or satisfied themselves before issuing proceedings that they really are at the end of pre-action stage.
Elliot Gold is a barrister practising from 5 Essex Court, London. Call 020 7410 2000 or email email@example.com
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