The Court of Appeal has clarified that claimants are not entitled to standard or indemnity costs in low value personal injury cases where a defendant accepts a Part 36 offer out of time but before trial. The fixed costs regime will continue to apply until the eventual date of acceptance, unless there are exceptional circumstances.
Motor, employer liability and public liability claims worth less than £25,000 are subject to a fixed costs regime.
In such claims, where a Part 36 settlement offer is accepted within 21 days, neither party can recover more by way of costs than is provided for by the fixed costs regime.
However, if at trial, the claimant recovers more than his/her Part 36 offer, the claimant is entitled to indemnity costs from the date that the offer became effective1.
However, there was a lack of clarity in relation to the ‘cases in the middle’, where a defendant accepted a claimant’s Part 36 offer many months after it was made and the case did not then go to trial. It was unclear whether those cases should remain within the fixed costs regime or whether claimants recover standard or even indemnity costs from the date that the offer became effective. Clarification has now been given by the Court of Appeal in the joined appeals of Hislop v Perde; Kaur v Committee (for the time being) of Ramgarhia Board Leicester 2.
The Hislop case was a modest value road traffic accident claim where the defendant accepted the claimant’s Part 36 offer out of time and shortly before trial. The Kaur case was a modest value public liability claim where, following unfavourable expert opinion, the defendant, instead of accepting the claimant’s Part 36 offer of £2,000, made its own Part 36 offer of £3,000 which was accepted by the claimant.
In both cases, the judges at first instance had decided that the claimant was entitled to assessed costs rather than fixed costs, but such costs should be assessed on the standard basis not the indemnity basis. The defendants appealed.
The Court of Appeal determined that claimants are not entitled to standard or indemnity costs in low value personal injury cases where a defendant accepts a Part 36 offer out of time but before trial. The fixed costs regime will continue to apply until the eventual date of acceptance, unless there are ‘exceptional circumstances’.
Lord Justice Coulson made it clear that there is no presumption that late acceptance of a Part 36 offer amounts to ‘exceptional circumstances’. This will depend on the particular facts of each case: "A long delay with no explanation may well be sufficient…..; a short delay with a reasonable explanation will not".
The appeals in both cases were therefore allowed and the claimants were awarded fixed costs only. In Hislop, the 19-month delay in accepting the offer was not considered to be ‘exceptional circumstances’. In Kaur, the parties had wrongly assumed that late acceptance would result in the defendant having to pay indemnity costs. The exceptional circumstances point fell away as this was not a case whereby the claimant was denied the entitlement of indemnity costs by the higher offer, as no entitlement existed in the first place.
The judgment will be welcomed by defendants and their insurers as it provides clarification in an area where there have been many conflicting decisions in the lower courts.
It is now clear that the only escape from the fixed costs regime is to argue3 that there are exceptional circumstances making it appropriate for the claimant to recover more than fixed costs. Late acceptance itself may well not be enough to trigger that. The test is a high one and carries a costs risk for claimants. If a claimant fails the test, s/he will likely be ordered to pay the costs of the application, and those costs are likely to be set off against the fixed costs payable, even in a QOCS case4.
1 Broadhurst v Tan 
2  EWCA Civ 1726
3 Under CPR45.29J
Howe v Motor Insurers' Bureau
4  EWCA Civ 932