A clear without prejudice offer, made in proper time and in proper form, can amount to a special circumstance which might otherwise reverse the statutory presumption in s 70(9)
ANGEL AIRLINES SA v DEAN & DEAN (QBD) [2009] 2 COSTS LR 159
ONE-FIFTH RULE : s70(9) : SPECIAL CIRCUMSTANCES : WITHOUT PREJUDICE OFFERS
This was an appeal against a decision of Master Seager Berry that a without prejudice offer made in the course of a Solicitors Act assessment did not amount to special circumstances under s 70(9) and (10) of the Solicitors Act 1974.
The appellant solicitors were retained by the respondent in connection with a dispute as to aircraft leasing with BAE. In April 2004, before proceedings were issued, the claim was settled by the payment of $529,000 odd from BAE to the respondent. This sum was paid to the appellant, who was acting as the respondent’s solicitors. On 6 May 2004, the appellant issued an invoice for £140,000 in relation to its fees and said that this money was to be transferred from the client account to the office account. The respondent obtained a pre-action order from Grigson J that the money in the client account was to be paid into court, which happened on May 19. Five days later, on 24 May 2004, the appellant revised its bill of costs and issued a further invoice in the significantly larger sum of £444,705. On the same day the appellant issued the first of a number of without prejudice offers in the sum of £150,000.
Following a series of delays and difficulties, a number of Unless Orders and several preliminary issues hearings the detailed assessment took place on 23, 24 and 25 January 2006. A further day was listed to conclude the assessment on 15 February 2006.
On January 31, the appellant made a without prejudice offer to the respondent in relation to the detailed assessment, in the sum of £100,000 (“the offer”).
In the event, because of the nature and scope of the difficulties arising out of the appellant’s draft bill of costs, the detailed assessment was not completed on February 15. Instead, the assessment occupied the court for a further six days over February 20 and 21, March 3, April 25 and May 5 and 22.
In determining who should pay the costs of the assessment proceedings, the costs judge had to consider the relevance of the offer pursuant to s 70 of the Solicitors Act 1974 and CPR 47.8 and 47.9. In short, he considered that, in all the circumstances, the offer that was made on 31 January did not amount to a special circumstance pursuant to s 70(10) of the Solicitors Act, so that the presumption applied that, because the bill had been reduced on assessment by more than one-fifth, the appellant solicitors were obliged to pay the costs of the assessment.
There were three separate points before the court on this appeal. We will look at one of them:
(a) Whether the costs judge was wrong to conclude that a without prejudice offer did not amount to special circumstances under s 70(9) and (10) of the Solicitors Act 1974. The appellant argued that the offer of 31 January 2006 was a special circumstance and that, given that it was for only just a little more than the sum eventually arrived at by way of assessment, the costs judge was wrong to award the entire costs of the assessment process to the respondent.
On 16 January 2006 the costs judge had provided a short note of his answers to the second set of preliminary issues relevant to the detailed assessment of the appellant’s bill. A number of these findings were against the appellant, particularly that relating to the hourly rate. However, the appellant continued with the detailed assessment between January 23 and 25. When the hearing adjourned on January 25, there was only one further day booked for the detailed assessment before the costs judge, to take place on February 15.
On 31 January 2006 the appellant wrote to the respondent in the following terms:
“We offer to accept the sum of £100,000 in respect of our detailed bill of costs. The said offer does not include any interest applicable. We invite your prompt reply to save further wasted costs.”
The respondent’s solicitors replied the following day, 1 February 2006, noting that the offer made no mention of the costs of the proceedings. It went on:
“If you were awarded £100,000 you would be saddled with the entire costs of the proceedings which you estimated to be £210,000. What is the position about the costs of the proceedings?”
On 3 February 2006, the appellant wrote again, the material paragraph of their letter being as follows:
“We had hoped that the position regarding costs in our offer of 31 January was self evidence (sic). The offer relates to the quantum of our detailed bill of costs. The issue of the costs of assessment would remain at large to be argued before the Master as necessary. We do not have any indication from Angel as to such costs and would naturally not be in a position to consider the matter properly.”
There was no further response from the respondent’s solicitors and the detailed assessment continued.
It was submitted on behalf of the appellant that the offer should have been accepted immediately, or certainly within seven days of its being made, and that therefore the appellant was entitled to all of the costs of the assessment from 7 February 2006 onwards. The appellant indicated that their costs of the remainder of the detailed costs assessment were in the region of £40,000. It was said that the respondent’s costs for the same period were about £25,000.
Section 70 of the Solicitors Act 1974, sub-sections 9 and 10 provide as follows:
“(9) Unless –
a) the order for taxation was made on the application of the solicitor and the party chargeable does not attend the taxation, or
b) the order for taxation or an order under sub-section (10) otherwise provides
the costs of the taxation shall be paid according to the event of the taxation, that is to say, if one-fifth of the amount of the bill is taxed off, the solicitor shall pay the costs, but otherwise the party chargeable shall pay the costs.
(10) The taxing officer may certify to the court any special circumstances relating to a bill or to the taxation of a bill, and the court may make such order as respects the costs of the taxation as it may think fit.”
As considerably more than one-fifth of the amount of the appellant’s bill was taxed off, pursuant to sub-section (9), the appellant was liable to pay the costs of the assessment unless, pursuant to sub-section (10), there was “a special circumstance” which reversed or otherwise altered the statutory presumption.
20. In Wills and Others v The Crown Estate Commissioner and Others [2003] EWHC 1718 (Ch), Peter Smith J had to deal with an appeal from a deputy master in which he had concluded that only one offer under CPR 47.19 was in proper form and where he had given much less weight to later offers, in respect of which no good reason had been given for their lateness. The judge agreed with the master, going on to say;
“33. There [these?] were matters entirely within his discretion and I do not see that he exercised his discretion wrongly. This appeal emphasises the need for paying parties who wish to protect themselves against the costs consequences of CPR 47.19 to make realistic settlement offers at the beginning of the detailed assessment proceedings and not at the end. The court is bedevilled with late settlements. Procedures in CPR 47.19 are designed to promote reasonable offers and parties should bear this in mind in the future.”
21. There is one other point of general principle which I consider should be emphasised. A solicitor who prepares a detailed bill of costs, and then makes a without prejudice offer to settle the assessment, is in a unique position because only he can know how the detailed assessment breaks down and where, if at all, it might be found to be exaggerated or irrecoverable. Therefore, a certain amount of caution will always be necessary in considering the validity and effect of offers made by a solicitor in such circumstances. In the course of his judgment, Costs Judge Seager Berry said at para 66:
“Where solicitors act for a client, they will know far better than the client about the work which has been carried out. A client can only know the full extent of the work when the bill has been rendered and, where appropriate, a detailed breakdown provided. By contrast, in inter-parties proceedings the paying party will only know the extent of the work undertaken by the receiving party when the detailed bill of costs has been served. Even then it will not know in any detail work that has been covered by the cloak of privilege. The paying party’s solicitors will of course know the information contained in, for example, pleadings, witness statements, disclosed documents, expert’s reports, inter-party correspondence and the like. They will not know the extent of work involved, for example, in correspondence with the client, communications with counsel, experts and witnesses, and in matters discussed in conference with counsel and the details of documents drafted or the internal discussions undertaken by the receiving party’s solicitors.”
22. I respectfully agree with that summary. It seems to me that one of the consequences of these observations must be that the paying party is entitled to proper time and full information to enable him to consider the effect of any offer that might be made.
Is a Without Prejudice Offer a Special Circumstance Within the Meaning of s 70(10) of the Solicitors Act 1974?
23. The appellant’s application for leave at the oral hearing before Tugendhat J on this issue was based on the contention that the costs judge decided that, under s 70(9) and (10) of the Solicitors Act 1974, special circumstances did not include the making of without prejudice offers. That position was maintained in the hearing before me, thereby allowing the appellant to argue that the costs judge had made an error of principle.
24. However, on a proper analysis of his careful judgment, I do not believe that this is a fair criticism. As Mr Browne noted, at para 64 of his judgment, the costs judge said that the issue was whether the offer made by the appellant “can in effect reverse the statutory provision”. It seems to me therefore that the costs judge was making it plain that a without prejudice offer could be a special circumstance under s 70(10); the question for him was whether, on the facts of this case, it was a special circumstance. If I am right about that, then the appeal on the first point has been advanced on a false premise, and is, in reality, an attack on the costs judge’s conclusion that, on the facts, the offer was not a special circumstance.
25. For the avoidance of doubt,
I am in no doubt that a clear without prejudice offer, made in proper time and in proper form, can be a special circumstance which might otherwise reverse the statutory presumption in s 70(9). One of the underlying principles behind the CPR is to encourage parties in any form of litigation to resolve their differences without incurring further costs, and it seems to me that it would be contrary to the CPR to find that a party involved in a detailed costs assessment under the Solicitors’ Act could not seek to protect its position on costs by making an offer.
Accordingly, the question becomes whether, on the facts of this case, the offer of 31 January 2006 was a special circumstance. That was, in my view, the very issue which the costs judge addressed in his judgment of August 2006. Like him, I have concluded that, for a whole raft of reasons, outlined below, it was not a special circumstance.
Validity/Weight
(a) Timing
26. The offer of 31 January 2006 was some 18 months too late. By the time it was made, the parties had already been through two rounds of detailed assessment, and just one day remained for the conclusion of that assessment, namely February 15. Bearing in mind the clear warning as to the potential irrelevance of late offers in the judgment of Peter Smith J in Wills,
I consider that an offer made immediately before the last projected day of the hearing is not an offer to which any real weight can be given. It cannot be a special circumstance within the meaning of s 70.
(b) Form
27. It is always important for offers to be in the proper form. This is not, as Lord Brennan QC hinted, to encourage pedantry or nit-picking;
for an offer to have costs consequences, it must be clear to the addressee what those consequences will be if the offer is accepted and if it is not. Clarity is therefore vital. That is particularly so in a dispute about a bill of costs, where the party who made the offer also prepared the bill.
28. The terms of the offer in this case are set out at para 14 above. It was not in proper form. It did not address the consequences of acceptance and non-acceptance. In particular, it wholly failed to deal with the costs consequences of acceptance: for the reasons set out by Donaldson J (as he then was) in Tramountana v Armadora SA v Atlantic Shipping [1978] 1 Lloyds Rep 391, the usual rule is that, to be valid, an offer must deal with costs. Although that cannot be regarded as an inflexible rule applicable in every case (see for example the authorities discussed in Lindner Ceilings plc v How Engineering Services [2001] BLR 90), it is a sensible starting-point. Furthermore when the position was clarified on 2 February 2006, the problems in respect of costs were exacerbated because, instead of providing any certainty as to costs, the appellant was suggesting that the entirety of the costs of the assessment (which even by then were far in excess of the amount at stake) were left completely up in the air, with the prospect of yet further costs being incurred on a lengthy debate before the costs judge as to who should pay the costs of the assessment.
29. Throughout his submissions, Lord Brennan QC was fond of remarking that it was “cloud cuckoo land” to suggest that the respondent was entitled to ignore the offer. On the contrary, I consider that, at the time that the offer was made, it would have been commercially unwise for the respondent to accept such an unclear and potentially disadvantageous offer. In order to save the costs of what was then anticipated to be one last day of the detailed assessment, the respondent would, by accepting the offer, have signed up to an entirely uncertain process which would have necessitated further detailed arguments before the costs judge as to the costs of the assessment.
(c) Time For Acceptance and Other Consequences
30. The offer was entirely silent as to the time that the respondent had to accept it, let alone the detailed consequences of acceptance or non-acceptance. Before this court, it was contended that the offer should have been accepted immediately, or certainly by 7 February 2006. It was wholly unclear whether this was said to be some sort of express or implied term of the offer. However, given that there was no evidence that the date of February 7 had ever been discussed between the parties, and no other authority was relied on in support of such a short acceptance period, I reject any such submission. Under the CPR, unless it is expressly provided otherwise, a party has 21 days to accept a without prejudice offer. In the absence of any other material, I would consider that the 21 day period would be implied into this offer. That therefore took the parties to February 21, which was after the last projected date for the costs assessment hearing. Again, therefore, there was simply no incentive on the part of the respondent to accept the offer.
(d) Amount
31. The appellant’s submissions were to the effect that, although the offer was slightly more than was recovered, the difference was minimal and was ultimately irrelevant. This seemed to rely on a sort of “near-miss theory”, which, despite my invitation, was not further elaborated. Of course, I accept the principle that, where an offer from the receiver was only slightly more than the amount awarded, that is not, in itself, a reason to disregard the offer altogether. Pursuant to the CPR, it is a factor to be taken into account: in a recent decision of the Court of Appeal, Carver v BAA [2008] EWCA Civ 412, a claimant who just beat an offer still had to pay the costs from the date of that offer. But equally, as the authorities (including Carver) make plain, it is always necessary for the court to consider all the circumstances, including the competing figures which the parties were contending for in the proceedings themselves. On the evidence, at the time that the offer was made, the appellant was contending that it was entitled to at least £220,000 by way of the detailed costs assessment, and possibly more. The respondent, on the other hand, had made an offer of £40,000. It is therefore of relevance that the eventual assessment was closer to the respondent’s figure than the appellant’s figure.
32. Accordingly, although much less significant than the deficiencies in timing, form, time for acceptance and clarity of consequences, it does seem to me that the fact that the offer was not even beaten is a further factor which justifies the conclusion that the offer was not a special circumstance under s 70(10) of the 1974 Act.
(e) Summary
33. For all these reasons, I conclude that the costs judge was entirely right to say that, in all the circumstances, the offer was not a special circumstance under s 70(10) of the Solicitors Act and did not reverse the statutory assumption in s 70(9). Accordingly, I consider that the appellant’s argument on the first point in this appeal is unsustainable.
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