Parties can contract out of fixed costs says Court of Appeal
Posted on 8th July 2022 at 13:16
By Sean Linley, Costs Draftsman
In Doyle v M&D Foundations & Building Services Ltd  EWCA Civ 927 (08 July 2022) the Court of Appeal have unanimously held that parties can contract out of fixed costs. The decision will be significant for practitioners dealing with fixed costs cases and highlights the need for express clarity on the intention of any costs provisions, particularly for paying parties.
The case related to a personal injury claim which settled for £5,000.00. The parties agreed a consent order which contained the following costs provision:
"such costs to be subject of detailed assessment if not agreed"
The appeal concerned the interpretation of this provision and whether it was tantamount to contracting out of fixed costs.
When considering matters, the Court of Appeal stated that:
"19. The rules do not make provision for the parties to contract out of the fixed costs regime, but it is recognised that there is no bar on them doing so: see Solomon v Cromwell Group plc  EWCA Civ 1584,  1 WLR 1048 per Moore-Bick LJ at , cited in Adelekun v Ho  EWCA Civ 1988,  Costs LR 1963 by Newey LJ at ."
The Appellant/Defendant argued that:
1. The use of the term "subject to detailed assessment" did not indicate that costs were to be assessed on the standard basis and equally applied to assessing the amount of fixed costs.
2. It was improbable that the Appellant/Defendant would agree to a costs regime which was less favourable and in light of the solicitors expertise in personal injury litigation then it must have been intended that costs would be fixed costs.
The Court of Appeal held as follows:
"44. In my judgment, and contrary to the appellant's contention, there is no ambiguity whatsoever as to the natural and ordinary meaning of "subject to detailed assessment" in an agreement or order as to costs. The phrase is a technical term, the meaning and effect of which is expressly and extensively set out in the rules. It plainly denotes that the costs are to be assessed by the procedure in Part 47 on the standard basis (unless the agreement or order goes on to provide for the assessment to be on the indemnity basis). The phrase cannot be read as providing for an "assessment" of fixed costs pursuant to the provisions of Part 45 unless the context leads to the conclusion that the wrong terminology has been used (by the parties or by the Court) so that the phrase should be interpreted otherwise than according to its ordinary meaning."
The Court found that detailed assessments do not apply to the fixed costs regime. At paragraph 47 v) it stated that:
"It therefore appears that specialist judges sitting in the Senior Courts Costs Office do not consider that detailed assessment is a permitted method for determining costs (or disbursements) under the Part 45 regime (although the parties can no doubt use that route by agreement)."
The Court then considered the context of the order concluding that:
"51. [...] the solicitors must, applying an objective test, be taken to have been aware of the relevant rules and principles, in particular, (i) that the fixed costs regime can be disapplied by agreement and (ii) that an order providing for detailed assessment (without more) entails an assessment on the standard basis (rule 44.3(4)(a)). In those circumstances it is difficult to see any basis on which the use of the term "detailed assessment" could bear anything other than its natural and ordinary meaning as discussed above. No matter how strictly enforced the fixed costs regime may be in cases to which it properly applies, and no matter how unlikely it was that the respondent would have been able to escape that regime had the matter proceeded, the parties reached a compromise of the dispute on the basis of a provision as to costs which, on its face, would take the case out of the fixed costs regime and entail assessment on the standard basis. There is no objective reason to believe that the solicitors did not intend the term to bear its natural, ordinary (and in my judgment, obvious) meaning, not least because it would be impermissible (and to no avail) to speculate as to the parties' respective legal or commercial motivations for reaching a settlement on the terms they did. Indeed, the appellant has not suggested that the use of the term "detailed assessment" was a mistake or otherwise did not reflect the parties' agreement."
The Court of Appeal concluded thus:
"56. In the present case the agreement reached was not the result of the acceptance of a Part 36 offer: the parties' intentions are not to be understood in that highly restrictive context and there is no inherent ambiguity in the reference to detailed assessment, internal inconsistency within the terms of the Order or other "indication" that detailed assessment did not bear the meaning ascribed to it under the rules. Although Adelekun appears, on its face, to be a decision on similar facts to the present case, it was in reality a quite different situation, rooted in the parties' use of the Part 36 offer and acceptance mechanism. No such fetter on the application of the natural and ordinary meaning of the agreed wording as to costs arises in the present case, where the parties reached a free-standing settlement agreement. That agreement included a simple and well-understood provision that the appellant would pay costs subject to detailed assessment, that is to say, on the standard basis."
The Court of Appeal unanimously held and reaffirmed the principle that fixed costs can be contracted out of. For receiving parties it opens up the possibility of ousting the fixed costs regime and potentially recovering costs above those allowed under fixed recoverable costs. For paying parties, the case is likely to lead to greater scrutiny of costs provisions within any consent/Tomlin orders and any non Part 36 offers.
For cases involving Part 36 offers and acceptance then the position operates differently given the provisions in CPR r36.20 that specifically addresses fixed costs.
The Court of Appeal also found, beyond doubt, that fixed costs cannot be subject to detailed assessment, so a costs provision with this term cannot be taken to include fixed costs, save for if it can be shown that either the parties or the Court have simply adopted the wrong terminology.
Parties should think carefully about any costs agreements reached and their potential implications. If there is any doubt then contact a costs specialists who will be able to assist.
Should you have any queries arising from this article or upon costs generally then please do not hesitate to get in touch with our friendly team either via phone 01482 534567 or e-mail firstname.lastname@example.org
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