Part 36 offers in Solicitors Act Assessments
Problem: The case of Reem Zuhri v Vardags Limited [2023] EWHC 3050 (SCCO) brought to the forefront a crucial legal question: Can Part 36 offers, commonly used to encourage settlements in litigation, be effectively applied to Solicitors Act assessments over solicitors’ fees? The challenge has for some time now been reconciling the strategic use of Part 36 offers in litigation with the specific processes for contesting solicitors’ charges, a nuanced issue that impacts both costs lawyers and their clients. Many practitioners and cost lawyers over the years have doubted whether Part 36 offer can be applied to solicitor-client assessments.
Outcome: The court determined that the “one-fifth rule” under the Solicitors Act 1974 was the primary mechanism for assessing costs in Solicitors Act assessments, and CPR 36 was a self-contained code (and has very limited scope to Solicitors Act assessments). Costs Judge Leonard determined that the Part 36 offer made by the defendant, Vardags Limited could not automatically trigger the consequences specified under CPR 36, due to a conflict with the primary statutory provision of the Solicitors Act 1974.
What is a Part 36 offer?
A Part 36 offer, as stipulated in the Civil Procedure Rules, is designed to encourage parties to settle disputes without going to trial. It is a formal offer, which can be made by either the claimant or the defendant, and is characterised by its specific time frame and potentially significant cost implications if it is not accepted and the case proceeds to trial. It can be made in the form of a letter or using Form N242A.
There are several key characteristics which define a Part 36 offer and distinguish it from other types of offers such as a Calderbank offer including:
- Time-Bound Nature: A Part 36 offer must remain open for a 21-day period known as ‘the relevant period’, during this time the offer cannot be withdrawn by the party making the offer. To benefit fully from the consequences under CPR 36 the Part 36 offer should remain open for acceptance until the outcome at trial is known at which point the costs implications will automatically come into effect.
- Cost Consequences under Part 36, if the rejecting party fails to obtain a better outcome than the Part 36 offer, several costs implications will automatically follow including:
- Indemnity Costs: the rejecting party will be liable for the opposing party’s legal costs. These are typically on the indemnity basis (usually 70-80%) than standard legal costs (usually between 50-70% recovery).
- Enhanced Interest: The court can also impose interest on the judgment and legal costs at an enhanced rate (10%).
- Additional 10% Penalty: If a claimant’s Part 36 offer is not accepted and they achieve a better outcome at trial, they may be entitled to an extra amount, up to 10% of the value of the claim, with a ceiling of £75,000.
Part 36 offers are a vital strategic tool in legal disputes, compelling parties to carefully consider the prospect of settling out of court against the backdrop of potential financial ramifications in continuing with litigation.
An illustrative example of a Part 36 offer in practice
Suppose in a contractual dispute, the claimant is seeking damages of £100,000. Early in the proceedings, the defendant makes a Part 36 offer to settle the dispute for £60,000. The claimant, confident of their case, decides to reject this offer and proceed to trial, and the following outcomes are possible where the Part 36 ‘bites’:
- Claimant Achieves a More Favourable Outcome: If the claimant is awarded damages of £80,000, at trial, the decision to reject the Part 36 offer is justified. In this scenario, the claimant not only secures a higher amount but also avoids the cost penalties associated with rejecting the Part 36 offer.
- Claimant Fails to Achieve a More Favourable Outcome: Suppose the claimant is awarded only £50,000 at trial, which is less than the Part 36 offer. In this case, the claimant may be liable for the defendant’s legal costs from the date the offer expired, as well as potentially facing enhanced interest on those costs and the judgment sum.
Application of CPR 36 in Solicitors Act detailed assessment proceedings for costs
In the case of Reem Zuhri v Vardags Limited [2023] EWHC 3050 (SCCO), Cost Judge Leonard had to determine whether Part 36 offers can apply to Solicitors Act assessments.
Case Background
In October 2022, Vardags Limited, the defendant, made a Part 36 offer to Reem Zuhri, the claimant, which was lower than the amount at which the bill was later assessed.
The defendant’s bills were ultimately assessed at £173,627.42, which was 98.6% of the amount billed. The costs of the detailed assessment proceedings were awarded to the defendant and assessed at £23,538.50. The defendant accordingly sought an order that the consequences under CPR 36 apply against the claimant.
The issues
In determining whether Part 36 will apply to solicitor-client assessments, the Court had to consider the interpretation of two key legal frameworks, namely:
- Solicitors Act 1974 (Section 70): This legislation permits the court-ordered assessment of a solicitor’s bill of costs. A key aspect of this Act is the introduction of the “one-fifth rule” i.e. the claimant is successful in the claim and, as a general rule, entitled to its costs of the costs claim if it reduces the charges claimed by 20% or more. If the reduction is less than one-fifth (20%), the client bears the costs of the claim.
- CPR Part 36: Part 36 of the CPR deals with offers to settle and outlines the consequences of not accepting a settlement offer that fulfils specific criteria. Part 36 offers, as explained above, are designed to encourage the settlement of disputes outside of court by providing specific cost consequences if an offer is refused and the case goes to trial with a less favourable outcome.
Additionally, Part 47 relates to the process for detailed assessment of costs between parties in litigation. It sets out the procedures for how courts should handle the detailed assessment of costs, including those relating to disputes over legal fees. However, the application of Part 47 in the context of assessments under the Solicitors Act 1974 is subject to debate (see further below).
Decision
In his judgment, Cost Judge Leonard referred to the case of John Poyser & Co Ltd v Spencer [2022] EWHC 1678 (QB), where it was determined that most of CPR 47, governing the assessment of costs in civil litigation, does not apply to solicitor-client assessments under the Solicitors Act 1974 (and there is a difference between solicitor-client assessments an “detailed assessment” proceedings on an inter-partes basis as defined in CPR 44.1).
He concluded that the “one-fifth rule” under section 70(9) of the Solicitors Act, which dictates who pays for the costs of the assessment, is inconsistent with the application of Part 36 and that Part 36 could not apply to displace the legislative framework under Section 70 of the Solicitors Act.
The court however agreed with commentary from costs experts suggesting that making a Part 36 offer could nevertheless be seen as a “special circumstance” under section 70(10) of the Solicitors Act, allowing the court to depart from the one-fifth rule, it does not necessarily mean that the automatic provisions of CPR Part 36 apply.
Judge Leonard concluded his judgment by stating that:
“… my finding is that the Defendant’s Part 36 offer cannot have the consequences sought by the Defendant. Had the “one-fifth rule” operated against the Defendant in this case, the [Part 36] offer could have offered a sound ground for making a finding of special circumstances and awarding the costs of the assessment process to the Defendant, but the rule has operated in favour of the Defendant, which has already been awarded those costs.”
Interestingly, the defendant had commenced Part 7 debt recovery proceedings in relation to its fees prior to the Part 8 solicitor-client costs proceedings, which had been stayed as is typical. However, crucially the judge left the door open in theory for the defendant to lift the stay and apply for the consequences under CPR 36 to apply in those Part 7 proceedings.
Case Example – Solicitor’s Invoice reduced by over 50%
Our cost lawyers were instructed by an individual who had a long-running family dispute and instructed a local law firm to deal with it. However, there were several missed deadlines, and sloppy work and our client did not see any value in their work yet they sought to overcharge the client over £300,000 in legal fees which she contested as being unreasonably high for the work done.
Our cost lawyers were instructed and challenged the bill (including the validity of the invoices under the Solicitors Act as it failed to comply with the strict requirements of being a compliant bill). Our lawyers made an early Part 36 offer to protect the client’s position and pursued a claim to recover our client’s monies in circumstances where the fees were grossly excessive and exaggerated.
We were able to reduce the invoice by over 50% and recovered our client’s legal costs resulting in a payment from the law firm to our client. Our client was pleased with the result which was achieved within 1 month of being instructed and on a fixed fee basis so our client had certainty of her legal costs throughout.
Winning Approach to Costs Assessments
Our cost lawyers’ extensive industry-specific knowledge and our commitment to justice make us the preferred choice for cost disputes. We pride ourselves on building trust with clients and having a price transparency ethos.
Our lawyers are recognised among the best lawyers in England & Wales, and have regularly been asked and featured to write authoritative articles in the Financial Times, the Law Society and LexisNexis and have been quoted in City AM, the New Law Journal, Law Society Gazette and Litigation Futures.
Our unique approach to cost disputes means that we will:
- Arrange a Free Consultation with you & a qualified lawyer to discuss your cost issue
- Arrange a WhatsApp group with you & your legal team in case you have any ad-hoc questions
- Investigate the merits of your costs claim and advise on early offers
- Send documents easily through our secure client portal, Go Transfer
- Advise you on any judgments & tactics that have proved successful on other cost matters
- Assess the amount you can recover
- 24/7 chat feature with a qualified lawyer
- Provide you with price transparency & fixed fees so you have peace of mind
- Work hard to achieve the best outcome in your cost claim
Mediation in Solicitor Cost Disputes
Alternative dispute resolution, where suitable, provides many advantages for parties in Solicitors Act assessments. Our cost lawyers are strong advocates for mediation which can often lead to favourable and cost-effective settlements.
Several of our lawyers are trained mediators and expert negotiators who are registered members of the Chartered Institute of Arbitrators (CIArb) and the International Mediation Institute. Our expertise in mediation gives our lawyers a significant and unique advantage when navigating settlement discussions on your behalf.
Flexible Funding Options
We provide flexible funding options including fixed fees and ‘no win no fee’ arrangements for your cost dispute. Whether you are an individual or a business, we provide exceptional legal services at cost-effective prices: this is our promise.
To book a Free Consultation with our expert cost lawyers, you can call us on 0207 459 4037 or you can use our booking form below.
