Open offers to settle costs

PD 8.3 to CPR 47.9 dictates that:

The paying party must state in an open letter accompanying the points of dispute what sum, if any, that party offers to pay in settlement of the total costs claimed. The paying party may also make an offer under Part 36

and that requirement also extends to cases subject to provisional assessment (see PD 14.2(2) to CPR 47.15).

So what should that open offer be? Opinion appears to be divided.

I am led to believe that one highly-prominent paying party costs firm has adopted an approach whereby its open offer is simply a reference to its final, and privileged, offer to settle before service of points of dispute – ‘please see our without prejudice save as to costs offer dated xx/yy/zz‘, so I am told.

I can see little if indeed any point in making an offer under an assertion of privilege if the ultimate intention, absent settlement of course, is to waive that privilege before the assessment starts. One might as well make open offers from the outset if the paying party intends to show all its cards, or at least its high card, as it were, at the outset of the assessment before a judge.

Others have apparently decided to make such open offers in the same sums as their opening Calderbank offers, which inevitably will be in a sum less than their final Calderbank offers / ‘lines in the sand’. Again, I can see no point in making an open offer in such terms.

In my view, the open offer should ordinarily be the net product of the paying party’s points of dispute (i.e. assuming each point is to be upheld). That is the paying party’s ‘pleaded’ case and openly offering a sum in excess of the effect of that case may well be perceived as more a sign of weakness/lack of confidence in the challenges raised than a sign of acting reasonably. That is not necessarily the case of course, but the danger is quite real in my view.

After all, nobody raises points of dispute that cannot succeed. (*innocent face*)

At all events, it is wholly unclear what the effect of bettering (or not) such an open offer is, if indeed there is any such effect, as the incidence of the ‘costs of the costs’ still falls to be decided, in the ordinary course of events, by reference to the presumption at CPR 47.20(1) and any CPR 36/Calderbank offers additionally made and by either/any party.

Similarly, it is entirely unclear what happens if a paying party fails to make an open offer of settlement when serving points of dispute. Some costs lawyers and draftsmen have advocated the obtaining of a default costs certificate, on the basis of a perceived, procedural irregularity in the service of points of dispute. That, in my view, would be folly: even if there were a procedural irregularity, which I very much doubt, such service of points of dispute would remain effective unless and until a court orders otherwise (see CPR 3.10).

Other costs practitioners have suggested the issuing of an application to strike out the points of dispute in such an event and one or more judges at the recent conference of the Association of Costs Lawyers appeared to agree. That, to my mind at least, would be Draconian in the extreme in circumstances where the rule/practice direction sets out no penalty for non-compliance and, especially, in circumstances where the purpose and effect of such open offers is unknown. That, of course, is not to say that the rules can or should be ignored.

In my view, it is perhaps of tactical advantage to a receiving party to simply make reference to the paying party’s non-compliance when requesting a detailed/provisional assessment – putting the paying party on the back foot, as it were, from the outset. Curiously, in the context of provisional assessment proceedings, might the costs of an interlocutory application in respect of such an issue not just serve to eat away at the overall cap on the costs of provisional assessment proceedings?

At its highest, no more than an application for an ‘unless’ order would be appropriate in my opinion.

You would be astonished by the number of cases I have seen over the years where the paying party’s representative has not taken the time to calculate the effect of each point raised being successful (or not). More astonishing is the number of cases in which I have been instructed, at the eleventh hour, as agent/advocate for a detailed assessment hearing where the paying party has been doomed to expensive failure – simply because that party’s best/highest offer has been less than the sum of the receiving party’s bill of costs even in the event that every point of dispute made were to be upheld. Adopting the suggested practice of making open offers in the sum of the effect of the points of dispute might at least save some costs practitioners from red faces.

A paying party’s open offer in the resultant sum of all points of dispute being successful will take on even greater importance over time I should think, especially in cases subject to provisional assessment where there will be no chance for ‘rescue’ by some quick-thinking and sharp-submissions. Once ‘entirely post-Jackson’ bills of costs fall to be assessed (and not being those subject to the imminent fixed costs across the fast track which will surely not be retrospective in effect), the new proportionality rule will amplify hugely the paying party’s open offer as it could well be the figure foremost in the costs judge’s mind when he/she undertakes the second, ‘stand back’ assessment of the total costs following a line by line assessment. Imagine an open offer of settlement something along the lines of:

The paying party offers to pay, in respect of the receiving party’s bill of costs totalling £25k, the sum of £5k. With reference to Point X within the points of dispute and the constituent parts of CPR 44.3(5), the paying party avers that £5k is a sum bearing a reasonable relationship to the value of the underlying claim (i.e. £2.5k) and in which claim there was no element of non-monetary relief sought; no complexity; no conduct by the paying party deserving of censure nor giving rise to additional costs being incurred by the receiving party; and no wider factors involved.

If that is the first or last thing the costs judge reads when conducting a provisional assessment, it could be very influential. That said, nobody is, nor yet can be, clear as to how the new proportionality test will be applied in practice…