A circuit judge has ruled in the ‘hotly debated’ issue of whether indemnity costs can be ordered for late acceptance of offers in road traffic accident protocol cases.

In Anderson v Ladler in Newcastle County Court, Judge Gargan ordered that a defendant who accepted a claimant’s offer 10 months late in a claim that had exited the RTA protocol should not have to pay costs on the indemnity basis.

The claimant had begun her action under the protocol with a notice of claim on 10 December 2013, but it had left the portal process because the defendant wanted more time to investigate.

The claimant made a Part 36 offer to settle for £4,429 on 31 July 2015, and as this was not accepted, she issued proceedings on 22 October. The action proceeded until the defendant accepted the offer on 23 June 2016, 10 months late.

Judge Gargan rejected the defendant’s first argument that the Part 36 regime did not apply and any issue of costs should be governed by the fixed costs provisions.

However, he agreed with the defendant’s alternative assertion, that the district judge had been wrong to find a presumption in favour of indemnity costs where there is late acceptance of a Part 36 offer. The judge said such a presumption might give defendants a ‘reverse incentive’ to proceed to trial once an offer had expired, as late acceptance would attract the same costs basis as losing at trial.

‘[A defendant] may decide to fight the case in the hope of beating the offer and only having to pay the fixed costs’, he said.

Judge Gargan held that as there was no presumption, he had discretion over whether or not to order indemnity costs. He found nothing that took the case ‘out of the norm’ to justify costs on the indemnity basis. The judge therefore ordered costs on the standard basis, which meant fixed costs of £2,046 plus VAT and disbursements.

Roger Mallalieu, costs barrister at 4 New Square who acted for the defendant, said: ‘Anderson is one of the first authoritative appellate judgments on this hotly debated topic, which came into the spotlight with regional costs judge Besford’s decision in Sutherland v Khan.

‘HHJ Gargan QC reaches the opposite conclusion to RCJ Besford,' he said. 'There are a number of other appellate judgments awaited, and it is only a matter of time before the issue reaches the Court of Appeal.

‘In the interim, this judgment provides a clear analysis of the issues. Whether the Court of Appeal agrees with the conclusion only time will tell.’