Client Alert: Part 36 trumps Part 45

In cases that are subject to the Fixed Recoverable Costs regime, the Court of Appeal decided that a claimant is not restricted to fixed costs in circumstances where the claimant obtains a judgment which is at least as advantageous as the claimant’s Part 36 offer.

In the appeals of Broadhurst v Tan and Taylor v Smith, both of the claimants commenced claims in the RTA portal, made a Part 36 offer which was rejected by the defendant, and went on to obtain a judgment that was more advantageous than their own offer.

In both cases, it was accepted that the claimant was entitled under Part 36.14(3)(b) to “costs on the indemnity basis from the date on which the relevant period expired.”

The issue, in practical terms, was what, does “costs” on the indemnity basis mean in the context of a case where ordinarily the fixed costs regime would apply. Does it mean fixed costs or not?

The defendants argued that “costs” means fixed costs as Part 45.29B provides that, “In a claim started under the RTA protocol…the only costs allowed are—(a) the fixed costs in rule 45.29C.” The defendants argued that the claimant’s interpretation would create practical difficulties that were so great that it could not have been the intention of Parliament to draw a distinction between fixed costs and costs assessed on the indemnity basis.

The claimants argued that:

• “Fixed costs” and assessed “costs” are conceptually distinct. Part 36 preserves the claimants’ entitlement to assessment of costs on an indemnity basis.
• Part 36 is a self-contained code and the amendments made in 2013 set out where fixed costs are set to prevail over assessed costs.
• Under the principle that the general provisions yield to specific provisions, Part 45.29B should yield to Part 36 as it is the more specific provision.
• Any doubt as to the intention of Parliament is resolved in the claimants’ favour by the Explanatory Memorandum to the Statutory Instrument to the 2013 Amendment Rules that introduced the fixed costs regime in litigated cases. The memorandum specifically covers the circumstances that exist in these two cases and provides that,
  
  “the claimant will not be limited to receiving his fixed costs, but will be entitled to costs assessed on the indemnity basis in accordance with rule 36.14.”

In a robust judgment, the Master of the Rolls said,

“The starting point is that fixed costs and assessed costs are conceptually different. Fixed costs are awarded whether or not they were incurred, and whether or not they represent reasonable or proportionate compensation for the effort actually expended. On the other hand, assessed costs reflect the work actually done.”

He said that, “as a straightforward matter of interpretation”, where a claimant makes a successful Part 36 offer, he is entitled to costs assessed on the indemnity basis.

He concluded that, “I do not consider that there is any doubt as to the true meaning of these rules.” …. “The statement in the Explanatory Memorandum relied on by the claimants is clear on the issue which arises on this appeal. “

Keoghs comment

The entitlement to assessed costs on the indemnity basis was introduced in order to provide an incentive to claimants to make reasonable offers. However, on cases that were started but then exit the low value protocols this incentive appears overly generous.

Thankfully, this incentive does not apply to claimant protocol offers where the parties have followed low value protocols and start proceedings under Part 8. Where a claimant obtains judgment which is equal to or more than the claimant’s protocol offer the claimant is limited to fixed costs under CPR 36.29 (4)(b).

Winn acted on behalf of the claimant, and Horwich Farrelly on behalf of the defendant.