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.

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

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 for 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).

Is Broadhurst v Tan being misunderstood?

In February, the Court of Appeal in Broadhurst v Tan found that the Part 36 indemnity costs provisions override the fixed costs which already apply in lower value PI claims.

This ruling is said to be based on strict interpretation of the CPR. The Court said it did not need to apply wider policy points to help its decision, but found no conflict between the fixed costs regime and Part 36 indemnity costs. It also reaffirmed the system’s support for Part 36 offers generally. They are unequivocally seen as a good thing, inciting parties to settle quickly, at low cost, and make efficient use of court resources.

The Court of Appeal, at paragraph 31, said:

“Where a claimant makes a successful Part 36 offer in a section IIIA case, he will be awarded fixed costs to the last staging point provided by rule 45.29C and Table 6B. He will then be awarded costs to be assessed on the indemnity basis in addition from the date that the offer became effective. This does not require any apportionment. It will, however, lead to a generous outcome for the claimant. I do not regard this outcome as so surprising or so unfair to the defendant that it requires the court to equate fixed costs with costs assessed on the indemnity basis… a generous outcome in such circumstances is consistent with rule 36.14(3) as a whole and its policy of providing claimants with generous incentives to make offers, and defendants with countervailing incentives to accept them.”

Does Broadhurst mean fixed costs to trial plus costs assessed on an indemnity basis from the date of expiry of the Part 36 offer?

Whilst some commentators consider Broadhurst as authority for an award of fixed costs to trial plus indemnity basis costs, this does not appear to be how the parties interpreted the judgment.

We consider that the claimant is entitled to the fixed costs that apply for the stage in which the time for acceptance of the Part 36 offer expires. We shall see if claimants seek to apply this interpretation.

Does Broadhurst mean the costs of provisional assessment are not capped if a party beats their own Part 36 offer?

The rules set out a process for provisional assessment of costs where the amount claimed is less than £75,000. They specifically provide that, where proceedings do not go beyond provisional assessment:

“the maximum amount the court will award to any party as costs of the assessment (other than the costs of drafting the bill of costs) is £1,500 together with any VAT thereon and any court fees paid by that party.”

Some commentators have argued that by analogy with Broadhurst a party is not limited to the maximum and may seek all costs on an indemnity basis.

We consider that the Broadhurst decision merely alters the basis of assessment of costs from standard basis to indemnity basis and both are caught by the £1,500 cap. We anticipate claimants will test the interpretation of the rules and stand ready to oppose attempts to exceed the cap.

Does Broadhurst mean that a party is entitled to costs on an indemnity basis if a Part 36 offer is accepted out of time?

Some commentators have called for an award of costs on the indemnity basis where the claimant’s Part 36 offer is accepted out of time placing reliance upon Broadhurst. The costs consequences of acceptance of an offer out of time are set out in CPR 36.13.

In Broadhurst, the Court of Appeal gave judgment on the interpretation of CPR 36.17 and so any argument for an award of costs on the indemnity basis based on Broadhurst will not succeed.

However, where the parties cannot agree the costs consequences then CPR 36.13(4) sets out that the liability for costs must be determined by the court. The court’s discretion to award costs is set out in CPR 44.2 where the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party. However, the court may make a different order which includes ordering a party to pay costs on an indemnity basis.

See what can happen and the court’s approach in the article on ABC v Barts Health NHS Trust (2016) on page 10.