February 23, 2016

Costs - Fixed Costs trumped by Part 36

Broadhurst & Anor v Tan & Anor

The Court of Appeal has found that indemnity costs apply when a claimant beats their own Part 36 offer, in a case where fixed costs would ordinarily apply.

The appeal concerned two different first instance decisions. In the case of Broadhurst v Tan, HHJ Robinson found that although indemnity costs did apply, there was no difference when assessing fixed costs on the indemnity basis and simply allowed the fixed costs provided for in CPR 45.29C and table 6B.

A directly contradictory position was adopted by HHJ Freedman in the case of Smith v Taylor, who decided that if a claimant beats their own Part 36 offer, then they should not be limited to fixed costs, but should have their costs assessed on an indemnity basis from the end of the relevant period in CPR 36.14. 

The Appeal

Lord Dyson MR provided a succinct and robust judgment in Broadhurst & Anor v Tan & Anor [2016] EWCA Civ 94 and considered this issue to be a “straightforward matter of interpretation” in finding that the specific provision found in CPR 36.14 takes precedence over the general provision of CPR 45.29B. 

Lord Dyson noted that "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 work actually done."

Lord Dyson concluded that if there was any doubt as to the interpretation of the rules it was resolved by the Explanatory Memorandum to the 2013 Amendment Rules which was laid before Parliament to accompany the draft statutory instrument. 

Paragraph 7.1(e) of that Memorandum states "New rules 36.10A and 36.14A make provision in respect of the fixed costs a claimant may recover where the claimant either accepts or fails to beat a defendant's offer to settle made under part 36 of the CPR. Provision is also made with regard to defendants' costs in those circumstances. If a defendant refuses a claimant's offer to settle and the court subsequently awards the claimant damages which are greater than or equal to the sum they were prepared to accept in the settlement, 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."

 It was therefore found in cases where fixed costs ordinarily applied and the claimant was successful in beating their own Part 36 offer, that they would be entitled to fixed costs up until the end of the relevant period, with costs thereafter to be assessed on an indemnity basis.

Whilst accepting the fact that there may be some difficulties in assessing costs in cases where the costs were fixed up to a point, Lord Dyson felt that the rules were clear.

COMMENT:

  • This is a significant decision which will in all likelihood change behaviours in many claimant solicitors. 
  • As pointed out by Lord Dyson in his judgment, this is a decision which will lead to “windfalls” and “generous outcomes” for claimants. This was however seen as the intentions of CPR rule 36.14, which provides claimants with generous incentives to make offers and defendants with countervailing incentives to accept them. 
  • Given the obvious added incentives which now exist for claimants to beat their own Part 36 offers in cases where fixed costs would ordinarily apply, it is expected that claimants might now look to make much more realistic offers at an early stage of the claim.  
  • Such a change in claimants' behaviour may well have a significant benefit for defendants, with an earlier opportunity to engage claimants in meaningful settlement discussions. 
  • Of course, it will remain key for defendants to carefully consider all Part 36 offers made by claimants as the risks of not accepting an offer which is later beaten could have a significant additional costs consequence. 
  • The decision ought not to affect claims where parties have proceeded under the low value protocols under CPR Part 8 in accordance with Practice Direction 8B. Where claimant betters their own protocol offer, fixed costs under CPR Part 36.29(4) ought to apply.   
  • Whilst the judgment deals only with CPR 36.14 which is triggered by a judgement, there is potential for further litigation relating to the tension between CPR 45 and CPR 36 in respect of the type of costs recoverable when a defendant accepts a claimant's Part 36 offer outside the relevant period, but before a judgement is entered.