News - Indemnity costs not fixed costs for Claimants who beat Part 36 Offers

Personal Injury -

Broadhurst v Tan [2016] EWCA Civ 94

What are the consequences when a Claimant obtains judgment which is at least as advantageous as the terms of a Part 36 offer in circumstances where the claim has proceeded under the fixed costs regime pursuant to CPR 45 sIII?

Should the Claimant be restricted to the fixed recoverable costs under Part 45 or is the Claimant entitled to recover costs to be assessed on the indemnity basis in accordance with CPR 36.14? That was the question requiring determination in the conjoined appeals of Broadhurst v Tan.

In the case of Ms Broadhurst, HHJ Robinson (County Court at Sheffield) held that rule 36.14(3) applied in a CPR 45 section III case where a Claimant had made a successful Part 36 offer. But, he said, in such a case there is no difference between profit costs assessed on the indemnity basis and the fixed costs prescribed by Table 6 of rule 45.29C, subject to the possibility of awarding a greater sum than fixed costs in exceptional circumstances pursuant to rule 45.29J. The Claimant was therefore restricted to fixed costs.

In the case of Ms Smith, HHJ Freedman (County Court at Newcastle-upon Tyne) held, like Judge Robinson, that rule 36.14(3) applied in a CPR 45 section III case where a Claimant had made a successful Part 36 offer. But, unlike Judge Robinson, he did not equate indemnity costs with fixed costs and the Claimant was entitled to recover costs on the indemnity basis from the date of expiry of the relevant period.

The Court of Appeal unanimously held that the tension between CPR 45.29B and 36.14A must be resolved in favour of rule 36.14A. Rules 36.14 and 36.14A must be read together and 36.14A does not modify 36.14 (3) and therefore it still applies in cases proceeding under CPR 45 sIII.

The effect of rules 36.14 and 36.14A when read together is that, 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.

The argument that there is no difference between indemnity costs and fixed costs was dealt with swiftly. The Court of Appeal held that they are conceptually different as fixed costs are awarded whether or not they are 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.

The result is a very welcome one for Claimant practitioners in the new age of fixed costs fast track cases. A carefully pitched Part 36 offer early in the claim becomes of massive tactical importance serving not only to increase litigation risk on the part of the Defendant but also providing a significant uplift in respect of recoverable costs in borderline cases that succeed at trial. Claimant solicitors must keep a detailed record of time costs incurred from the date of expiry of the relevant period and from the date of the expiry of the staging point within which the Part 36 offer was made. Care must also be taken to ensure that a costs schedule is filed and served in all cases where there is a live Part 36 offer at trial.

The Judgment refers only to the application of the provisions of CPR 36.14 which of course are only triggered upon judgment. There is however the potential for further conflict between fixed costs and Part 36 in respect of the type of costs recoverable when a Defendant accepts a Claimant’s Part 36 offer outside of the relevant period but before judgment is entered. CPR 36.13 (4) provides that in such circumstances the Court must determine the liability for costs unless they can be agreed. Given that it is highly unlikely that a Defendant will agree to pay more than the level of fixed costs for the relevant stage at which the claim is settled this is likely to be the next battleground on the interplay between Part 36 and Part 45.

For the full judgment please click here.

 

 

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