CLAIMANT’S PART 36 OFFER OVERRIDES FIXED COSTS
the Court of Appeal held that a claimant who matches or beats its own Part 36 offer in a fixed costs case gets indemnity costs, as well as the other enhancements such as a 10% increase in damages and additional interest etc. in addition to fixed costs.
The same priniciple appears to apply to provisional assessment and thus a receiving party who matches or beats its own offer will get indemnity costs. It remains to be seen if the court will follow the Broadhurst line and award the capped maximum costs of £1,500.00 in addition to indemnity costs.
As far as fixed costs are concerned this resolves the issue between the two different lines of authority, both entirely justifiable on the wording of the different rules, one saying that fixed costs were just that and that an indemnity costs order made no difference, and one holding that Part 36 and its provision for indemnity costs trumped CPR 45.29B, which deals with fixed costs.
One of those lines of authority was the Smith v Taylor line where the court found that Part 36 took priority and not CPR 45.29B and here the Court of Appeal dismissed the appeal against that decision.
The other line of cases was generally known as Dixon v Bennett but in fact the appeal here was in a case called Broadhurst v Tan where the lower court had come to the same conclusion as in Dixon v Bennett, that is that nothing above fixed costs could be awarded following a successful claimant Part 36 offer. The Court of Appeal allowed the appeal in that case.
The Master of the Rolls made it clear that although these cases concerned the version of Part 36 which applied before 6 April 2015 “the provisions applicable to this appeal remains substantially the same” and therefore this is the law in relation to post 6 April 2015 Part 36 offers.
It was accepted that there was a tension between CPR 45.29B and CPR 36.14A. The former states that the only costs to be awarded in a Section III A cases are fixed costs, whereas the latter says that, in such cases, rule 36.14 will apply subject only to the modifications stated in rule 36.14A, and following, and none of those modifications affects rule 36.14(3).
The Explanatory Memorandum to the 2013 Amendment Rules which was laid before Parliament to accompany the draft statutory instrument is admissible as an aid to the construction of the rules. See R v Secretary of State for the Environment ex parte Spath Homes Ltd  2 AC 349.
At paragraph 7.1(e) that Explanatory 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.”
The counterview, rejected by the Court of Appeal, was that although rule 36.14(3) applies in a fixed costs case there is no difference between profit costs assessed on the indemnity basis and the fixed costs provided in Table 6B of rule 45.29C.
It was common ground that under CPR 45.29J the court had a general discretion to allow additional costs in exceptional circumstances – the so-called escape clause.
It was also common ground that the matching or beating of a claimant’s Part 36 offer would not of itself bring the matter within the escape clause.
As to the practical application of this rule 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.”
Thus one looks at the date of settlement or judgment and the claimant gets fixed costs to that stage in the usual way, whether or not a Part 36 offer has been made. That is straightforward.
In addition the claimant gets costs on the indemnity basis from the date that the offer became effective. I take that phrase to mean from 21 days after the offer was made.
Let us say that the claimant makes a Part 36 offer when the matter is out of the portal but before proceedings are issued. The claimant subsequently matches or beats that offer at trial.
The claimant will get full fixed costs, including the advocacy fee and in addition will get full indemnity costs from 21 days after the successful Part 36 offer was made. For all intents and purposes the claimant, or rather the claimant’s solicitor, will be paid twice – once at the level of fixed costs and once at the full indemnity rate.
As I understand the judgment no credit for the fixed costs has to be given against the indemnity costs.
As the court said “this does not require any apportionment.” Also there would be no need for the reference to this being a generous outcome for the claimant; if the claimant just received indemnity costs and not fixed costs as well, then it would be just the same as any non-fixed costs case and so there would be no additional element of generosity.
This is a view shared by Professor Dominic Regan and I am grateful to Dominic for considering this piece.
An alternative interpretation is that the claimant gets fixed costs to the point where the Part 36 offer was made and indemnity costs thereafter, but again that would not involve nay element of that being a generous outcome for the claimant. It would also make less difference than normal as in fixed costs cases part of the recoverable fee is essentially a recoverable contingency fee related to the amount of damages, whatever stage the case has reached. I suppose that that could be interpreted as the element of generosity.
My view expressed here has now been confirmed by the Queen’s Bench Division of the High Court in Lowin v W Portsmouth and Co Ltd  EWHC 2301 (QB) and I analyze this case in detail in my post Claimants’ Part 36 Offers: Six New Decisions.
I referred above to the situation in relation to provisional assessment. CPR 47.15(5) provides:-
“(5) In proceedings which 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.”
Provisional assessment is a form of Detailed Assessment.
CPR 47.20(4) imports the provisions of Part 36 into the costs of Detailed Assessment with the appropriate change in terminology, for example CPR 47.20(4)(a) provides that “claimant” refers to “receiving party” and “defendant” refers to “paying party”.
The logic and public policy reasons for the decision of the Court of Appeal in Broadhurst in relation to fixed costs must apply with equal force to provisional assessment proceedings. Others have suggested that whether assessment is on the standard basis or the indemnity basis the £1,500 cap is just that – an absolute cap- and that capped costs are conceptually different from fixed costs.
However the Broadhurst points still apply and if it was clear that the standard costs in a provisional assessment case are going to hit the cap then a claimant’s Part 36 offer becomes much less important as does the defendant’s incentive to settle. Why import Part 36 at all if that is the case? Indemnity costs capped at £1,500 are hardly worth the effort and concession.
A counter argument is that the 10% uplift on costs for the effort of making one Part 36 offer taking a few minutes makes it very much worthwhile and that here, as compared with the substantive case, that is where the reward lies rather than in extra costs for a long period of a piece of contested litigation.
The judgment is also of great importance for two other reasons.
Indemnity Costs for Claimant on Settlement
Firstly it is a recognition that a claimant gets indemnity costs even if the matter does not go to trial. Otherwise there would be no need to refer to “the last staging point” as it would only apply if the matter had gone to trial and no consideration of the different stages within the preparation for trial matrix would be necessary.
This had not previously been clear.
At paragraph 32 of the judgment the Master of the Rolls recognises, with neither approval nor criticism, the existence of the Underwoods Method, that is of a solicitor and own client hourly rate with the overall charge to the client capped at a percentage of damages. This is a crucial section and is a wholesale rejection of the obiter comments made by District Judge Lumb in A & M (by their litigation friend) v Royal Mail Group (2)  MISC B30 (CC).
The relevant part of the Court of Appeal Judgment appears at paragraph 32 and reads:-
“He says that the way in which lawyers are typically engaged in this part of the market is heavily reliant on CFAs and legal expenses insurance. Both forms of funding typically provide for lawyers to charge on a conventional hourly basis, but may cap their right to enforce payment with reference to the amount recovered. He adds that it is still very common for costs beyond fixed costs to be deducted from claimants’ damages. There is no evidence before us to support this statement either, although I have no reason to doubt it.”
Clearly lawyers who stand to get costs on the indemnity basis will wish to have an appropriate hourly rate in the client care retainer, but equally clearly the client will want to be assured that they will not lose all or most of their damages by way of the unrecovered solicitor and own client costs, given the relatively low level of fixed costs.
The comments of the Master of the Rolls are eminently sensible and helpful and should go a long way to removing the fears of civil litigators concerning fixed costs.
This decision of the Court of Appeal is of great importance and will of course become very much more significant now that it is proposed to introduce fixed costs in all civil work of all kinds where the damages are valued at £250,000.00 or less. The potential rewards to claimants solicitors for getting the Part 36 offer right in such cases is enormous as not only will the solicitor receive fixed costs but they will also get indemnity costs on top. Being indemnity costs they are not subject to proportionality.
However the indemnity costs, not being fixed costs, are subject to the indemnity rule and thus very careful drafting of the retainer is necessary.
A retainer that provides for the solicitor to charge the client fixed costs as per the matrix will result in the solicitor getting no extra costs at all as the costs on the indemnity basis, that is the basis of the solicitor and client retainer, will be identical in amount to fixed costs as that is the wording of the retainer.
This is one of a series of recent decisions by the superior courts clarifying the law in relation to Part 36 offers. They have all gone in favour of claimants and this is a welcome redress to what appeared to be an anti- claimant bias in some earlier, lower court, decisions.
Many thanks to Professor Dominic Regan for his help with this piece.
I am grateful to Kevyn Thompson for discussions re CPR 47.
Please see my related blogs:-