Kerry Underwood

FIXED COSTS AND PART 36: POST 3

with 4 comments


You can now book onto my Fixed Costs Autumn Tour – here

Lord Justice Jackson’s Fixed Recoverable Costs Report was published on 31 July 2017 and is available here.

Generally Lord Justice Jackson reports that the existing Fixed Costs Regime works well and that he proposes to make no changes, apart from uprating the figures for inflation.

Any other issues are for the Civil Procedure Rule Committee.

However, LJ Jackson made an exception in relation to Part 36 saying that it was the “one issue which cannot be ducked”.

His comment and proposals apply to all cases covered, or to be covered, by Fixed Recoverable Costs, that is the existing scheme in relation to most personal injury cases, as well as the proposed scheme for all civil cases in the Fast Track and for most civil cases in the new Intermediate Track, covering claims between £25,000.00 and £100,000.00.

In Broadhurst v Tan [2016] EWCA Civ 94

the Court of Appeal held that a Claimant who matches or beats its own Part 36 offer when judgment is entered gets indemnity costs, and not fixed costs.

In Lowin v W Portsmouth & Co Limited [2016] EWHC 2301 (QB)

the Queen’s Bench Division of the High Court adopted the same reasoning in relation to provisional assessment proceedings where there is a cap of £1,500.00 plus VAT and court fees.

In Phonographic Performance Limited v Raymond Hagan [2016] EWHC 3076 (IPEC)

the Intellectual Property Enterprise Court, part of the Business and Property Court, adopted the same line of reasoning in relation to the system of capped costs in IPEC cases.

The effect of these decisions is that Part 36 trumps fixed and capped costs, resulting in an award of indemnity costs when a Claimant matches or beats its own Part 36 offer and obtains judgment, and possibly on late acceptance by a defendant where there is no judgment.

Although many people, including the Court of Appeal and the High Court, consider that necessary to give Claimants in fixed costs cases an incentive to make Part 36 offers, it takes away one of the central points of a Fixed Costs scheme, which is that parties know the maximum extent of their liabilities when they embark upon bringing or defending litigation.

Allied to that is the fact that it then triggers detailed assessment of costs, bringing a further layer of expense and delay into what is meant to be a certain situation.

I deal with all of this in great detail in my book – Personal Injury Small Claims, Portals and Fixed Costs which consists of three volumes and over 1,300 pages and costs £80.00 including P&P and can be ordered from me here or Amazon here. 

On page 1,237, and in my submissions to Lord Justice Jackson, I said:

PART 36

“If the current Part 36 system is retained then the parties are still in the position of not knowing what the costs will be and the apparatus of detailed assessment needs to be maintained.

I propose that rather than maintain the existing system, where the Claimant escapes fixed costs if s/he matches or beats its own Part 36 offer, and where a Defendant gets costs from the date of expiry of its Part 36 offer if the Claimant fails to beat it, there be introduced a new system of calculating Part 36 penalties/rewards.

This would consist of a percentage add-on/deduction to Fixed Recoverable Costs depending upon the stages passed between expiry and acceptance etc.”

Lord Justice Jackson proposes replacing indemnity costs in such circumstances with a percentage uplift of either 30% or 40% and states that this proposal is a clear issue of policy to be addressed in the consultation exercise following his report.

Lord Justice Jackson does not suggest 30% for one of case and 40% for another, but rather that the figure for everything should either be 30% or 40%.

At present there are conflicting decisions at Circuit Judge level as to whether or not a late accepting Defendant, as compared with a Defendant who has a judgment entered against it, should be liable for indemnity costs.

Lord Justice Jackson does not express any view in his report as to whether the 30%/40% uplift should apply on late acceptance as well as on judgment.

I deal with all of this in my blog: PART 36: DOES A CLAIMANT GET INDEMNITY COSTS ON LATE ACCEPTANCE?

 

Lord Justice Jackson set out the different views on Part 36 generally at paragraph 2.6 of chapter 5 of his report on page 80 as follows:

 

“2.6        Broadhurst v Tan and the effect of an order for indemnity costs. The one issue which cannot be ducked, however, is Broadhurst v Tan [2016] EWCA Civ 94; [2016] 1 WLR 1928.  This decision, unless its effect is modified by rule change, will impact upon fixed costs generally. This issue is equally important in relation to higher value claims, but I deal with it here and will not repeat the discussion in later chapters. Views on this issue are sharply divided:

(i) Nine of my assessors consider that, although CPR Part 36 must continue to bring rewards for claimants who make effective Part 36 offers, in the context of a fixed costs regime it would be better for there to be a percentage uplift on the fixed costs rather than an order for indemnity costs.  This will avoid the need for a detailed assessment of costs.  Also, it will provide certainty for litigants.  Certainty is an essential feature of an FRC regime.  As to the level of percentage uplift, views range between 25% and 50%.

(ii) Five of my assessors take the opposite view.  Nicholas Bacon QC writes:

“I do not agree with the proposal that we do away with the Broadhurst indemnity costs order.   These cases on indemnity costs are not clogging up the courts with detailed assessments.  It is a powerful message for a party to consider rejection/acceptance.  A 30% enhancement is not sufficient to redress the failure to accept an offer.  It ignores the fact that as between solicitor and client more than the fixed costs will have been incurred by the client.  Why should a client not be entitled to be reimbursed for their actual legal spend, rather than fixed costs, where a party has misconducted themselves or caused a party to incur costs unnecessarily because an earlier offer should have been accepted.”

I have set out the competing arguments, because this is the only issue on which my assessors are sharply divided.  After considering the powerful arguments on both sides, on balance, for the reasons set out in sub-paragraph (i) above, I favour replacing indemnity costs with a percentage uplift of 30% or perhaps 40%.  BUT this is a clear issue of policy, which will need to be addressed in the consultation exercise following this report.”

 

Unreasonable conduct

In cases of unreasonable litigation conduct, the report proposes that the court should have the power either to award a percentage uplift on costs of 30% or 40%, depending upon which figure is finally chosen, or to make an order for indemnity costs.

The court will exercise that power, having regard to the seriousness of the conduct in question.

One example of such unreasonable conduct, given in the report, might be substantial non-compliance with the relevant Pre-Action Protocol.

As to what constitutes unreasonable litigation conduct, Lord Justice Jackson refers to the case of

Dammermann v Lanyon Bowdler LLP [2017] EWCA Civ 269,  at paragraphs 30 to 32,

dealt with in detail in my blog – SMALL CLAIMS – UNREASONABLENESS AND COSTS.

 

Comment

Unsurprisingly, I welcome this proposal as it reflects my own views.

I would go for a 40% uplift.

It is in the interest of all litigators, whatever side they are on, to have an authoritative superior court decision as soon as possible as to whether a Claimant gets indemnity costs on late acceptance by a Defendant.

 

Also see:

FIXED COSTS REPORT: POST 1

FIXED COSTS AND THE BAR: POST 2

FIXED RECOVERABLE COSTS: LJ JACKSON’ S REPORT HERE

PART 36 AND FIXED COSTS

SMALL CLAIMS – UNREASONABLENESS AND COSTS

PART 36: DOES A CLAIMANT GET INDEMNITY COSTS ON LATE ACCEPTANCE?

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Written by kerryunderwood

August 2, 2017 at 7:37 am

Posted in Uncategorized

4 Responses

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  1. It does not assist with small value claims that are complex where the insurers know that they can delay prevaricate and generally cause you to run up significant costs which you now have no chance of recovering.

    John Hall

    August 2, 2017 at 11:21 am

    • Please read the paragraph headed Unreasonable Conduct and the full judgment of the case referred to.

      I disagree

      Kerry

      kerryunderwood

      August 2, 2017 at 11:25 am

      • I take your point but it is not always easy to establish and some DJs are very forgiving of defendants behaviours.

        John Hall

        August 2, 2017 at 12:07 pm

  2. Few solicitors make applications; few solicitors challenge defendants in court. Those who do, and who have made early Part 36 offers, and offered ADR etc. do well. I am afraid that many claimant solicitors, especially those doing personal injury work, complain but rarely take matters to court.

    Kerry

    kerryunderwood

    August 2, 2017 at 12:10 pm


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