Part 36 trumps fixed costs, Court of Appeal rules

Dyson: straightforward matter of interpretation

Dyson: straightforward matter of interpretation

A party who beats a part 36 offer in a case where fixed fees apply is eligible for indemnity costs, the Court of Appeal ruled today in the wake of conflicting decisions at circuit judge level.

As well as resolving the tension between part 36 and section IIIA of part 45, the court was clear that indemnity costs should not be equated with fixed costs.

Broadhurst & Anor v Tan & Anor [2016] EWCA Civ 94 dealt with two cases started under the RTA protocol where successful part 36 offers were made.

In Broadhurst, HHJ Robinson in Sheffield ruled that part 36 applied but there was no difference between profit costs assessed on the indemnity basis and the fixed costs prescribed by Table 6 of rule 45.29C.

In Smith, HHJ Freedman in Newcastle-upon-Tyne also held that part 36 applied but did not equate indemnity costs with fixed costs.

Giving the judgment of the court, the Master of the Rolls, Lord Dyson, analysed the respective provisions of parts 36 and 45, and concluded that as a “straightforward matter of interpretation” there was no doubt as to their true meaning: “The tension is clearly resolved in favour of rule 36.14A.”

He found further support for his decision in the wider scheme of part 36, where provision is made for it to trump fixed costs in such circumstances. “Where there is an intention for only fixed costs to be recoverable under part 36, part 36 has been modified to make this clear,” Lord Dyson said.

The MR also said that, were it needed, the explanatory memorandum to the 2013 changes to part 36 which went before Parliament could be used as an aid to interpretation.

This stated: “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.”

As to indemnity and fixed costs, Lord Dyson described them as “conceptually different”.

He continued: “Judge Robinson considered that Parliament could not have intended that a claimant should recover indemnity costs in a section IIIA case because of the practical difficulties that such an interpretation would entail. I accept that there are bound to be some difficulties of assessment where the costs are partly fixed and partly assessed.

“But I also accept the submission of [Ben Williams QC, for the claimant argument] and the written submissions of [John] McQuater on behalf of the Association of Personal Injury Lawyers that these were overstated by Judge Robinson.

“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. As Mr Williams says, 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…

“I am not persuaded that the problems identified by Judge Robinson, if they exist at all, are so serious that they cast doubt on the interpretation which I favour or that they justify the surprising conclusion that fixed costs are to be equated with assessed costs.”

As a result, the court allowed the appeal in Broadhurst and dismissed it in Smith.

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