An award of indemnity costs after a successful part 36 offer in a provisional assessment does not remove the £1,500 costs cap, the Court of Appeal has ruled in overturning the High Court.
The Association of Costs Lawyers has called the outcome “harsh” for its members and called on the Civil Procedure Rule Committee to review the decision.
In W Portsmouth and Company Ltd v Lowin  EWCA Civ 2172, the substantive mesothelioma claim settled for £70,200.
On 3 March 2015, Ms Lowin made a part 36 offer of £32,000 in respect of her costs. A month later, the detailed assessment process began with her claiming £55,086.
On 8 December 2015, Master Whalan provisionally assessed her costs at £32,255. Having beaten the offer, he made the usual part 36 order.
Ms Lowin claimed £6,091 for the costs of the assessment proceedings. Though ordering the company to pay the costs on the indemnity basis, Master Whalan decided that they should be capped pursuant to CPR 47.15(5). This led to a total of £2,805 – £1,500 in costs plus VAT and the £1,005 court fee.
On appeal, Mrs Justice Laing reversed him after following the Court of Appeal’s ruling in Broadhurst v Tan, which decided that a party who beat a part 36 offer in a case where fixed fees applied was eligible for indemnity costs as there was tension between the two concepts.
But giving the ruling, Lady Justice Asplin said Broadhurst was not relevant and that Master Whalan had taken the correct approach.
Unlike with fixed costs, a cap did not prevent costs being assessed on the indemnity basis “or affect the quantum of the costs which are being assessed under that rule”, she said.
“It merely inhibits the amount which can be awarded, the assessment of the party’s costs having taken place on the indemnity basis as required by CPR rule 36.17(4)(b). If the party’s costs assessed on the indemnity basis were less than the cap, the full sum would be awarded…
“It follows that, with great respect, I do not consider that the judge was right to conclude… that there is a material conflict between costs assessed on the indemnity basis and costs assessed on that basis subject to a cap.”
There was, Asplin LJ continued, nothing in the CPR to suggest that the cap should be disapplied.
“Such a construction is also consistent with the policy behind both CPR rule 47.15 and part 36.
“It does not undermine the intention to encourage the quick and cheap resolution of the assessment of costs in cases in which the costs claimed are £75,000 or below.
“Nor does it deprive the successful party of the not inconsiderable benefits in CPR rule 36.17(4)(a)-(d) albeit that the costs under (b) [indemnity costs] are subject to the cap.”
A spokesman for the Association of Costs Lawyers said: “While the clarity provided by the ruling was needed, the outcome is very harsh for costs lawyers.
“There will be plenty of cases where the paying party does not accept a part 36 offer and instead causes the other side to spend significantly more than £1,500 in dealing with costs issues.
“But on beating their own offer at assessment, the receiving party enjoys all the usual benefits, except in relation to this one aspect of their case. And it will be their costs lawyer who suffers through no fault of their own.
“We call on the Civil Procedure Rule Committee to consider the impact and fairness of this ruling – making this exception seems at odds with the thrust of the whole part 36 scheme.”