FIXED COSTS AND PART 36: THE JUDGMENT IN THE COURT OF APPEAL

The Court of Appeal has given judgment today in Broadhurst -v- Tan [2016] EWCA Civ 94.

“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.”

KEY POINTS

  • If a defendant fails to beat a claimant’s Part 36 offer in a case where fixed costs normally apply then the subsequent award of indemnity costs is inconsistent with fixed costs.
  • Costs on the indemnity basis after such an offer are not fixed costs.

PRACTICE POINTS

  • This highlights the desirability of a claimant making a realistic Part 36 offer as soon as possible, preferably pre-issue.
  • Similarly defendants must be alive to the fact that the fixed costs cease to apply if the claimant beats its own offer.

 

THE ISSUE

The Court  heard two cases relating to whether fixed costs apply if a claimant beats their own Part 36 offer. In one case (Broadhurst) a judge held that fixed costs continued to apply. In the other (Smith) the judge held that fixed costs were inconsistent the award of indemnity costs and did not apply.

THE RESULT

The Court of Appeal upheld the decision in Smith and allowed the claimant’s appeal in Robinson.

THE REASONING

The Claimants’ arguments.

The Court referred to the claimant’s arguments and it is necessary to set them out in detail.

  1. The following is a summary of the submissions of Mr Benjamin Williams QC. The starting point is that “fixed costs” and “assessed costs” are conceptually distinct. There is a tension between rule 45.29B and rule 36.14A. The former says that the only costs to be awarded in section IIIA 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 rule that claimants are entitled to an indemnity basis assessment of their costs where they have made a successful Part 36 offer is thereby preserved.
  2. The tension between rule 45.29B and rule 36.14A is resolved by the principle that the general provisions yield to specific provisions: see Solomon v Cromwell Group [2012] 1 WLR 1048 at para 21. Rule 45.29B contains the general rule which applies to all section IIIA cases. But rule 36.14A contains the specific rule, which prescribes the costs consequences following judgment where section IIIA of Part 45 applies. Rule 36.14A(1) expressly states that rule 36.14 will apply to section IIIA cases as a whole and makes no modification of rule 36.14(3), with its provision for an indemnity basis assessment of costs where a claimant makes a successful Part 36 offer in such cases. Furthermore, rule 36.1 is a self-contained procedural code: this indicates that Part 36.14A is intended to prevail over rule 45.29B which is a rule of a more general nature.
  3. This interpretation is consistent with the wider scheme of Part 36, as amended by the 2013 Amendment Rules. Where fixed costs are intended to prevail, Part 36 says so. First, rule 36.10A is introduced to disapply the right to costs assessed on the standard basis which would otherwise arise where a Part 36 offer is accepted by a claimant in a fixed costs case. Secondly, rule 36.14A makes specific provision for fixed, rather than assessed, costs in situations other than those where a claimant makes a successful Part 36 offer. Thus, if a defendant’s offer is successful, rule 36.14A provides for the claimant only to recover fixed costs until the effective date of the offer, in place of the usual rule that the claimant will recover standard basis costs until that date. Thereafter, the defendant is also limited to fixed costs (rule 36.14A(7)). Thirdly, regard should be had to rule 36.21, which deals with offers made within the Ministry of Justice portal process. Here again, the rule specifically provides for fixed, rather than assessed, costs to be payable in such cases, even where the claimant has made a successful Part 36 offer (rule 36.21(4)).
  4. In these circumstances, it is all the more telling that rule 36.14A makes no modification to rule 36.14(3). Where there is an intention for only fixed costs to be recoverable under Part 36, Part 36 has been modified to make this clear. In short, the specific provisions of rule 36.14A prevail over the general terms of rule 45.29B.
  5. Mr Williams submits that, if there is any doubt as to this conclusion, it should be resolved in the Claimants’ favour by the Explanatory Memorandum to the 2013 Amendment Rules which was laid before Parliament to accompany the draft statutory instrument. It is admissible as an aid to the construction of the rules: see per Lord Nicholls in R v Secretary of State for the Environment ex parte Spath Homes Ltd [2001] 2 AC 349, 397C-398D. The Explanatory Memorandum states at para 7.1(e):
“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.”
  1. In short, Mr Williams submits that the reasoning of Judge Freedman, which substantially reflected his submissions, is to be preferred to that of Judge Robinson.

THE JUDGMENT ON THE ISSUE

  1. I would allow the appeal in the case of Broadhurst and dismiss the appeal in the case of Smith largely for the reasons stated by Mr Williams.
  2. If rule 45.29B stood alone, then subject to various rules in Part 45 which are immaterial, the only costs allowable in a section IIIA case to a claimant who was awarded costs following judgment in his favour would be “(a) the fixed costs in rule 45.29C and (b) disbursements in accordance with rule 45.29I”. But rule 45.29B does not stand alone. The need to take account of Part 36 offers in section IIIA cases was recognised by the draftsman of the rules. Indeed, rule 36.14A is headed “costs consequences following judgment where section IIIA of Part 45 applies”. Rule 45.29F (8) provides that, where a Part 36 offer is accepted in a section IIIA case, “rule 36.10A will apply instead of this rule”. And rule 45.29F(9) provides that, where in such a case upon judgment being entered the claimant fails to obtain a judgment more advantageous than the claimant’s Part 36 offer, “rule 36.14A will apply instead of this rule”. Rule 45.29F does not, however, make provision as to what should happen where the claimant makes a successful Part 36 offer.
  3. Mr Laughland submits that, since rule 45.29F makes no such provision, the basic or general rule in rule 45.29B that the only costs allowable are fixed costs and disbursements carries the day. But that is to ignore rule 36.14A which is headed “Costs consequences following judgment where section IIIA of Part 45 applies”. Rule 36.14A(1) provides that in a section IIIA case “rule 36.14 applies with the following modifications”. As we have seen, rule 36.14(3) provides that, where a claimant makes a successful Part 36 offer, the court will, unless it considers it unjust to do so, order that the claimant is entitled to four enhanced benefits including “(b) his costs on the indemnity basis from the date on which the relevant period expired”.
  4. The effect of rules 36.14 and 36.14A when read together is that, where a claimant makes a successful Part 36 offer, he is entitled to costs assessed on the indemnity basis. Thus, rule 36.14 is modified only to the extent stated by 36.14A. Since rule 36.14(3) has not been modified by rule 36.14A, it continues to have full force and effect. The tension between rule 45.29B and rule 36.14A must, therefore, be resolved in favour of rule 36.14A. I reach this conclusion as a straightforward matter of interpretation and without recourse to the canon of construction that, where there is a conflict between a specific provision and a general provision, the former takes precedence. As we have seen, there is disagreement as to which is the relevant general provision in the present context. Mr Williams submits that it is rule 36.14; and Mr Laughland submits that it is rule 45.29B. I do not find it necessary to resolve this difference.
  5. Rule 36.14A(8) provides further support for my conclusion. This provision states that in a section IIIA case the parties (i.e. claimant as well as defendant) are entitled to disbursements allowed in accordance with rule 45.29I in any period for which costs are payable to them. This reflects rule 45.29B(b). If, as Mr Laughland contends, rule 45.29B prevailed over rule 36.14A in any event, this provision would have been unnecessary. It is significant that rule 36.14A does not contain a provision which reflects rule 45.29B(a) and 45.29C. In my view, the fact that rule 36.14A contains provision for payment of disbursements in accordance with rule 45.29B(b), but not for payment of fixed costs in accordance with rule 45.29B(a) confirms that the interpretation that I have adopted above is correct.
  6. I find yet further support for the conclusion that I have reached in the wider contextual points made by Mr Williams to which I have referred at para 13 above which it is unnecessary to repeat.
  7. For all these reasons, I do not consider that there is any doubt as to the true meaning of these rules. The tension is clearly resolved in favour of rule 36.14A. If that were wrong, then it would be legitimate to use the Explanatory Memorandum as an aid to construction (this was not the Explanatory Note to the statutory instrument). That is because the three conditions specified by Lord Browne-Wilkinson in Pepper v Hart [1993] AC 593 would be satisfied. First, the rules would, in material part, be obscure and/or ambiguous. Secondly, the Explanatory Memorandum was prepared by the Ministry of Justice (the promoter of the rules) and was laid before Parliament together with the 2013 Amendment Rules. I can see no difference in principle between a statement made in Parliament by a Minister or other promotor of a Bill and an explanatory memorandum laid before Parliament by the promotor of rules. The Rules are subject to the negative resolution procedure. Parliament has no power to amend the Rules, but could have annulled them if it had wished to do so. Thirdly, the statement in the Explanatory Memorandum relied on by the claimants is clear on the issue which arises on this appeal. It states in terms that, if a claimant makes a successful Part 36 offer:
“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.”
  1. As I have said, Judge Robinson seems to have accepted that rule 36.14(3) must apply in a section IIIA case. I must now deal with his decision that in such a case there is no difference between profit costs assessed on the indemnity basis and the fixed costs provided for in Table 6B of rule 45.29B, subject always to rule 45.29J.
  2. The starting point is that fixed costs and assessed costs are conceptually different. Fixed costs are awarded whether or not they were 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 court examines whether the costs were incurred, and then asks whether they were incurred reasonably and (on the standard basis) proportionately. This conceptual difference was accepted in Solomon at para 19.
  3. As we have seen, 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 Mr Williams and the written submissions of Mr 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.
  4. Judge Robinson also suggested that assessment on the indemnity basis would lead to windfalls because solicitors and counsel inevitably act in fixed costs cases on terms that they will be paid fixed costs. As Mr Williams says, there was no evidence to support this statement. 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.
  5. To summarise, 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. For the reasons given by Mr Williams, these are conceptually different. In my view, the problems identified by Judge Robinson on which Mr Laughland relies do not suggest that Parliament could not have intended to create a scheme which is to be interpreted in the way that I have described.
Conclusion
  1. For all these reasons, I would allow the appeal in the case of Broadhurst and dismiss the appeal in the case of Smith.

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