PART 36 CONSEQUENCES AND A FIXED COSTS REGIME: WHAT HAPPENS WHEN THEY MEET?

In the judgment today in Phonographic Performance Ltd -v- Raymond Hagan [2016] EWHC 3076 (IPEC) Judge Hacon considered the interaction between a fixed costs regime and Part 36.

KEY POINTS

  • The fixed cost rules in the Intellectual Property Enterprise Court (IPEC) can be displaced by a Part 36 offer.
  • If a defendant fails to beat a claimant’s Part 36 offer in the IPEC then the court can award indemnity costs, outside the fixed costs provisions.
  • The court can also award additional damages and interest on damages.

THE CASE

The claimant had beaten its own Part 36 offer, in a case in which there had been considerable interlocutory wrangling.  The IPEC rules provide for a fixed costs regime. The judge considered whether the fixed cost rules, or the provisions of Part 36 allowing for indemnity costs, applied.

THE JUDGMENT

  1. Taking into account in particular the matters set out in Part 36.14(4), I am satisfied that there would no injustice in PPL being awarded the further relief provided for in Part 36.14(3). PPL is accordingly entitled as of right to that relief, subject to one potential matter.
  2. There is a tension between the relief under subparagraphs (b) and (d) of rule 36.14(3) and the caps on costs and damages in IPEC. This was briefly debated and considered in OOO Abbott v Design & Display Limited [2014] EWHC 3234 (IPEC). Counsel for the first defendant in that case argued that an award under subparagraph (b) was still subject to the overall £50,000 cap on costs available under the IPEC rules and subparagraph (d) was subject to the overall cap of £500,000 damages. I rejected the argument in relation to subparagraph (d) but accepted it with regard to (b) (at [21]).
  3. Since then, the Court of Appeal has given judgment in Broadhurst v Tan [2016] EWCA Civ 94; [2016] 1 WLR 1928. This has a bearing on costs awarded under rule 36.14(3)(b) in the IPEC even though it did not deal with the IPEC costs regime. Broadhurst was concerned the fixed costs regime for low value personal injury cases, provided for by Section IIIA of CPR Part 45.
  4. Rule 45.29B (part of Section IIIA) provides that (subject to exceptions which do not matter here) where a claim is started under the relevant Road Traffic Accidents Protocol, the only costs allowed are the fixed costs prescribed in Section IIIA. Thus rule 45.29B and rule 36.14(3)(b) are on their face difficult to reconcile. The main argument before the Court of Appeal turned on which of these was the general provision and which the specific provision. Both sides relied on the principle of law that general provisions must yield to specific provisions, see Solomon v Cromwell Group plc[2012] 1 WLR 1048, at [21].
  5. Lord Dyson MR (with whom McCombe and David Richards LJJ agreed) noted that CPR 36.14A (now re-enacted as CPR 36.20) specifically provides for the costs consequences of a Part 36 Offer where Section IIIA of Part 45 applies. In particular, although it amends parts of rule 36.14, it leaves rule 36.14(3) untouched. Lord Dyson said this:

“[25] 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.”

  1. The scale costs provisions for claims in the IPEC are in Section IV of Part 45. They are not the same as the provisions in Section IIIA. Also, there is nothing equivalent to rule 36.14A which provides for the costs consequences of a Part 36 Offer where Section IV of Part 45 applies. Consequently, the reasoning of Lord Dyson in his paragraph 25 cannot be reapplied in the context of the costs regime in the IPEC. Potentially, an analogous argument arises by reference to the general principle of law: which of rule 36.14(3)(b) and rule 45.31 (which limits costs in the IPEC) is the specific provision and which is the general one? The Court of Appeal having declined to reach a view in the context of Part 45 Section IIIA, I am not willing to barge in with a view in the context of Part 45 Section IV, particularly not having had the benefit of any argument at all on the point.
  2. Lord Dyson felt that three further grounds supported the primary conclusion in his paragraph 25 that rule 36.14(3)(b) took precedence. The first depended on rule 36.14A(8). As I have said, there is no equivalent to rule 36.14A for IPEC cases, so it does not assist here.
  3. Lord Dyson also referred to with approval a submission that under wider scheme of Part 36, where fixed costs are intended to prevail, Part 36 says so (at [27], referring back to [13]).
  4. Finally, Lord Dyson ruled at [28] that had he been in doubt, it would have been legitimate to refer to the Explanatory Memorandum as an aid to construction, applying by analogy Pepper v Hart [1993] AC 593:

“[The Memorandum] 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. Guided by the third and fourth grounds set out by Lord Dyson, both of which, it seems to me, can be applied by analogy to the tension between rule 36.14(3)(b) and rule 45.31, I conclude that the former overrides the latter: the limits on costs in the IPEC, both stage costs and the overall cap, do not apply to an award of costs under rule 36.14(3)(b).
The application of CPR Part 36.14(3) in this case
  1. I will now consider each of the heads of additional relief to which PPL is entitled pursuant to rule 36.14(3). The relevant period for PPL’s Part 36 Offer within the meaning of rule 36.3(1)(b) expired on 25 October 2013.
  2. To the extent that I have a discretion in relation to these heads of relief, it seems to me that I should exercise that discretion to avoid a disproportionate burden on Mr Hagan, but at the same time I reiterate an observation made in OOO Abbott at [22]:

“… the principle to be maintained in relation to CPR 36.14(3) is that it should be applied in a way such as to generate a vigorous incentive to make and accept claimants’ Part 36 offers.”

Interest on damages at a rate not exceeding 10% from the date on which the relevant period expired
  1. I have a discretion as to the percentage above base rate at which I should set the interest rate on damages from 25 October 2013. I have not been provided with or found any guidance as to the appropriate figure is to be reached. However, it is clear that an additional 10% over a base rate at its current level, i.e. 0.25%, would be an increase a good deal more swingeing than would be the case were the base rate at, say, 10%. I also have a discretion to settle the appropriate rate on all or part of the damages awarded, and for some or all of the period from the date on which the relevant period expired. I will set interest at 4% above base rate on all damages throughout the period starting from 25 October 2013.
  2. I will set interest at 2% above base rate for the period before 25 October 2013, see the discussion on interest in AP Racing Ltd v Alcon Components Ltd [2016] EWHC 116 (IPEC) at [44]-[46]. Interest on the judgment debts that accrued from the date on which damages were due to be paid under my Order of 29 September 2014, namely 20 October 2014, shall be at the judgment rate.
Costs on an indemnity basis from the date on which the relevant period expired
  1. From 25 October 2013, the end of the relevant period in respect of PPL’s Part 36 Offer, PPL is entitled to its costs on an indemnity basis, which will not be subject to stage caps and will not form part of the overall IPEC cap on costs.
Interest on those costs at a rate not exceeding 10% above base rate
  1. Again bearing in mind the current low base rate, I will set interest on the costs awarded on an indemnity basis at 4% above base rate.
An additional amount, being 10% of the amount awarded to the claimant
  1. PPL is entitled to a further sum, being 10% of the amount awarded to the claimant by the court. In the context of a monetary claim I take this to be the sum awarded in damages, see White Book not 36.17.4.4, first paragraph. The notes in the White Book do not state whether the sum awarded includes interest on damages. I assume it does not, since there is no date set on which the amount of interest is to be fixed. I will award 10% of (£12,983.12 + £400) = £1,338.

RELATED POSTS: PART 36

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