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Can a Claimant recover indemnity costs after successfully beating its own Part 36 offer in cases where the costs fall under CPR 45, section IIIA?

This point was addressed at the hearing of two related appeals in the cases of Broadhurst & Taylor v Tan & Smith [2016] EWCA Civ 94. The applicable version of the CPR was that which was in place prior to 6 April 2015.

In the Broadhurst case, at first instance HH Judge Robinson had ruled that there was no difference between profit costs on the indemnity basis and fixed costs as prescribed by Table 6 of rule 45.29C. In the Smith case, HH Judge Freedman ruled the opposite way and held that the fixed costs and indemnity costs did not equate to each other.

The issue arose because there appeared to exist a tension between CPR 45.29B and CPR 36.14. CPR 45.29B states that, if a Claims Notification Form is submitted on or after 31 July 2013:

“the only costs allowed are
a) The fixed costs in rule 45.29C;
b) Disbursements in accordance with rule 45.29I.”

Rule 36.10A was introduced to deal with the payment of fixed costs following acceptance of a Part 36 offer by a claimant, and rule 36.14A was put in place to provide for costs consequences in the event that a claimant failed to beat a defendant’s offer at trial.

The starting point for the claimants was that “fixed costs” and “assessed costs” are conceptually different and, in his ruling, Lord Dyson MR agreed, allowing the appeal in Broadhurst and dismissing the appeal in Smith. He reasoned that rule 45.29B had to take account of part 36 offers, that, read together, rules 36.14 and 36.14A provided that a claimant who had made a successful part 36 offer was entitled to costs assessed on the indemnity basis, and that any tension which existed between rule 45.29B and rule 36.14A must therefore be resolved in favour of rule 36.14A. He added that, if that were incorrect, reference should legitimately be made to the Explanatory Memorandum to the 2013 Amendment Rules which states, at paragraph 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…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.”

This is an excellent result for claimant lawyers but not so good for defendant lawyers, especially in light of plans to increase the value of cases to which fixed costs apply. Whereas previously, in fixed costs cases, there seemed to be little incentive for a claimant to make an early part 36 offer, now that is not the case and any defendant would be well advised to seriously consider any such offers if they want to avoid paying costs assessed on the indemnity basis.

Thanks to our Louise Spurdle for this article.
The Sheffield Legal Walk
Kerry-Anne Moore, Swansea

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