FIXED COSTS, PART 36 AND THE PROTOCOL: A DIFFERENT OUTCOME

January 12, 2016 · by · in Appeals, Applications, Assessment of Costs, Part 36, Uncategorized

NB this decision was upheld by the Court of Appeal. Broadhurst -v- Tan [2016] EWCA Civ 94.

The post earlier today on fixed costs after Part 36 offers led Benjamin Williams QC to, kindly, send me a decision of Smith -v- Taylor (9th November 2015 Newcastle-upon-Tyne). The decision made by His Honour Judge Freedman was that fixed costs did not apply in relation to an award of indemnity costs.  Benjamin informs me that the Court of Appeal is considering the matter on 8/02/16 in an expedited appeal – Butler -v- Palmer.

“I ask rhetorically what is the point of preserving the Part 36 benefits of indemnity costs if, in reality, the claimant’s solicitor receives no more by way of costs.”

THE JUDGMENT IN SMITH -v- TAYLOR

The judge was considering the issue of whether an indemnity costs order meant that a claimant was only entitled to fixed costs.

“My Decision
27.The concession made by the defendant to the effect that the claimant was entitled to costs on the indemnity basis from the date on which the relevant period expired pursuant to CPR 36.17(4)(b) is undoubtedly correct. Indeed, it accords with the finding of the Judge below and it accords with the decision of His Honour Judge Robinson in Broadhurst.  As I identified at the outset of this judgment, the issue is what, in practical terms, costs on an indemnity basis means in the context of a case where ordinarily the Fixed Costs regime pursuant to CPR 45 would apply.
28. Not without some hesitation, and indeed, diffidence because I am disagreeing not only with the Judge below but also with His Honour Judge Robinson, I have come to the view that costs under the Fixed Costs regime and costs on the indemnity basis cannot and should not be construed as being one and the same: they are separate and distinct and require a completely different approach when costs are being assessed.  For a number of reasons, I have come to this conclusion:
(1) I accept the submission that if the intention was that the claimant should only recover fixed costs from the defendant in the event of a successful Part 36 offer, such would have been spelt out in the amendment to the rules made by virtue of CPR 36.21.  It cannot merely have been oversight that 36.21(3) applies only to where a claimant fails to obtain a judgment more advantageous than the defendant’s Protocol offer.  If what was contemplated was that the claimant should be limited to fixed costs in the same way that a defendant is in circumstances where there has been a successful Part 36 offer, it would have been straightforward for the Rules Committee to add a sub‑section to CPR 36.21 to the effect that where the claimant obtains a judgment more advantageous than the defendant’s Protocol offer… the amount of costs ordered shall not exceed the fixed costs…  The absence of any such wording, to my mind, makes it clear that the intention is that not only that the claimant should recover costs on an indemnity basis in accordance with CPR 36.17(4)(b) but that the costs should be quantified on an indemnity basis, not merely being awarded fixed costs.
(2) In my view, to regard fixed costs and costs assessed on the indemnity basis as being one and the same is to conflate two very different concepts.  Fixed costs are just that: a claimant’s solicitor is entitled to a fixed amount at each stage regardless of how much work has been undertaken and regardless of hourly rates.  Indemnity costs, on the other hand, import the need for assessment.  Indeed, CPR 44.3 refers specifically to the assessment of the amount of costs whether by summary or detailed assessment.  This, to my mind, makes it clear that fixed costs and indemnity costs are fundamentally different.
(3) Further, I think that Mr Williams is right to highlight the question of proportionality.  Manifestly, the purpose of fixed costs is to ensure that only proportionate costs are awarded and also to provide some uniformity. It is instructive to look closely at the wording of CPR 44.3(2) where it is stated:
“Where the amount of costs is to be assessed on the standard basis, the court will—
(a) only allow costs which are proportionate to the matters in issue… ; and
(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.”
In stark contrast, the word disproportionate does not feature at all in CPR 44.3(3) which is concerned with the method to be deployed in assessing costs on an indemnity basis.  I do not accept the proposition that because the overriding objective is concerned with litigation being conducted in a proportionate way, the assessment of costs on an indemnity basis must be subject to proportionality.  For such to be the case, there would need to be an amendment to CPR 44.3(3).
(4) It seems to me that the principle enunciated in Solomon is of application.  However, I agree with Mr Williams that given the amendments to CPR 36 in the form of CPR 36.21 which were drafted at the same time as, and in contemplation of, the Fixed Costs regime in CPR 45 that CPR 36.21 is the specific rule and takes precedence over CPR 45.29B.  In other words, it seems to me that the proper construction is that the restriction on only fixed costs being allowed in accordance with CPR 45.29B must be read as being subject to the provisions of the Part 36 regime.
(5) For the reasons articulated by Mr Williams, I do not think it at all surprising that the rules provide for the defendant only to recover fixed costs following a successful Part 36 offer whereas the claimant is entitled to indemnity costs.  The starting point is that where the claimant obtains a judgment, and neither party does better than a Part 36 offer, the claimant is entitled to all of her costs of the action.  If, on the other hand, the claimant does better than her Part 36 offer, she should be entitled to something on top and that is by way of indemnity costs.  Similarly, if the defendant does better than his Part 36 offer, he should be entitled to something on top and that is by way of recovering fixed costs from the claimant.  There seems to me to be no illogicality in that approach.
(6) As to the difficulties identified by His Honour Judge Robinson at paragraphs 48 and 49 of his judgment, I recognise that the timing of the expiry of a Part 36 offer might well, on a somewhat arbitrary basis, make a significant difference to the amount of costs which a claimant’s solicitor recovers.  It might well be a matter of mere chance that the relevant period after the Part 36 offer expires on a day after the case is listed so that the claimant’s solicitors recover fixed costs and indemnity costs for the same period.  I would not myself envisage any apportionment of the fixed costs over the relevant period.  It seems to me that insofar as there is duplication of recovery of costs for some part of the relevant period, that should simply be seen as a ‘windfall’ for the claimant.( Mr Williams referred colloquially to  ‘swings and roundabouts’).  The fact of such of windfall is not, in my view, a reason to conclude that there is no demarcation or distinction between fixed costs and indemnity costs.
(7) I am reinforced in my interpretation of the CPR by the Explanatory Memorandum.  As Mr Williams explained in oral argument, the purpose of the Memorandum is to explain to parliament what the Statutory Instrument is intending to achieve.  It is almost certainly the case that the Memorandum is laid before the Lord Chancellor at the same time as the Statutory Instrument.  The Memorandum is therefore a very useful tool in construing the Statutory Instrument.  It could not be clearer in its terms. I repeat the relevant passage:
“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 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.”
I ask rhetorically what is the point of preserving the Part 36 benefits of indemnity costs if, in reality, the claimant’s solicitor receives no more by way of costs.
 Conclusion
29. I am conscious of the point made by Miss Rutkowski that judges are afforded a very wide discretion when it comes to awards of costs. Accordingly, it follows that an appellate court should be very slow to interfere with an award of costs.  However, I am satisfied that I am not here dealing with questions of discretion but rather the correct construction of the CPR.  As it seems to me, therefore, somewhat different considerations apply.
30. Furthermore, the Judge gave permission to appeal because he appreciated that there was scope for a different interpretation. In passing, I should also observe that His Honour Judge Robinson indicated that if he had jurisdiction to grant permission for a second appeal, he would have done so without hesitation.
31. At all events, I have come to the conclusion that this appeal should be allowed.  The claimant should be entitled to costs on the indemnity basis from 21 days after the first Part 36 offer together with the fixed costs under CPR Part 45 Section IIIA which would have been payable had the claim settled prior to expiry of the Part 36 offer dated 17th November 2014.

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