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Part 36 Rules prevail – Letting the Lion out of the Cage

Part 36 Rules prevail – Letting the Lion out of the Cage

For some time there has been a division of opinion on the recoverable costs of a Claimant in a “fixed costs” claim who obtains a Judgment more advantageous than his or her Part 36 offer. One train of thought was that if it was a fixed costs matter, then no more than fixed costs could ever be recoverable. The other train of thought was that the usual provisions of Part 36 would apply and that from the date of expiry of the “relevant period” of the Part 36 offer, the Claimant should be entitled to costs on the Indemnity Basis. These different thoughts found expression in 2 cases at first instance where in Broadhurst v Tan, HHJ Robinson sitting at Sheffield found that the fixed costs provisions would prevail, but in Smith v Taylor HHJ Friedman, sitting at Newcastle upon Tyne, found that the Part 36 provisions should prevail.

The matter has now been resolved by the Court of Appeal where the Master of the Rolls, Lord Dyson, came down in favour of the Part 36 provisions prevailing (see Broadhurst (1) Taylor (2) v Tan(1) Smith (2) [2016] EWCA Civ 94).

Both cases were matters which followed the RTA protocol for low value personal injury claims. The fixed costs provisions are set out in CPR 45 IIIA. In both cases, the Claimants made Part 36 offers which they bettered upon final Judgment. The cases involved the application of Part 36 prior to the changes made on 6 April 2015, but whilst the numbering of the rule has changed, the underlying principles for the purposes of this issue have remained the same. By way of reminder, rule 45.29 B provides that in an RTA case where the Claims Notification Form was submitted on or after 31 July 2013, the only costs allowed are those fixed costs set out in rule 45.29 C together with the disbursements set out in 45.29 I.

The relevant provision in Part 36 is 36.14 (3) which provides for various adverse consequences for a Defendant where a Claimant betters his or her own offer, of which the most fundamental for present purposes is that Indemnity Basis costs are recoverable from the date of expiry of the “relevant period” of the Part 36 offer. Rule 36.14 A specifically deals with the costs consequences in matters to which CPR 45 III A apply. The reason why this matter fell to be determined however is that the rules do not explicitly state that the fixed costs rules no longer apply in those circumstances.

The Master of the Rolls found in favour of the Claimants’ arguments. Those arguments had been that there was clearly a tension between the provisions of 45.29 B and 36.14A, but that where it was clear from the express wording of 36.14 A (1) that the part 36 provisions applied to fixed costs matters as a whole then in the absence of some specific wording dis-applying particular provisions, then those provisions should indeed apply. It was argued that Part 36 was a self-contained procedural code and that where fixed costs were intended to prevail these were explicitly set out (for example 36.10 A). It was very telling that the general provisions of 36.14 (3) had not been modified in any way. The Claimant also made reference to an Explanatory Memorandum which accompanied the revision to the Rules (although it did not form part of the Rules) which fairly clearly stated that the intention was that a Claimant with a successful Part 36 offer would not be restricted to fixed costs.

The Defendant argued that there was no clear guidance in the Rules but that if the Claimants’ position were to be adopted then it would be very difficult upon any assessment to work out what costs would be payable because only fixed costs would be recoverable up to the date of expiry of the relevant period, but that date would almost certainly fall somewhere between the various stages of fixed costs provided for within the rules.

Both the Claimants and the Defendants argued for the principal that specific provisions in the rules should prevail over the general provisions. However, the parties were at odds as to which of 45.29 B and 36.14 A was to be the general as opposed to the specific provision.

The Master of the Rolls found that he did not have to decide that point. He found that as a matter of straightforward interpretation, the Part 36 provisions should prevail. His analysis is best put in his own words:

“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”

“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”.

He was in no doubt as to the true meaning of the Rules but said that even if there had been some doubt, it would have been permissible to take account of the Explanatory Memorandum which gave further support to the conclusion he had reached.

In relation to the difficulty expressed by the Defendant as to how to calculate the costs payable to the Claimant, his suggested solution was fairly simple. The Claimant would be awarded fixed costs at the level provided for in the last stage reached and then Indemnity Basis costs from expiry of the relevant period of the Claimant’s Part 36 offer. He accepted that this might be a generous outcome for Claimants but felt that this was consistent with the general scheme and thought underlying it that Claimants should be rewarded for making sensible Part 36 offers at an early stage.

We have commented before on the potential benefits to a Claimant of making a sensible Part 36 offer and this Judgement reinforces the need for such a proactive approach even in fixed costs cases.

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