We review the approach taken by the Court of Appeal in Broadhurst and another v Tan and another [23.02.16] and the implications for defendants and insurers: what should they expect and will the decision have any wider implications?

These cases, with conflicting first instance decisions, were before the Court to determine the costs implications for a claimant where they obtain judgment for an amount better than, or “at least as advantageous” as, their own previous Part 36 offer in circumstances where fixed costs would otherwise apply.

Background

The claims were both commenced under the RTA Protocol, but subsequently exited. They would ordinarily be confined to the fixed costs regime under Part 45 Section IIIA of the Civil Procedure Rules (CPR). However, the benefits of Part 36 still apply where a claimant betters their own offer, one benefit being costs on an indemnity basis.

The tension arose as to whether this benefit ‘trumped’ the fixed costs of Part 45 or whether fixed costs still prevailed:

  • The Claimants argued that costs ought to be assessed on an indemnity basis, and without the restrictions of the fixed costs provisions.
  • The Defendants argued that Part 45 prevailed and, in a matter to which fixed costs apply, there was no practical difference between profit costs assessed on the indemnity basis and the fixed costs as prescribed.

Indemnity costs

The Court of Appeal had little difficulty in dealing with this apparent tension, finding as follows:

  • The true meaning of the rules resolved in favour of Part 36.
  • The benefit of costs on an indemnity basis ousted the application of the fixed costs from the time the Part 36 offer became effective, i.e. the expiry of the relevant period for acceptance (usually 21 days after the offer was made).

Some commentators have suggested that the judgment actually results in a claimant recovering the entirety of fixed costs to trial plus indemnity costs from the time the Part 36 offer became effective. Such a suggestion is wrong. Both advocates who presented the case have confirmed to us that the fixed costs are limited to the stage at which the Part 36 offer became effective, then indemnity costs (alone) from that point onwards.

Implications

The Court recognised that the decision would lead to a generous outcome for claimants. We note that the Association for Personal Injury Lawyers has already launched a webinar for its members entitled “Broadhurst v Tan and tactics for breaking out of fixed costs”.

A claimant who has the benefit of such an order will, potentially, be allowed to recover twice for the same work. If a claimant’s Part 36 offer becomes effective at the point the case runs into the next fixed costs phase, the claimant will recover both:

  • The entire fixed costs for that phase of work, even if the work has yet to be done.
  • Hourly rates for that same work, assessed on the indemnity basis.

Defendants can anticipate more, and earlier, Part 36 offers from claimants, and perhaps multiple offers at the beginning of each fixed costs phase.

Consideration should be given to existing claims where claimants have already made Part 36 offers. The strengths of those offers may need to be reassessed in light of the now considerable costs consequences should a claimant beat an offer at trial.

Application elsewhere?

It might be thought that this decision will have consequences for other aspects of the CPR, perhaps in respect of qualified one-way costs shifting (QOCS) or the fixed costs of the provisional assessment regime.

However, there does not appear to be scope for such argument. The issue the Court of Appeal was asked to determine was the apparent conflict between the wording of the rules in Part 45 and the wording in CPR 36. There appear to be no corresponding tensions in the rules that apply to the QOCS provisions or other aspects of fixed costs. Any suggestions that claimants may benefit from this decision in other aspects of litigation would appear to be groundless.