On 23 February 2016 judgment was handed down by the Court of Appeal for the appeals of Broadhurst -v- Tan and Taylor -v- Smith. This is an important case which determines the resolution of a previous conflict between Part 36 offers and the fixed costs regime. This case confirms that indemnity costs should apply where a claimant beats his or her own part 36 offer at court.
Both claims were started under the RTA protocol for personal injuries and both claimants made Part 36 offers which were rejected by the defendants. When the claimants then obtained judgments that were higher than those offers, it was confirmed that indemnity costs would apply for both cases. However, in the case of Broadhurst -v- Tan, HH Judge Robinson stated that there was no difference between fixed costs and indemnity costs and therefore fixed costs would apply. The Court of Appeal rejected this argument and allowed the appeal in favour of Broadhurst.
The Master of the Rolls has detailed how the rules will apply:
‘Where a claimant makes a successful Part 36 offer in a section IIIA case, he will be awarded fixed costs to the last staging point provided by the rule 45.29C and Table 6B. He will then be awarded costs to be assessed on the indemnity basis in addition from the date that the offer became effective. This does not require any apportionment. It will, however, lead to a generous outcome for the claimant. I do not regard this outcome as so surprising or so unfair to the defendant that it requires the court to equate fixed costs with costs assessed on the indemnity basis.’
This decision provides clarification regarding what was a grey area, but it is likely to have significant implications. Claimants are now going to have more incentive to make more realistic Part 36 offers and defendants will be under more pressure to accept competitive offers because of the risks of the matter falling out of the fixed costs regime. Defendants should review existing Part 36 offers and reassess them in light of the risks that are present following this decision. In all fixed costs cases reserves may need to be revisited.
Part 36 offers are likely to be made by claimants at an earlier stage because indemnity costs cannot apply to costs before the offer expired. Those costs prior to the expiration of the offer will potentially remain fixed. It is likely that there will be further satellite litigation to address the view that no apportionment will be required. Whilst Lord Dyson suggests that both fixed and indemnity costs can be recovered, this could amount to a breach of the indemnity principle.