The issue of an extension of the current fixed costs regime is on the cards. It is in that light that what anyway may have been an important decision this week from the Court of Appeal as to how one aspect of the fixed costs processes should work takes on a greater degree of significance.

The judgment in Broadhurst v Taylor and Tan v Smith has effectively decided on the basis of the current rules what type of costs should be paid by defendants to claimants where the claimant beats his or her own Part 36 offer at trial in a claim which began in the RTA, EL or PL portal, and therefore to which the fixed recoverable costs (FRC) regime applies.

To some clamour from the claimant lobby, the Court of Appeal has decided in favour of the claimants. APIL say they think it is “difficult to overstate the importance of the decision given the proposed extension of fixed costs”. But this may not be the end of the story.

Pulled both ways

The lead judgment came from the Master of the Rolls, Lord Dyson, whose impending retirement at the end of July was announced earlier this month, when he could have continued in office for a further 2 years.

The Court of Appeal had to decide between 2 alternatives both as to how the fixed costs regime from CPR Part 45 meshed together with Part 36, and also between previous answers to the same question reached by 2 circuit judges.

In Broadhurst v Taylor itself Judge Robinson sitting in Sheffield had decided in favour of the insurer, but in Tan v Smith taking place in Newcastle-upon-Tyne, Judge Freedman had found for the claimant.

The argument

Both claims had started off in the RTA portal before dropping out, the claimants had made Part 36 offers which the defendants did not accept, but then those claimants went on to obtain more advantageous judgments.

The current FRC regime for portal claims went live on 31 July 2013. It was only in mid-July that the new rules which were being added to Parts 36 and 45 were published. So it would be reasonable to expect that not every nuance would necessarily have been covered off as time was limited.

In the current situation, Part 36 dealing with claims to which FRC apply provides that the claimant is entitled to two types of costs. Firstly, fixed costs from the relevant FRC table for the stage of the case when the 21 day period on the offer expired. And, secondly, further “costs” from that date onwards till judgment.

The ordinary Part 36 provisions which apply where a claimant secures an outcome at least as advantageous than his or her offer say that in addition to interest on damages and costs and the additional amount representing 10% of damages, the claimant is also entitled to costs on the indemnity basis.

While on the other hand, Part 45 provides that in a claim which started off in the portal, “the only costs which are allowed” are FRC as set out in the relevant tables, those tables being Table 6 (RTA pre-proceedings), Table 6A (EL/PL pre-proceedings), Table 6B (RTA post proceedings), Table 6C (EL post proceedings) and Table 6D (PL post proceedings).

The essential question therefore was were the claimants only entitled to FRC throughout as Part 45 seemed to say, or were they entitled over the period from when the 21 day period expired to costs calculated on an hourly rate basis as constituting indemnity costs, as Part 36 seemed to say?

The decision in favour of the claimants

It was as a matter of interpretation of the different parts of the CPR that Lord Dyson found for the claimants: the wording of Part 36 prevailed. “Part 36 trumped Part 45” you could say.

While not decisive in the end, reference was made in the appeals to the Explanatory Memorandum to the 2013 Amendment Rules which the MoJ laid before parliament to accompany the draft statutory instrument containing the new rules. The Court of Appeal accepted that this could have been considered if necessary under the Pepper v Hart principle in evaluating the MoJ’s intention in making the new rules.

The memorandum said in the event of the claimant making a successful Part 36 offer “the claimant will not be limited to receiving his fixed costs, but will be entitled to costs assessed on the indemnity basis.”

The way it will work

In the sort of scenario seen in the 2 appeals, the claimant is entitled to costs in 2 ways. Firstly, FRC calculated from whichever of the 5 tables is the relevant one which applies at the date when the 21 days from the offer expired. Post litigation, there are 3 stages, they are of course date of allocation; date of listing for trial; date of trial. And secondly, in addition, the claimant is also entitled to hourly rate costs assessed on the indemnity basis from the expiry of the 21 day period.

Lord Dyson accepted that this would provide a generous outcome for claimants, but also said this was the best solution available to the court in its interpretation of the rules. The alternative of only allowing FRC (in addition to the extra interest and extra 10% of damages) was regarded by the court as being more unfair than the interpretation it chose.

It is worth noting that the decision has no impact on stage 3 of the portal process. The rules governing the costs payable there where the claimant beats his or her own Part 36 protocol offer are clear and it is FRC which will apply.

Where do we go from here?

The Court of Appeal have effectively finally decided the point as far as the current framework of rules are concerned.

There remains additional incentive for claimants to make Part 36 offers, and perhaps more offers and earlier offers should be anticipated as their lawyers may believe a way has been identified to circumvent part of the application of FRC.  Insurers should carefully assess not only new claimant Part 36 offers in cases where FRC will apply, but also existing ones, as the judgment will affect all current and future claims of this type.

There is need for further thought in this area on the part of the MoJ and other stakeholders, and now would be a worthwhile time to do so when it seems the application of FRC will become wider. The rules that were put together on the eve of the July 2013 reforms becoming effective should be reconsidered to see if there is a better approach, and there is an implication from Lord Dyson’s judgment that he too would see potential reform of the rules as appropriate to achieve a fairer solution.

It seems to us that other options are worthy of consideration while retaining what will be seen as the importance of ensuring Part 36 operates so as to encourage the parties towards settlements. We already have the reward for claimants of an additional 10% of damages in this situation. An extension of that type of approach might provide a better solution, instead of having to allow recovery of costs calculated on an hourly rate and assessed on the indemnity basis and so challenging the whole move towards wider use of FRC and the advantages of certainty it provides.