Fixed Costs and Part 36 Offers

What is the effect of a claimant’s ‘beaten’ Part 36 Offer upon their costs in a low value personal injury case within the RTA or EL/PL Protocol where claimants’ costs are fixed pursuant to CPR 45?

This has been a vexed question since the introduction of the fixed costs regime , but one the Master of the Rolls giving the sole judgment of the Court of Appeal in Broadhurst & Anor v Tan & Anor [2016] EWCA Civ 94 has now answered with important and far-reaching consequences for litigators in this area.

The Court of Appeal held that Parliament and the draftsmen of the amended Rules intended Part 36 offers to have costs consequences in cases where they were bettered at trial even where costs were usually fixed. This means that, per Rule 36.14(3), where a claimant makes a successful Part 36 offer, the court will, unless it considers it unjust to do so, order that the claimant is entitled to four enhanced benefits including “(b) his costs on the indemnity basis from the date on which the relevant period expired” and thus (as held) the “tension between rule 45.29B and rule 36.14A must, therefore, be resolved in favour of rule 36.14A”, the specific provision taking precedence over the general.

At paragraphs 30 and 31, the Court held that:

“…The starting point is that fixed costs and assessed costs are conceptually different. Fixed costs are awarded whether or not they were incurred, and whether or not they represent reasonable or proportionate compensation for the effort actually expended. On the other hand, assessed costs reflect the work actually done…

…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 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… a generous outcome in such circumstances is consistent with rule 36.14(3) as a whole and its policy of providing claimants with generous incentives to make offers, and defendants with countervailing incentives to accept them.”

Whether this clarification will lead to an increase or decrease in litigation will remain to be seen. Certainly the current interpretation of this (formerly) knotty issue ought to remind all litigators, but particularly those acting for claimant parties, of the importance of early, well-pitched Part 36 Offers in both encouraging settlement and giving rise to another means of escaping the confines of the fixed costs regime.