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29 July 2016

Fixed Costs and Part 36 Offers

One of the more recently posed questions in relation to Part 36 offers is, in cases where costs are fixed by section IIIA of Part 45 of the Civil Procedure Rules (CPR), can costs, in excess of those that are fixed, be recovered by making or accepting a Part 36 offer?

Fixed costs occur in low-value employer’s liability and road traffic accident cases. The question raised in some of these cases is whether a Part 36 offer can allow claimants to slip through the constraints of  the fixed cost regime.

What is a Part 36 offer?

Part 36 offers can be made by either party to a civil dispute by virtue of Part 36 of the Civil Procedure Rules. The provision was created to persuade parties to resolve disputes without going to trial. By declining to accept a Part 36 offer, either party runs the risk of having to pay additional costs and/or interest on a judgment if the award given by the court is “better” than the Part 36 offer that you have made. Therefore, it is important for parties to seriously consider any offers made to them. Defendants have been warned that, where they admit liability, they should expect to pay the claimant’s costs if they haven’t already made a Part 36 offer.

There are certain requirements that an offer must comply with before it is considered a Part 36 offer:

1. Must be made in writing;

2. Must make it clear that the offer is made pursuant to Part 36;

3. It must specify the relevant period (not less than 21 days within which the defendant will be liable for the claimant’s costs);

4. Must state the scope/extent of the offer; and

5. Must state whether or not it takes any counterclaim into consideration.

A Part 36 offer will be treated as “without prejudice except as to costs”. This means it may not be put before the court as evidence. Neither the fact that the offer has been made, nor the terms of the offer can be drawn to the judge’s attention until after he has made a decision on the case as to liability.

Part 36 offers can be made against any claim at any time. However, if the offer is made less than 21 days before the trial date, the automatic cost consequences will not follow.

The offer is officially made at the time it is served on the other party, not when it is received. Therefore, the 21 day period would start at the time of serving the offer.

Dixon v Bennet

In this case the claimant was injured in a road traffic accident and made a claim against the defendant for personal injury. During the trial both parties made several Part 36 offers. The claimant was successful in her claim and was awarded damages of a greater value than the Part 36 offer she made.

As a result, CPR 36.17 applied and, unless considered unjust by the court, the claimant was entitled to enhancements such as interest (at a rate not exceeding 10%); costs on the indemnity basis; interest on those costs (again, not above 10%); and in certain circumstances an additional amount subject to calculations.

On appeal, the issue raised was in relation to whether costs should be assessed on the indemnity basis. It was unclear as to whether or not CPR 36.17(4)(b) entitled the claimant to non-fixed costs. The fact that the claimant had “beaten” her own Part 36 offer influenced the judge’s decision in the first instance that she was not entitled to such costs.

The Court found in favour of the defendant; the wording of the relevant rules in the CPR was clear, without need for interpretation. The Court concluded that the learned District Judge was correct to limit the claimant’s entitlement to costs to those fixed costs set out in Table 6B of CPR 45.29C.

Broadhurst v Tan; Taylor v Smith [2016]

In this case the claimants were involved in road traffic accidents and claimed for personal injury. Both attempted to settle by making Part 36 offers but both defendants rejected the offers. The judgements obtained in each case were also more advantageous than the offers made by the claimants.

The main issue on appeal was which part of the CPR would prevail in relation to fixed costs, section IIIA of Part 45 of the CPR, or the provisions in Part 36. It was submitted that “fixed costs” and “assessed costs” are ‘conceptually different’, a statement with which the Court agreed. ‘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. The court examines whether the costs were incurred, and then asks whether they were incurred reasonably and (on the standard basis) proportionately.’

If there is any doubt as to which part succeeds over the other, the Court pointed to the explanatory memorandum to the 2013 amendment rules laid before parliament as guidance. These state that if a defendant refuses a claimant’s offer to settle and the court later awards the claimant damages of a greater or equal sum to his offer, ‘the claimant will not be limited to receiving his fixed costs’.

The Court accepted that Part 45 alone would entitle the claimant solely to fixed costs and disbursements; however Part 45 does not stand alone. He stated ‘I do not consider that there is any doubt as to the true meaning of these rules. The tension is clearly resolved in favour of rule 36.14A.’

Comment

This is a very positive outcome for claimants, particularly those involved in RTA claims. Where a claimant “beats” their own Part 36 offer, they will now be entitled to more than just fixed costs. In terms of the effect on defendants, this should now encourage them to make more reasonable Part 36 offers which will be more likely to be accepted by claimants. Ultimately the courts may well experience fewer low value claims going to full trial – only time will tell.

If you have any queries on the contents of this article please contact Denise Traube at disputes@steeleslaw.co.uk or on 01603 598000.

 

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