horwich farrelly

Horwich Farrelly successfully appeals against decision to award indemnity costs on late acceptance of Part 36 offer

June, 29, 2017

On appeal, a court has ruled a defendant’s late acceptance of a Part 36 offer did not justify an award of indemnity costs. The ruling, in the matter of Anderson v Ladler & Aviva Insurance Ltd, successfully brought by Horwich Farrelly is believed to be the first appeal to be heard on the point in a fixed costs case.

Following the decision of the Court of Appeal in Broadhurst v Tan, some claimant firms have sought to use a tactic of seeking indemnity costs in Fixed Recoverable Costs (“FRC”) cases where a defendant accepts a Part 36 offer after the 21 day period (“late”).

Many applications have been explicitly based on the County Court decision in the case of Sutherland v Khan (Distict Judge Besford, County Court at Kingston-upon-Hull, 21 April 2016). There have since been a number of District Judge decisions, some in favour of claimants and some in favour of defendants.

The appeal in this case vindicates the view that the Broadhurst ruling does not provide any authority for an award of indemnity costs in a late acceptance case, and that late acceptance is not in itself a justification for an indemnity basis costs order.

Background

The claim arose from a road traffic accident that occurred on 6 December 2013. A claims notification form (CNF) was submitted to the RTA Portal, but the claim exited the Portal because the defendant required more time to investigate liability. On 31 July 2015, the claimant made a Part 36 offer in the sum of £4,429.41. On 22 October 2015 proceedings were issued; the defendant accepted the claimant’s Part 36 offer on 23 June 2016

The parties were unable to agree the costs of late acceptance and the claimant made an application for an order that she should be awarded fixed costs up to the date of the expiry of the part 36 offer and costs on the indemnity basis thereafter. It was common ground between the parties that unless the court made an order on the indemnity basis, the only costs recoverable would be fixed costs and disbursements.

At the hearing of the claimant’s application the Deputy District Judge followed the decision in Sutherland v Khan and awarded costs on the indemnity basis. The defendant appealed.

The Appeal

The appeal was heard on 8 May 2017 by HHJ Gargan, Designated Civil Judge for Cleveland and South Durham.

The defendant argued that there was no power to award costs outside of those allowed under FRC (CPR 45.29B) and that, in any event, there was no presumption in favour of an order for costs on the indemnity basis and no justification for such an order. The defendant relied on the decisions in Excelsior Commercial and Industrial Holdings Limited v Salisbury Hammer Aspden and Johnson & Others [2002] EWCA Civ 879 and Fitzpatrick v Tyco [2009] BLR 144 and argued that these provided binding authority for the proposition that late acceptance did not justify an indemnity basis order.

The claimant argued that that the Deputy District Judge had been correct to find that there was a presumption and that in any event, the judge had exercised his discretion to award indemnity basis costs and there were good grounds for him to do so.

In his judgment HHJ Gargan found that the court could consider the making of an indemnity basis order, but that there was no presumption in favour of such an order. He did not accept that such an order was necessary to provide an incentive to make or accept Part 36 offers. There was sufficient incentive in the risk of a case moving into a more expensive stage of FRC, and the additional consequences in CPR 36.17 should the claimant equal or better the offer at trial.

He did not accept that there was any unfairness in the fixed costs scheme as between claimants and defendants in late acceptance cases. The claimant argued that the reference in CPR 36.13(6) to the list of factors in CPR 36.17(5) (as to when the court should not apply those additional consquences) supported a presumption in favour of indemnity costs. HHJ Gargan found that this argument was “wholly without merit”. He did not consider that the decision in Fitzpatrick could be distinguished, even in a case which had begun life in the RTA protocol.

Having concluded that the Deputy District Judge had erred in law, HHJ Gargan was required to exercise his own discretion as to the appropriate order for costs under CPR 36.13. There was nothing to take the current case “out of the norm”; late acceptance was not sufficient and did not provide a reason for an indemnity basis order. Accordingly, the appropriate order was an order that the defendant pay the claimant’s FRC costs to the date of acceptance and the appeal was allowed

Commentary

The appeal in this case vindicates the view that Broadhurst v Tan does not provide any authority for an award of indemnity costs in a late acceptance case, that late acceptance is not in itself a justification for an indemnity basis costs order and that Sutherland v Khan was wrongly decided.

The decision in Sutherland, which “sparked off” many similar applications for indemnity costs, has been subject to criticism from various quarters. The judgment on appeal in this case expressly disagreed with the conclusion that had been reached in Sutherland, stating that it did not represent the law as set out in the CPR and the authorities.

Arguments have been raised in other cases that fixed costs are somehow insufficient where a Part 36 offer is accepted late. Here, the court found that the fixed costs regime was intended to provide reasonable and proportionate remuneration to the claimant in modest personal injury claims such as this one, and that there was nothing unfair or insufficient about a claimant being limited to fixed costs.

The conclusions reached on appeal in this case accord with binding authorities of the higher courts, and to that extent should not be particularly surprising. However, there are still a number of these application before the courts, this is not likely to be last appeal heard on the issue and it appears inevitable that these are arguments that the Court of Appeal will be hearing at some point.

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