horwich farrelly

CoA Ruling on Fixed Costs Expected to Improve Claimant Behaviour

February, 26, 2016

The CoA’s recent ruling that assessed costs – rather than fixed costs – apply to cases where a claimant beats a Part 36 offer will inevitably raise some concerns to insurers.

However, whilst we are extremely disappointed by the decision in Broadhurst v Tan, we are confident that the CoA judgement will result in reduced litigation costs for insurers by improving claimant behaviour.

The Appeal

Earlier this month, the Court of Appeal considered whether fixed costs – or assessed costs – apply in cases where a claimant beats their Part 36 offer. Two appeals, Broadhurst v Tan and Taylor v Smith, were heard at the same time as the judges in the respective earlier hearings had ruled in opposite ways.

CPR Part 45 IIIA introduced fixed costs (on a tariff basis) for claims started under either of the pre-action protocols for low value personal injury cases which subsequently leave the protocol (FRC). Those cases are then concluded on the fast track, either as the result of a settlement or a trial.

Our interpretation was that fixed costs meant just that and that if a claimant failed to ‘beat’ their Part 36 offer, the only penalties were the additional 10% of damages, interest on damages and on the fixed costs due under the tariff: there was no place for costs on the indemnity basis. However, the CoA’s decision has thrown out that interpretation.

The Court of Appeal has found that the fixed costs rules in CPR 45 IIIA do not stand alone from Parts 36.14 and 36.14(A). Accordingly, where a claimant makes a successful Part 36 offer, he is entitled to costs assessed on the indemnity basis from the date the offer became effective.

What this means in practice is that if a claimant is successful with his Part 36 offer the costs will be determined in two stages:

  1. The costs up to the date when the offer became effective will be determined by reference to the fixed costs tariff for the stage reached at that point;
  2. The costs thereafter will be assessed on the indemnity basis for the work actually done, provided that the costs were incurred reasonably.

Commentary

Whilst this is a significant decision, the impact will not be as large as it seems at first blush. The decision only comes into play when a case reaches trial.

Part 36 has generally been underutilised by claimants. Indeed there seemed to be little incentive under FRC to make such offers. Horwich Farrelly has always taken the view that a claimant should fully exhaust negotiations prior to the issue of proceedings, and has had a great deal of success with such “premature issue” defences following the implementation of the predictive costs regime.

If claimants now adopt the tactic of making reasonable Part 36 offers at the earliest opportunity then those offers can be accepted. This will result in an increased number of cases settling without the need for litigation (and in those circumstances the claimant’s costs would be limited to either £550 or £100 plus 20% of damages).

Defendants, on the other hand, have always sought to make the best use of Part 36. There has, thus far, been a perception of reduced risk in FRC cases resulting in more cases reaching trial. In an environment where both sides have Part 36 offers on the table, defendants will need to evaluate those offers with greater care. The maximum costs potentially payable to a claimant will no longer be limited to FRC. Where the claimant is successful, the post-offer costs will now be subject to assessment on the indemnity basis applying whatever hourly rate the court allows. It is therefore more likely that more compromises will be agreed.

To discuss any of the issues raised contact Patrick McCarthy 0161 413 1342 or email patrick.mccarthy@h-f.co.uk.

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