The scenario: the receiving party serves a bill for £75,000 and commences proceedings for detailed assessment under CPR 47. 6. In view of the sum involved, the bill is referred for provisional assessment under CPR 47.15 and Practice Direction (PD) 47.14.1. The bill is assessed by the judge at £72,000. Sealed offers lodged under PD 47.14.3(d) are subsequently considered. They reveal that the receiving party offered to accept £71,999, so the offer has been beaten by a whisker.
Given that since 1 April 2013, under CPR 47.20(4), the provisions of Part 36 apply to the costs of detailed assessment and that it is trite law that “a near miss” makes no difference to the offeree’s liability to pay (Carver v BAA PLC having been overruled), what are the consequences?
The answer is to be found in CPR 36.17(4)(a)-(d). Unless it is unjust to do so, the court must award under (a) interest on the costs allowed at a rate not exceeding 10% above rate base rate, under (b) costs of assessment on the indemnity basis from the date on which the time for accepting the offer expired, (c) interest on those costs at a rate not exceeding 10% above base rate and (d) an additional amount of 10% of the costs allowed, not to exceed £75,000.
Applying the law. The leading authority on the application of CPR 47.17(4) is the decision of Slade J in Cashman v Mid Essex Hospital Services NHS Trust. Unless it is unjust under the rule to do so, the court must award all the benefits it confers on the receiving party. There can be no “picking and choosing”, depending upon the figure by which the offer has been beaten and the amount which has been disallowed on the bill, however significant. As Slade J put it in Cashman:
“The rule was introduced not only to provide an incentive to a claimant to make a timely realistic Part 36 offer, but also to penalise the defendant for not accepting such an offer”.
It follows that, on the facts of the scenario, the receiving party is entitled to be paid by the paying party interest at a rate not exceeding 10.5% on the costs allowed, costs of the assessment on the indemnity basis from the date on which the offer could last have been accepted, interest on those costs at a rate not exceeding 10.5% and an additional sum of £7,200 being 10% of the assessed costs.
The costs of the provisional assessment. What will they be? Under CPR 47.15(5), the maximum that the court can award if the provisional assessment is accepted by the parties is £1,500, together with any VAT thereon and any court fees payable. However, in the scenario, the receiving party has been awarded costs on the indemnity basis. Does that mean that the costs of provisional assessment are no longer limited to £1,500 so that the lid comes off and the sky is the limit (subject to assessment)?
Lowin v W Portsmouth & Co Ltd. Indeed it does, said Elisabeth Laing J DBE at paragraph 32 of her judgment:
“It seems to us that, because he [the draftsman] has not so provided, it must follow that the provisions of Part 36 apply to this case and that they are not displaced by a provision of Rule 47.15(5).”
At paragraph 33 she continued:
“It seems to us that there is one potentially undesirable consequence from our conclusion. That is that it may reduce incentives for people to keep the costs of a provisional assessment as low as possible. On the other hand, it seems to us that one consequence of our conclusion is that it increases the incentives on parties to accept sensible Part 36 costs offers because, if they do not, there is the potential for them to incur further costs if that rejection is proved wrong by a detailed assessment.”
Accordingly, W Portsmouth & Co, and any other paying parties fixed with liability for provisional assessment costs due after a successful Part 36 offer since Laing J’s decision, have thus been lumbered with “sky is the limit” costs rather than the £1,500, which has remained unchanged since the rule was implemented on 1 April 2013, nearly five years ago.
The Appeal. No longer! W Portsmouth & Co Ltd appealed and won. The Court of Appeal (Vos C, McCombe and Asplin LJJ) posed the following question:
“… whether a cap on the amount of costs which can be allowed in respect of the costs of a provisional assessment of costs under CPR rule 47.15(5) applies where the receiving party is awarded costs on the indemnity basis because she has beaten her own Part 36 offer or whether Part 36 entitles the successful receiving party to costs assessed on the indemnity basis, without being subject to the cap”.
That was law-speak. It simple terms that meant: did CPR 36.17(4) “trump” CPR 47.15(5) as Laing J had found, so that receiving parties would not be stuck with the capped costs of £1,500, or should she have decided the case the other way, with the result that the victorious receiving party would be limited to the fixed costs, even though they seldom, if ever, cover the actual outlay of expenditure on provisional assessment?
Unanimously, the Court of Appeal accepted W Portsmouth & Co’s submissions that, in the trial of strength between the two rules, Part 47 beats Part 36. The reason for that is because if it had been intended that CPR 47.15(5) was not to apply in the case of an assessment of costs on the indemnity basis under CPR 36.14(7)(b), there would have been an express reference to it in either or both of the provisions or in CPR 47.20(4). Nothing in any of those rules contain anything to suggest that CPR 47.15(5) should be dis-applied, or modified, as had been done in the court below, so Ms Lowin would have to be satisfied with £1,500 for her costs of assessment after all.
The future. Does that take the stuffing out of Part 36 offers? Certainly not. First, it has no bearing on paying parties for whom none of the CPR 36.17(4) prizes are ever available, except for indemnity basis costs if their Part 36 offer wins the day. Indeed, absent fraud or some other form of skulduggery, paying parties are liable to pay the costs of detailed assessment under CPR 47.20, unless they can protect themselves by making an early and realistic Part 36 offer which puts the receiving party on risk. Second, as the Court of Appeal was at pains to point out, Lowin has only removed one Part 36 goody from the bag. The rest are there for the taking, so a receiving party should still always make a Part 36 offer. The judgment does not undermine the intention to encourage the quick and cheap resolution of provisional assessment costs and, as Asplin LJ put it at paragraph 40:
“Nor does it deprive a successful party of the not inconsiderable benefits of CPR rule 36.17(4((a)–(d), albeit that the costs under (b) are subject to the cap.”
So in the end, the paying party in Lowin may have won the day, but paying parties who fail to accept a Part 36 offer when they should have done still remain at risk of paying out hefty sums if the receiving party is allowed more in costs than the amount which they had earlier offered to take.