Case No. IP-2016-000050

PPL v Hagan 9.In Phonographic Performance Limited v Hagan [2016] EWHC 3076 (IPEC); [2017] FSR 24 a successful Part 36 offer had been made by the claimant. Two issues arose. The first was whether rule 36.14(3)(b), the equivalent to what is now rule 36.17(4)(b), could override the costs caps generally applicable in IPEC. Like its current equivalent, rule 36.14(3)(b) gave the claimant the right to be awarded indemnity costs from the date on which the relevant period expired unless it was unjust to do so. The second issue was whether an award of an additional amount under rule 36.14(3)(d) (now rule 36.17(4)(d)) fell within or outside the overall costs cap. 10.With regard to the first, I said this: “[31] There is a tension between the relief under subparagraphs (b) and (d) of rule 36.14(3) and the caps on costs and damages in IPEC. This was briefly debated and considered in OOO Abbott v Design & Display Limited [2014] EWHC 3234 (IPEC). Counsel for the first defendant in that case argued that an award under subparagraph (b) was still subject to the overall £50,000 cap on costs available under the IPEC rules and subparagraph (d) was subject to the overall cap of £500,000 damages. I rejected the argument in relation to subparagraph (d) but accepted it with regard to (b) (at [21]). [32] Since then, the Court of Appeal has given judgment in Broadhurst v Tan [2016] EWCA Civ 94; [2016] 1 W.L.R. 1928. This has a bearing on costs awarded under rule 36.14(3)(b) in the IPEC even though it did not deal with the IPEC costs regime. Broadhurst was concerned the fixed costs regime for low value personal injury cases, provided for by Section IIIA of CPR Part 45.” 11.Lord Dyson MR, who gave the leading judgment in Broadhurst, recorded four arguments in favour of rule 36.14(3)(b) overriding the fixed costs regime under CPR Part 45, Section IIIA. The first turned on the principle of law that general provisions must yield to specific provisions. Lord Dyson held that it provided no clear result. But the next three did. I summarised what Lord Dyson said and whether his acceptance of the second to fourth arguments affected the issue in Hagan: “[36] Lord Dyson felt that three further grounds supported the primary conclusion in his paragraph 25 that rule 36.14(3)(b) took precedence. The first depended on rule 36.14A(8). As I have said, there is no equivalent to rule 36.14A for IPEC cases, so it does not assist here. [37]Lord Dyson also referred to with approval a submission that under the wider scheme of Part 36, where fixed costs are intended to prevail, Part 36 says so (at [27], referring back to [13]). [38]Finally, Lord Dyson ruled at [28] that had he been in doubt, it would have been legitimate to refer to the Explanatory Memorandum as an aid to construction, applying by analogy Pepper v Hart [1993] AC 593: “[The Memorandum] states in terms that, if a claimant makes a successful Part 36 offer: ‘the claimant will not be limited to receiving his fixed costs, but will be entitled to costs assessed on the indemnity basis in accordance with rule 36.14.’” [39]Guided by the third and fourth grounds set out by Lord Dyson, both of which, it seems to me, can be applied by analogy to the tension between rule 36.14(3)(b) and rule 45.31, I conclude that the former overrides the latter: the limits on costs in the IPEC, both stage costs and the overall cap, do not apply to an award of costs under rule 36.14(3)(b).” 12.Regarding the second issue of an additional amount pursuant to rule 36.14(3)(d) (now 36.17(4)(d)), I referred to my ruling in Abbott that the additional amount referred to in the rule was not a species of costs and was therefore to be awarded outside the costs cap. Whether PPL v Hagan was correctly decided 13.I gave judgment in Hagan with the benefit only of a written argument from one side, provided by PPL’s solicitors. Mr Malynicz submitted that Hagan was wrongly decided and that I should say so. 14.For reasons I will explain, the correctness of Hagan, a judgment about a claimant’s Part 36 offer, is not directly relevant to my decision. I must deal with it nonetheless because it has a bearing on the balance of advantage between claimants and defendants when it comes to Part 36 offers, which in turn affects how the court should approach cost caps in relation to a defendant’s successful Part 36 offer. 15.As appears above, in Hagan I applied by analogy the third and fourth arguments presented to the Court of Appeal in Broadhurst, both accepted by Lord Dyson. Regarding the third argument, Lord Dyson stated: “[13] … Where fixed costs are intended to prevail, Part 36 says so. First, rule 36.10A is introduced to disapply the right to costs assessed on the standard basis which would otherwise arise where a Part 36 offer is accepted by a claimant in a fixed costs case. Secondly, rule 36.14A makes specific provision for fixed, rather than assessed, costs in situations other than those where a claimant makes a successful Part 36 offer. Thus, if a defendant's offer is successful, rule 36.14A provides for the claimant only to recover fixed costs until the effective date of the offer, in place of the usual rule that the claimant will recover standard basis costs until that date. Thereafter, the defendant is also limited to fixed costs: rule 36.14A(7) . Thirdly, regard should be had to rule 36.21, which deals with offers made within the Ministry of Justice portal process. Here again, the rule specifically provides for fixed, rather than assessed, costs to be payable in such cases, even where the claimant has made a successful Part 36 offer: rule 36.21(4).” 16.Mr Malynicz submitted that when Lord Dyson said that where fixed costs are intended to prevail Part 36 says so, his references to rules 36.10A and 14A which follow (both now within rule 36.20) show that he had in mind where Part 36 expressly says so. Former rules 36.10A and 14A dealt with the costs consequences of acceptance of a Part 36 offer where Section IIIA of Part 45 applies. Part 36 does not expressly say anything about Section IV of Part 45, which deals with costs in the IPEC. Therefore, Mr Malynicz argued, I was wrong to rely on this third ground of Lord Dyson’s for finding that an award of indemnity costs could override the IPEC costs caps. 17.I am not sure that follows. Lord Dyson’s point still holds good: where the fixed costs regime of Part 45 is to be preserved, Part 36 says so. By inference silence in relation to Section IV of Part 45 can be taken to mean that the capped costs of that Section are not preserved when a successful Part 36 offer has been made. The alternative is neutral: the CPR committee did not have Section IV in mind at all when drafting Part 36. Neither interpretation of the rules supports the contention that the costs caps of Section IV override rule 36.17. 18.Lord Dyson’s fourth ground concerned the Explanatory Memorandum referred to in paragraph 15 of Broadhurst. The Civil Procedure (Amendment No.6) Rules 2013 (2013 No. 1695 (L. 18)) (“the 2013 Amendments”) came into force on 31 July 2013. The changes to the CPR made by rules 4 to 7 of the 2013 Amendments were in consequence of an extension of the procedure for commencing a low value claim for personal injury arising from a road traffic accident. Two new rules were introduced, rules 36.10A and 36.14A, respectively headed “Costs consequences of acceptance of a Part 36 offer where Section IIIA of Part 45 applies” and “Costs consequences following judgment where Section IIIA of Part 45 applies”. I set out here paragraph 7.1(e) from the Explanatory Memorandum to the 2013 Amendments quoted by Lord Dyson at [15]: “New rules 36.10A and 36.14A make provision in respect of the fixed costs a claimant may recover where the claimant either accepts or fails to beat a defendant's offer to settle made under Part 36 of the CPR . Provision is also made with regard to defendants' costs in those circumstances. If a defendant refuses a claimant's offer to settle and the court subsequently awards the claimant damages which are greater than or equal to the sum they were prepared to accept in settlement, the claimant will not be limited to receiving his fixed costs, but will be entitled to costs assessed on the indemnity basis in accordance with rule 36.14 .” 19.Mr Malynicz submitted that the Explanatory Memorandum did not purport to be laying down any general statement about the effectiveness of Part 36 offers in fixed costs cases and therefore had no bearing on the effect of a successful Part 36 offer in an IPEC case. That is true, but it does not address the point I made in Hagan: the third and fourth grounds identified by Lord Dyson for concluding that an award of indemnity costs under rule 36.14(3(b) overrode the fixed costs limitations of Part 45 Section IIIA, can be applied by analogy to a Part 45 Section IV case, see Hagan at [39]. In other words, there is something to be said for a consistent policy across Sections IIIA and IV of Part 45 and beyond. 20.An example of aiming for such consistency was demonstrated in Lowin v W Portsmouth & Co Ltd [2016] EWHC 2301 (QB); [2017] C.P. Rep 1. Elizabeth Laing J (with Master Leonard sitting as a costs assessor) applied Broadhurst in a context outside Section IIIA of Part 45, namely to rule 47.15(5) which caps the maximum amount awarded for a provisional assessment of costs. The tension between that rule and rule 36.17(4) was resolved in favour of the latter. The position in Lowin was closer to Broadhurst than was Hagan in that Part 47 makes specific provision for the relationship between Part 47 and Part 36. However, Elizabeth Laing J said: “[32] It seems to us that because [the draftsman of Part 47.20 has not provided that the provisions of Part 36 would apply to the costs of the detailed assessment with modifications that included 47.15(5)] it must follow that the provisions of Pt 36 apply to this case and that they are not displaced by a provision of r.47.15(5). To that extent it seems to us that the scheme of the reasoning in Broadhurst helps us to reach a conclusion on the correct relationship between Pt 36 and Pt 47 on the facts of this case.” 21.Leaving aside Broadhurst, Mr Malynicz gave reasons why Hagan should be reversed so that Part 36 would have no effect on the capped costs regime in IPEC: (1)The goal of predictable levels of costs and recovery, which are intended to facilitate access to justice, are otherwise undermined. (2)Hagan allows a well-funded claimant with a weak case to put unfair pressure on a defendant by making a Part 36 offer. It forces the defendant to accept the offer rather than risk losing the benefit of the cap. (3)Reversing Hagan would still allow a Part 36 offer to have effect in the IPEC, subject to the costs cap. (4)Whereas the effect of rule 36.17(4) in the general list of the High Court might increase the percentage of costs awarded by a relatively modest percentage, following Hagan the percentage increase in the IPEC could be much higher, even three or four fold higher. 22.I can see that the first, second and fourth points have some force in theory, but they ignore the obligation on the court to exercise its discretion to avoid injustice and they need not arise, depending on how rule 36.17(4)(b) in particular is implemented. As to which, see below. 23.The third point is correct, with the important qualification that reversing Hagan would mean that where the overall costs that may be awarded to a claimant reach £50,000, which is not uncommon, the defendant becomes immune to the effect of a claimant’s Part 36 offer under rule 36.17(4)(b). The important rationale underlying Part 36 would be undermined, albeit not wholly defeated. I referred to the rationale in OOO Abbott v Design & Display Ltd [2014] EWHC 3234 (IPEC): “[22] … the principle to be maintained in relation to CPR 36.14(3) [now r.36.17(4)] is that it should be applied in a way such as to generate a vigorous incentive to make and accept claimants’ Part 36 offers.” 24.The risk is that claimants become cynical about making a Part 36 offer if experience begins to teach that such offers can have limited effect. 25.I decline to reverse my judgment in Hagan. It is neither inconsistent with any part of the CPR to which my attention has been drawn nor contrary to the authorities. Moreover, I take the view that reversing it may result in depriving rule 36.17(4)(b) of its intended effect in many cases. The Capped Costs List Pilot Scheme 26.Since Hagan it has become apparent that Broadhurst has met with a mixed response (as has Hagan). Views on Broadhurst emerged in the Review of Civil Litigation Costs: Supplemental Report, Fixed Recoverable Costs by Lord Justice Jackson, 31 July 2017 (“the Jackson Supplemental Report”). In chapter 5 at paragraph 2.6, Jackson LJ referred to Broadhurst and said that there was a sharp division in views on its effect. Nine of his assessors believed that changes should be made to the CPR to ameliorate its effect by having a percentage uplift in costs in the event of a successful Part 36 offer rather than uncapped indemnity costs, whereas five preferred to keep the effect of Broadhurst as it is. Jackson LJ noted: “I have set out the competing arguments, because this is the only issue on which my assessors are sharply divided. After considering the powerful arguments on both sides, on balance … I favour replacing indemnity costs with a percentage uplift of 30% or perhaps 40%. BUT this is a clear issue of policy, which will need to be addressed in the consultation exercise following this report.” 27.One of the recommendations of the Jackson Supplemental Report was an increase in the use of capped costs in civil litigation. A capped costs pilot scheme was proposed. Part of the proposal addressed the effect of a successful Part 36 offer. Appendix 15 sets out the rules to be applied to litigation conducted under the pilot. Paragraphs 3.1 to 3.11 set out the general proposed scheme for awarding costs. Paragraphs 3.12 to 3.14 apply Part 36 to the pilot, but modify the effect of a Part 36 offer. Paragraph 3.15 says this: “3.15 Where an order for costs is made pursuant to rule 36.17(4), unless it considers it unjust to do so, the court will order that the Claimant is entitled to – (1)interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired; (2)costs assessed in accordance with paragraphs 3.1 to 3.11 to the date on which the relevant period expired; (3)costs assessed on the indemnity basis in accordance with paragraphs 3.1 to 3.11 from the date on which the relevant period expired save that – (a)the maximum amount allowed under paragraph 3.5 for any stage of the claim on which work was done after expiry of the relevant period shall be increased by 25%; and (b)the total costs a court may order under paragraph 3.6 are not more than £100,000; and (4) an additional amount which is 10% of the amount of – (a) the sum awarded to the Claimant by the court; or (b) where there is no monetary award, the sum awarded to the Claimant in respect of costs.” 28.Coincidentally, the capped costs pilot scheme started in the London Circuit Commercial Court on 4 December 2017, the day of the present hearing on costs. How rule 36.17(4)(b) should be implemented in IPEC 29.The implementation of rule 36.17(4)(b) is always subject to the court’s discretion and the need to avoid injustice. It seems to me that it will seldom be appropriate to apply the rule without restriction as was done in Hagan. 30.Hagan was an unusual case in a number of ways, two of which are relevant here. First, the impact of rule 36.14(3)(b) (now 36.17(4)(b)) was limited. Much of PPL’s costs had been incurred in the general Chancery list so the IPEC caps did not apply. Its IPEC costs were very modest compared to those of the Claimants in the present litigation. Secondly, Mr Hagan’s conduct was not exemplary. He pretended to be someone else in order to avoid liability and then he fabricated an email by which, he claimed, he had accepted the claimant’s Part 36 offer. Costs were thereby significantly increased. 31.The present case provides a contrasting and, I think, more typical example. There was no blameworthy conduct of the sort that happened in Hagan. Also, the scale of costs incurred by the Claimants in the present case means that an unqualified abandonment of the costs cap would have a much more dramatic effect on Ms Kogan than it did on Mr Hagan. In the normal course, it would be unjust to remove the costs caps altogether when rule 36.17(4)(b) is applied. I think this is true in the present case. 32.What, then, is the best approach? In my view the treatment of Part 36 and costs caps recommended in the Jackson Supplemental Report now provides a helpful guide. The just course, in the absence of serious misconduct by the defendant, will generally be to apply rule 36.17(4)(b) in a manner which accords with paragraph 3.15 of Annex 15 of the Jackson Supplemental Report. There will be a difference in that the overall cap should be lifted to £62,500 on the final determination of a claim in relation to liability, rather than £100,000 as contemplated in the pilot. Such a difference is appropriate because the standard cap under the pilot scheme, i.e. where Part 36 does not apply, is £80,000 (see paragraph 3.6 of Annex 15). The percentage effect is the same: a 25% uplift on the overall cap. 33.In summary, the usual result in this court where rule 36.17(4)(b) applies is likely to be that the cap on each stage of costs is raised by 25%. The total amount of costs awarded becomes subject to a raised overall cap of £62,500. This of course remains subject to the discretion of the court as required by rule 36.17(4). The implementation of rule 36.17(4)(d) 34.Mr Malynicz did not challenge the ruling in Abbott that the IPEC cost caps do not apply to the additional amount to which a claimant will usually be entitled pursuant to rule 36.17(4)(d). 35.The capped costs pilot scheme likewise does not make the additional payment subject to any cost cap, see Jackson Supplemental Report, appendix 15, paragraph 3.15(4).