Lawyers live in fear of having their costs budget reduced to court fees. If a budget is reduced to court fees, the only solution to minimise the impact of this is to obtain an indemnity basis costs order – approved costs budgets should not be relied upon at any indemnity basis assessment. Costs Management only applies to standard basis assessments, therefore this is the only way that a somewhat hopeless situation could potentially be rectified. At the moment, the Claimant has the advantage. The Claimant can secure an indemnity basis award by making a well-pitched Part 36 offer, the Defendant cannot. Either party can secure indemnity awards raising arguments such as conduct, however awards made on this basis are much more difficult to achieve.
The Rule Committee have identified this and have amended the rules, which will be implemented in April 2015, to address this disparity. Cases in which the offeror’s costs have been limited to court fees is now governed by CPR Part 36.23.
(1) This rule applies in any case where the offeror is treated as having filed a costs budget limited to applicable court fees, or is otherwise limited in their recovery of costs to such fees.
(Rule 3.14 provides that a litigant may be treated as having filed a budget limited to court fees for failure to file a budget.)
(2) “Costs” in rules 36.13(5)(b), 36.17(3)(a) and 36.17(4)(b) shall mean—
(a) in respect of those costs subject to any such limitation, 50% of the costs assessed without reference to the limitation; together with
(b) any other recoverable costs.
The intention of the Rule Committee is to ensure that Part 36 still works in such cases and continues to provide an incentive to make a Part 36 offer. Equally it is important that the innocent party should not regard itself as having a blank cheque to litigate the case. Sanctions must therefore be imposed for turning down a reasonable Part 36 offer.