HOW RELEVANT ARE PART 36 OFFERS TO ISSUE BASED ORDERS? A SALUTARY WARNING ABOUT THE RISKS OF LITIGATION
The making of an “issue based” costs order is now a common aspect of litigation. However how relevant is a Part 36 offer when a court is considering making an “issue based” costs order? A recent case contains discussion of this question and also provides a salutary warning of the risks of litigation.
In AW Group Limited –v- Taylor Walton (A firm)  EWHC 2610 (Ch) His Honour Judge Hodge QC made an order for costs in favour of a successful defendant. The issue arose of how far a Part 36 offer, made by that defendant, was relevant to the determination of the “issue based” cost order.
THE FACTS OF THE CASE
The AW case was an action brought by against a firm of solicitors alleging professional negligence in failing to ensure that certain planning consents were in place prior to purchase of a property. The defendant denied negligence and also denied causation – arguing that the claimant would have continued with the purchase.
The judge found that the defendant had been negligent but then found against the claimant on the issue of causation, holding that the defendant would have proceeded with the purchase even if the defendant had not been negligent. The claimant, therefore, recovered nothing.
THE DISCUSSION AS TO COSTS
The claimant conceded that it was liable to pay the defendant’s costs. However there was an issue as to the percentage that should have been paid given that the claimant had succeeded in establishing a breach of duty.
It transpired that the defendant had made a number of offers of settlement including a Part 36 offer of £500,000. The arguments as to costs are recorded in the transcript.
THE JUDGE’S DECISION
The fact that the defendant had made a Part 36 offer played a part in the Judge’s award as to costs. The Judge held that he would have made an order that the defendant recover 80% of its costs. However the existence of a Part 36 offer was a relevant factor and, therefore, the defendant was to recover 90% of its costs.
“Mr Jones, for the claimant, does not resist the application for costs. However, he submits that, from the outset, the defendant’s attempt to deny breach of duty was a futile exercise, and one that added enormously to the length, and thus the cost, of the trial. He, therefore, submits that the defendant ought to be deprived of some part of the costs to which it would otherwise be entitled because the trial had been extended. Mr Jones submits that some two and a half days of trial could have been saved. He acknowledges that half a day was lost at the claimant’s request to enable him to get up to speed in presenting the claimant’s case, following the belated termination by the claimant’s former solicitors (Lester Aldridge) of the conditional fee agreement on which they had been retained to act for the claimant.
Mr Hext submits that it was not unreasonable to contest the issue of breach of duty. He also makes the point that in any form of complex litigation it is almost inconceivable that the successful party will be successful on all aspects of the case. One can reasonably anticipate that even a successful party will fail on some issues. Mr Hext submits that there were substantial areas of crossover between issues of breach and matters of causation, and he would therefore strenuously resist a two and a half day reduction or anything approaching that.
Mr Hext has also drawn my attention to the costs consequences of a Part 36 offer, as set out in CPR 36.14. He acknowledges that it is a moot point whether the reference to “his costs” in 36.14(2a) is a reference to all of the costs or only those costs that are allowed after the exercise of the court’s discretion, under what was formerly CPR 44.3 and is now CPR 44.2.
Irrespective of the true effect of the rule, however, Mr Hext submits that, as a matter of discretion, the defendant should be awarded all of his costs on the basis that the Part 36 offer that was made should be treated as having recognised the perceived difficulties over the issue of breach so far as the defence was concerned. The claimant chose not to accept the Part 36 offer and it should now have visited upon itself the consequences of such non-acceptance. In response to that, Mr Jones submits that it is impossible to see how the making of a reasonable Part 36 offer can entitle the offeror to litigate, nevertheless, entirely unreasonable points.
In my judgment, the defendant is clearly the successful party in this litigation and should be awarded its costs. Mr Jones does not take issue with the fact that interest should be awarded on costs at 1 per cent above base rate from the date of payment. The costs should be on the standard basis. I have to consider whether there is substance in Mr Jones’s submission that I should make a deduction to reflect the fact that the defendant has been unsuccessful in contesting the issue of breach of duty.
It seems to me that I should approach the matter first not by reference to CPR 36.14 but simply as an exercise of the court’s discretion as to costs generally. By the present CPR 44.2, the general rule is that costs follow the event, but the court must have regard to all the circumstances of the case, including the parties’ conduct, whether a party has succeeded on part of its case, even if that party has not been wholly successful, and any admissible offers to settle.
In my substantive judgment, I have found that the claimant succeeds on the issue of breach of duty but failed on the issue of causation. Had I taken a different view on the issue of causation, I would have awarded the claimant at least £550,000, plus certain other incidental costs and expenses, plus interest. But the claimant has lost on the issue of causation and therefore comes away with nothing. The issue of breach of duty did take up time at trial. It does seem to me that a reasonable estimate of the additional time taken at trial by the breach of duty issue would have been about two days, bearing in mind, the other way, that the claimant was responsible for the loss of half a court day on the Tuesday morning. Had there been no Part 36 offer, I take the view that I would have made a reduction in the level of costs awarded. Adopting a broad-brush approach, I would probably have reduced the claimant’s costs by something in the order of 20 per cent and would have awarded the defendant 80 per cent of its costs.
Should I take a different view because the claimant declined to accept the two offers which, as events have transpired, would appear to have been generous offers, which would have secured to the claimant less than they would have been entitled to if they had succeeded on the issue of causation, but which are considerably more than the nothing with which the claimant will now leave this court, other than a liability for costs?
It does seem to me that there is some force in Mr Jones’s point that the making of a reasonable Part 36 offer should not give the offeror carte blanche to run unreasonable points. Nevertheless, the making of the Part 36 offer is a factor that the court should have regard to in deciding whether to make any reduction because an unsuccessful point was run and, if so, how much that reduction should be. It does seem to me that to have contested the breach of duty point, whilst it cannot be stigmatised as wholly unreasonable, was something that was unnecessary in the context of this litigation; but, equally, the claimant should have accepted the two offers that were made, given the difficulties that it had on the causation front.
I have indicated that had there been no Part 36 offer, I would have probably made a 20 per cent reduction in the defendant’s recoverable costs. It seems to me that I should not ignore either the Part 36 offer or the fact that the breach of duty point was persisted in by way of defence to the claim. The appropriate course, in the exercise of the court’s discretion as to costs, seems to me to be to award the defendant 90 per cent of its costs rather than the 80 per cent that I would have awarded without the Part 36 offers.
I do not consider that I am precluded from taking that view by 36.14(2a). It seems to me, sitting at first instance, that I should follow the approach as set out in the notes at para 36.14.2 at page 1146 of the current (2013) edition of the White Book, which seems to me to be correct in principle, that “his costs” must be those which would be awarded by reference to what is now CPR 44.2.”
For those reasons, and in the exercise of the court’s discretion, I will award the defendant 90 per cent of its costs.”
THE PRACTICAL EFFECT OF THIS
It is clear that the making of a Part 36 offer which a party has rejected can play a part in the exercise of the discretion when the court makes an “issue based” order. It is clearly something that must be drawn to the court’s conclusion when these matters come to be concerned.
AN OBJECT LESSON IN THE RISKS OF LITIGATION
The transcript of the case also provides an object lesson in the risks of litigation. Law students are encouraged to read Court of Appeal and Supreme Court cases to learn the law. However reading first instance cases often provides the best introduction to the risk-laden world of litigation. In the AW case:
1. The claimant turned down a Part 36 offer of £500,000 and went on to win nothing.
2. The judgment contains an interesting, and candid, assessment of all the witnesses involved. The judge stated that he could not regard any of the witnesses “as necessarily constituting a reliable guide to the truth.” (even though may not have been being deliberately dishonest) It is a salutary reminder that witnesses have to be advised that their evidence may not necessarily be accepted in full by a trial judge (and that contemporaneous documents are often the best source of evidence at trial).
3. The case is an apt example of a party winning a major battle (establishing negligence) but losing the war (recovering no damages) in any event.