OFFER TO SETTLE HAS MAJOR IMPACT ON COSTS OF CASE: NO SUGARING OF THIS PILL
In Sugar Hut Group Ltd -v- AJ Insurance  EWHC 3775 (Comm) Mr Justice Eder held that an offer of settlement had a major impact on costs even though it was not a valid Part 36 offer and the claimant did better at trial.
NOTE this decision was overturned on appeal see the post at “Near miss rule no longer applicable: Court of Appeal overturns decision on costs.”
This blog has covered the judgment in the main case in the past in the context of failures by the claimant to adduce evidence to prove certain key elements of the claim for damages. The judge gave judgment for some elements of loss but found that some were not established. In this later judgment the judge dealt with the issue of the costs of the action.
- On 20 October 2014 I delivered my main Judgment in these proceedings. In summary, I upheld the claimants’ claim for Business Interruption (“BI”) losses and also interest (which I assessed in the sum of 5% p.a.). Thereafter, the parties agreed an order reflecting the terms of that Judgment. In summary, the broad result of my Judgment as reflected in that order was that the claimants were entitled to recover damages inclusive of interest in the sum of £1,090,021.02 from the defendant. Given that the defendant had previously made payments on account of £383,000 (1 June 2013) and £430,000 (3 February 2014), this left an outstanding balance due pursuant to the Judgment of £277,021.02.
- Of these sums, the amount of principal due in respect of BI losses amounted to £568,670 gross. This was the sum which the parties calculated was due and payable in respect of such losses in accordance with my Judgment.
- This present Judgment concerns costs. I heard the parties’ submissions in that regard on 10 November 2014. At the end of that hearing, I informed the parties of my decision. My reasons are set out below.
- It was common ground that the Court had a discretion as to costs as regulated, in effect, by CPR44.2. In essence, Mr Slade QC on behalf of the claimants, submitted that under CPR 44.2(2)(a), the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; that there are no relevant Part 36 offers to be considered or any other matters which should persuade the court to depart from this general rule so as to deprive the claimants of any part of their costs; and that the claimants should have interest paid on their costs until judgment.
- I accept that under CPR 44.2(2)(a) the general rule is as stated by Mr Slade although, as expressly contemplated by CPR44(2)(2)(b), the Court may make a different order. I also accept, of course, that the claimants here are properly regarded as the successful party in these proceedings. In that context, I was referred to a number of authorities including the decision of Gloster J in HLB Kidsons v Lloyds Underwriters  3 CLR 427, in particular at paras 10-11 where she stated as follows:
“10. The principles applicable as to costs were not in contention. The court’s discretion as to costs is a wide one. The aim always is to “make an order that reflects the overall justice of the case” …Travellers’ Casualty v Sun Life  EWHC 2885 (Comm) at para 11 per Clarke J. As Mr Kealey submitted, the general rule remains that costs should follow the event, i.e. that “the unsuccessful party will be ordered to pay the costs of the successful party”: CPR 44.3(2). In Kastor Navigation v Axa Global Risks  2 Lloyd’s Rep 119, the Court of Appeal affirmed the general rule and noted that the question of who is the “successful party” for the purposes of the general rule must be determined by reference to the litigation as a whole; see para 143, per Rix LJ. The court may, of course, depart from the general rule, but it remains appropriate to give “real weight” to the overall success of the winning party: Scholes Windows vMagnet (No. 2)  ECDR 266 at 268. As Longmore LJ said in Barnes v Time Talk  BLR 331 at para 28, it is important to identify at the outset who is the “successful party”. Only then is the court likely to approach costs from the right perspective. The question of who is the successful party “is a matter for the exercise of common sense”: BCCI v Ali (No. 4) 149 NLJ 1222, per Lightman J. Success, for the purposes of the CPR, is “not a technical term but a result in real life” (BCCI v Ali (No. 4) (supra)). The matter must be looked at “in a realistic … and … commercially sensible way”: Fulham Leisure Holdings v Nicholson Graham & Jones  EWHC 2428 (Ch) at para 3 per Mann J.
11. There is no automatic rule requiring reduction of a successful party’s costs if he loses on one or more issues. In any litigation, especially complex litigation such as the present case, any winning party is likely to fail on one or more issues in the case. As Simon Brown LJ said in Budgen v Andrew Gardner Partnership  EWCA Civ 1125 at para 35: “the court can properly have regard to the fact that in almost every case even the winner is likely to fail on some issues”. Likewise in Travellers’ Casualty …supra), Clarke J said at para 12:
“If the successful claimant has lost out on a number of issues it may be inappropriate to make separate orders for costs in respect of issues upon which he has failed, unless the points were unreasonably taken. It is a fortunate litigant who wins on every point.”“
- I fully agree with the views there expressed. In particular, I agree, of course, that although the Court may depart from the general rule, it remains appropriate to give “real weight” to the overall success of the winning party. However, in accordance with CPR44.2 and in the exercise of my discretion, it seems to me that there is very good reason here to depart from the general rule in two main respects.
- First, CPR 44.2(4)(b) provides, in effect, that in deciding what order to make about costs, the court will have regard to all the circumstances including “whether a party has succeeded on part of its case, even if that party has not been wholly successful“. In that context it is important to bear in mind that my main Judgment was not concerned with liability. That had been agreed between the parties some time ago shortly before a trial on liability was due to take place. As recorded in paragraph 4 of my main Judgment, the defendant conceded liability on the terms set out in a consent order which provided, in effect, that the defendant would pay an agreed 65% of the claimants’ losses. My main Judgment was concerned therefore not with liability but with quantum. In that context, it seems to me important to recognise that there were a number of discrete claims – in particular (i) losses at Fulham and Hertford (claimed at £171,677); (ii) wages/phone costs, alternative accommodation and redundancy costs (£139,466): and (iii) the claim for the Marriot invoices (£19,275), in respect of all of which I awarded £nil: see paragraphs 48-56 of my main Judgment.
- As stated by Gloster J in Kidsons at para 11, there is, of course, no automatic rule requiring reduction of a successful party’s costs if he loses on one or more issues; and in any litigation, any winning party is likely perhaps to fail on one or more issues in the case. Nevertheless, it seems to me that these items that I have just referred to not only involved substantial amounts of money totalling approximately £320,000 and, as such, represented a significant element of the overall claim but all gave rise to discrete issues involving not only disclosure but also both factual and expert evidence.
- Second, it seems to me important to recognise that in advancing their claim for BI losses, the claimants relied heavily on what I referred to in my main Judgment as Mr Brown’s second perspective (“P2”). This was based upon the actual turnover achieved post-fire after the Club had reopened in August 2010. On any view, the P2 exercise was not one which might be said to be minor or peripheral. On the contrary, it formed a very important and discrete element in the claim advanced on behalf of the claimants in respect of which much time and effort was expended by both parties. In particular, it formed an important part of Mr Norcoss’s evidence as well as the detailed expert evidence of Mr Brown and the responsive expert evidence of Mr Stanbury. In the event, I rejected the P2 exercise in its entirety: see paragraphs 39-41 of my main Judgment.
- Notwithstanding, Mr Slade submitted that there should be no reduction in the costs to be awarded to the claimants. In particular, he emphasised what Gloster J had said in paragraph 11 of Kidsons; that to allow any reduction would be to chop too finely and to fail to give proper real weight to the fact that the claimants were the successful parties. I bear these submissions well in mind. However, as I have said, the issues referred to above were discrete and important matters in respect of which the claimants failed completely; and, having regard in particular to CPR 44.2(4)(b), it is my conclusion that these matters should be reflected by a reduction of 30% in the costs to which the claimants would otherwise be entitled. I readily accept that this percentage figure is somewhat broadbrush. However, by way of explanation, I have arrived at that figure by taking into account (i) the nature and volume of both the factual and expert evidence with regard to these matters; and (ii) not only the costs that the claimants will have incurred in relation thereto but also the costs that will have been incurred similarly by the defendant.
- The second matter that needs to be considered arises out of a Part 36 Offer made on behalf of the defendant in a letter dated 23 May 2014 (the “Letter”). This is a substantial document which it is unnecessary to set out in full. For present purposes, it is sufficient to note that it was made “without prejudice save as to costs” and on its face states that it is a Part 36 Offer and is intended to have the consequences of Section I of Part 36 of the Civil Procedure Rules. The Letter expresses certain observations on various parts of the claim advanced on behalf of the claimants including the claim for BI losses and interest. Towards its end, the Letter states as follows:
“… our client is therefore prepared to base the Offer on lost profit of £600,000 gross less agreed 35% reduction and interest at 2.5% per annum.
After allowing for the interim payments already received and after applying the agreed 35% reduction in this Part 36 Offer results in a total further payment of £247,272.53, which our client has rounded up to £250,000. Our client will offer your clients in full and final settlement of this matter the total further sum of £250,000 inclusive of interest, plus your clients’ costs of the quantum action, to be assessed on the standard basis, if not agreed.“
- It is common ground that the claimants “beat” the actual Part 36 Offer made in that letter. On that basis, Mr Piper accepted that the defendant cannot rely on this Part 36 Offer for the automatic consequences that ordinarily follow from a successful Part 36 Offer. In particular, he accepted (rightly in my view) that the consequences do not apply in this instance because the offer was made inclusive of interest such that although it was just shy of the claimants’ interest inclusive recovery, a “near-miss” cannot trigger the Part 36 regime.
- Nevertheless, Mr Piper submitted that the terms of the Letter are highly relevant with regard to the exercise of the Court’s discretion when dealing with costs within the framework of CPR Part 44. In that context, he referred me to a number of authorities viz Fox v Foundation Piling Ltd  EWCA Civ 790, in particular at  and the citation to the judgment of Moore-Bick LJ in Gibbon v Manchester City Council  EWCA Civ 726,  1 WLR 2081 at ; Coward v Phaestos & Ors  EWCA Civ 1256; Walker Construction v Quayside Homes  EWCA Civ 93; THINC Group v Jeremy Kingdom  EWCA Civ 1306; and F & C Alternative Investments v Barthelemy  EWCA Civ 843. Mr Piper submitted that the Letter made plain that the defendant was prepared to base the offer on a figure of £600,000 gross and that this was in excess of the figure for BI losses which I awarded the claimants in my main Judgment. Further, Mr Piper submitted that if the claimants had accepted that figure, the need for a 3-day hearing on quantum would have been avoided together with all the expenditure in the build-up to that trial; that applicable interest rates could have been determined in a 1 or 2-hour interlocutory application with no need for a full blown hearing of the type required to determine the BI losses; and that, although the claimants did not reject this offer out of hand and negotiations continued thereafter, the correspondence shows that the claimants continued to seek much higher sums for BI losses. In particular, in their subsequent letter dated 30 May 2014, the claimants’ solicitors made an offer which included an amount of £862,024 gross in respect of BI losses which was, in effect, repeated in their later letter dated 30 September 2014. On this basis and subject to one qualification, Mr Piper submitted that the claimants should, in effect, be deprived of any of its costs following a period of 21 days after 23 May 2014 i.e. from 14 June 2014 and that similarly the defendant should have its costs from that date.
- As to those submissions, there was some debate before me as to whether the point raised by Mr Piper fell properly within CPR 44.2(4)(c) which provides in material part as follows:
“(4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including –
(a) the conduct of all the parties;
(c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.“
- In my view, there can be no doubt that the offer of £250,000 inclusive of interest as contained in the Letter falls within subparagraph 4(c). However, Mr Slade submitted that the reference in the Letter to the fact that the offer was based on a figure for lost profit i.e. BI losses of £600,000 gross was not an “admissible offer to settle” falling within that subparagraph. I accept that submission. In particular, I accept that the only “admissible offer to settle” was the offer of £250,000 inclusive of interest.
- However, in my view, that is not the end of the matter. In particular, it seems to me important to bear in mind the authorities cited above and the fact that CPR 44.2(4)(a) requires the court to have regard to “all the circumstances” including the “conduct of all the parties“. Further, CPR 44.2(5)(b) provides that the conduct of the parties includes “… whether it was reasonable for a party to … pursue or contest a particular allegation or issue …“.
- Although the Letter did not, as I accept, contain any “admissible offer to settle” the claim for BI losses for £600,000 gross by way of principal, it seems to me plain that the decision of the claimants to pursue that particular allegation or issue was because of their insistence that the appropriate figure for settlement of BI losses was a much higher figure i.e. £862,024 as set out in the claimants’ solicitors’ letter dated 30 May 2014 and subsequently repeated in a further letter dated 30 September 2014. Given the terms of the Letter, it was not, in my view, reasonable for the claimants to pursue their claim for BI losses for such an amount.
- In reaching this conclusion and at the risk of repetition, I should emphasise that I have borne well in mind that the defendant made no separate offer under CPR Part 36 or otherwise to settle the claim for BI losses exclusive of interest for £600,000; and I fully accept that that is something that it could have done pursuant to CPR Part 36.2(2)(d). I have also borne well in mind the forceful submissions by Mr Slade in effect that to accept Mr Piper’s argument would be to reintroduce or at least to support a “near-miss” rule by the back door; that this would introduce an unwelcome degree of uncertainty; and that this would be contrary to the warnings referred to, for example, in paragraph 6 of the “propositions” listed in the White Book Vol 1 44.2.7. For the avoidance of doubt, I should also say that I fully agree with the observations of Ramsey J in the case there cited vizHammersmith Properties (Welwyn) Ltd v Saint-Gobain Ceramics and Plastics Ltd  EWHC 2227 (TCC) in particular at paras 30-36.
- However, in my view, there are special features of the present case which render that case distinguishable and which justify the conclusion which I have reached. In particular:
i) My conclusion here is not based on a “near-miss” analysis and therefore does not, in my view, involve treading down the “dangerous path” referred to by Ramsey J in paragraph 31 of his Judgment. Nor does it involve any speculation about what negotiations might have taken place: unlike the case before Ramsey J, I have the benefit of “full information” as to the negotiations that took place as contained in the exchange of correspondence which has been made available.
ii) Here, the Letter made plain that the offer that was made was based on a figure for loss of profit of £600,000 gross. Although that offer was not rejected out of hand and there was no refusal to negotiate as such, the claimants’ response was one which, in effect, insisted unreasonably on a much higher figure.
i) CPR Part 44.2(5)(d) expressly provides that the conduct of the parties which the Court will have regard to under CPR Part 44.2(4)(a) includes whether “a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim“. The present case is, in my view, a paradigm example of one where the overall claim and certain individual components were indeed very much exaggerated. In that regard, the conclusions set out in my main Judgment speak for themselves.
ii) As submitted by Mr Piper, this is a case where the claimants dragged their heels on disclosure and the defendant was eventually obliged to make a disclosure application to secure quantum documents. The disclosure process was conducted on the part of the claimants slowly and on a piecemeal basis throughout. Fresh documentation was still being disclosed just 2 months prior to trial and as appears from my main Judgment, there were, even at trial, significant gaps in the disclosure and evidence provided by the claimants. Further, the Letter and subsequent correspondence makes plain that these matters caused real difficulties to the defendant in taking appropriate precautions to protect its position. This is a legitimate factor to take into account in considering what order to make: see for example, Ford v GKR Construction  1 WLR 1397 in particular per Lord Woolf MR at p1403 F-G.
iii) It is plain from the relevant correspondence following the Letter that so far as the parties were concerned the proper value to be attributed to the BI losses was the main issue which divided the parties. So much appears plain, for example, not only from the claimants’ solicitors’ letter dated 30 May 2014 but also their later letter dated 30 September 2014 where they asserted that “… we consider that the value your client attributes to Business Interruption Loss to be unduly low and falls far short of any conclusion which the court is likely to reach“. I readily accept that the mere fact that such prognosis ultimately proved incorrect by a large margin does not, of itself, necessarily mean that the position adopted by the claimants was unreasonable. However, given the matters already stated above and the specific conclusions which I reached in my main Judgment, that is exactly how I would characterise the conduct of the claimants, in particular, following the receipt of the Letter.
- It is against that background and for the reasons stated above that I concluded that although the claimants were the successful parties and subject to the qualification in respect of interest which I refer to below, the claimants be denied any costs from 14 June 2014 and that the defendant be entitled to its costs on a standard basis from that date. The qualification in respect of interest requires some explanation. As Mr Piper accepted, the Part 36 Offer contained in the Letter was based in part on a figure for interest which was less than the figure I ultimately awarded the claimants in my main Judgment. On that basis and despite Mr Piper’s initial submissions to the contrary, it is my conclusion that in principle the claimants are entitled to their costs and the defendant is not entitled to its costs relating to the assessment of interest. In that context, Mr Piper submitted that such costs were relatively small and might, perhaps, be summarily assessed in the sum of £5000 in relation to that issue from 14 June 2014. However, at the hearing, Mr Slade indicated that he opposed any summary assessment of such costs and on that basis I reluctantly agreed not to carry out such exercise. The result is that such costs will have to be assessed unless otherwise agreed.
- For the sake of completeness, I should mention that Mr Piper advanced certain further submissions in the alternative based upon a further offer made on behalf of the defendant in the defendant’s solicitors’ letter dated 23 September 2014. However, in the event, it is unnecessary to consider such alternative submissions.
- Counsel are accordingly requested to prepare a draft order to reflect the terms of this Judgment with regard to the costs before and after 14 June 2014. I hope that this can be agreed. However, failing agreement, I will deal with any outstanding issues.
- The claimant pursued several heads of damages which were not recovered at all. This led to a reduction of costs recoverable by 25%.
- The claimant’s conduct in being slow to give disclosure and pursuing an unduly high claim for business interruption led to the defendant obtaining its costs from the date of an offer which was not a Part 36 offer; was not an “admissible offer” and which the claimant did better than.
- Bearing in mind the trial was in October 2014 ordering the claimant to pay the defendant’s costs after June 2014 meant that the claimant was liable to pay a considerable portion (probably the majority) of the costs incurred.