In the judgment in  McKeown v Langer [2021] EWCA Civ 1792 the Court of Appeal rejected an argument that a Calderbank offer had the same effect as a Part 36 offer when a court was considering the issue of costs after the trial of a preliminary issue.  The Court, robustly, rejected an argument that a Calderbank offer should be treated in the same way as a Part 36 offer in these circumstances.


“The appellant’s solution, if accepted, would represent the antithesis of good policy. It would reward bad behaviour, encourage the taking of unmeritorious points, exacerbate problems associated with the inequality of arms and accentuate the adverse litigation consequences of informational asymmetry.”


The respondent to the appeal had succeeded in a trial of a preliminary issue in relation to unfair prejudice in relation to the running of a number of lap dancing-entertainment clubs. The appellant had been ordered to pay costs after the trial of a preliminary issue on liability.  The payment on account of costs was to be £450,000.


The respondent had not made a Part 36 offer but had made a without prejudice offer to settle.  In cases where a Part 36 offer has been made covering the entire action, but there has been a trial of a preliminary issue,  this usually leads to the question of costs being deferred until after all the issues have been determined, see the discussion in Original Beauty Technology Company Ltd & Ors v G4k Fashion Ltd & Ors [2021] EWHC 954 (Ch), discussed earlier on this blog.



The appellant had made a number of offers, none of them on a Part 36 basis.  The appellant was relying on one offer in particular.  The terms of which were not given to the court.

  1. Thirdly, a global Calderbank offer was made. The judge recorded that he was aware that an offer had been made but that he had not been told who had made the offer or what its terms were or when it had been made. The judge was told that this was not an offer under CPR Part 36. This court was informed that the offer was in fact made on 27th May 2020 which is substantially after the petition was first issued and subsequent to a great deal of the preparatory work for trial having been undertaken. The judge recorded that the respondent proposed that the correspondence concerning the offer, insofar as it bore upon the liability trial, be placed before the court suitably redacted. Counsel for the appellant however resisted this approach, even upon a redacted basis, arguing that the redaction might leave the court with a misleading impression. He insisted that he was entitled not to place the offer before the court (citing Nea Karteria Maritime Co v Atlantic and Great Lakes Steamship Corp [1981] Comm LR 132). The appellant nonetheless contended that the court should still take the “existence at large of this correspondence and this offer” into account in deciding whether to award costs at this stage and that it should be treated as equivalent to a CPR Part 36 offer. The argument was advanced upon the basis that it was well-established under CPR Part 36 that the existence of an offer in the case of a split hearing displaced the normal presumption that costs would be awarded at the end of the first stage. As explained below the judge rejected this analysis.


The trial judge rejected the argument that a Calderbank offer should be considered in the same way as a Part 36 offer in these circumstances.

    1. The judge then turned to the Calderbank offer. The judge held that the offer was not something that he could consider: (i) it was not an “admissible” offer under CPR 44.2; (ii) to take it into account would involve unacceptable speculation as to its terms and possible effect; and (iii), the appellant could have obtained protection from the risk of an interim costs order by making a CPR Part 36 offer or an O’Neill offer, but chose not to. This exclusion of the offer from consideration lies at the heart of this appeal. The Judge’s reasoning is found in paragraphs [30] – [33] of the judgment:
“30. I do not accept this proposition as applied to an offer to settle that is not admissible at this stage. I do not think that the Respondent is entitled to have it both ways by withholding admission of the evidence of the offer but sill asking the court to take account of it.
31. Under CPR rule 44.2(4)(c), one of the items I am required to have regard to is “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”. What has been discussed before me today is not, on Mr. Tager’s own argument, an admissible offer to settle. It may become one at a later hearing, but today it is not at this stage an admissible offer to settle and I do not think I should be deciding an important costs matter on the basis of speculation as to what may or may not have been in that offer. Neither do I accept that the principles that have caused the Part 36 offer to have a different outcome should be read across to these other types of offer.
32. If this Respondent, or indeed any litigant, wishes to protect himself in costs they are free to do so by making an offer under Part 36. There are also other possibilities in an action of this type (an unfair prejudice action) to make an O’Neill offer. Had the Respondent wanted to protect himself in costs at this stage, knowing that this was going to be a split trial, he could have protected himself by one of those routes, so I do not accept the principle that because Part 36 offers are considered to be a good idea, that costs principles applicable to those offers should be read across to other more informal types of offers.
33. Where an offer of this type is made, unlike a Part 36 offer which has set costs consequences, the existence of an admissible offer is one that need to be taken account of in the judge’s discretion. The judge may look at the offer and may decide that despite the offer being there it will not affect his decision to award costs at all or at this stage. That is not a discretion that I can exercise without knowing anything about the offer in question and I think that there must be a good reason why the court’s discretion as to costs is to consider only “admissible offers” to settle made by a party within the words of rule 44.2(4)(c). Even if it were open to me to consider an inadmissible offer to settle, I do not know how I would consider it. So I think that I should ignore this offer to settle in making the order today and I see no reason for delay. I propose to make an award of costs now and for costs to be assessed, if not agreed, at the earliest convenience of the court.”


The appellant argued that the offer made should have been treated as equivalent to a Part 36 offer, and the question of costs adjourned until after final determination of all the issues.  The Court of Appeal did not agree with the appellant.
    1. I do not accept the appellant’s analysis. This is essentially for three reasons which I develop below. First, because it is inconsistent with the language of CPR 42.2 which by its express terms confers a broad discretion upon a court and which makes the existence, scope and effect of admissible offers to settle but one of the factors which a court is required to take into account. Secondly, because it is inconsistent with the policy considerations which underpin CPR 42.2 which have been recognised by the courts. Thirdly, because nothing in the case law on either CPR 36 or CPR 42.2 compels such a conclusion.


The scope and effect of CPR 44.2 and CPR 36

    1. A number of points flow from the language of CPR 44.2. First, it confers an express power or discretion upon a judge to decide whether to make an order for costs. Secondly, if a judge decides to make an immediate costs order there is a duty (“will”) to have regard to “all the circumstances”. There is no fixed list of relevant circumstances. Thirdly, relevant matters that a court is required to take into consideration include those in CPR 44.2(a) – (c) which includes but is not limited to the existence of “admissible” offers to settle. Fourthly, where an offer to which the costs consequences under CPR 36 apply that would not be an “admissible” offer under CPR 44.2(c). There is no definition of “admissible” in CPR 44.2. Evidence might be inadmissible because it is simply irrelevant to the issue being determined and/or because it has a nil probative value.


    1. In the present case the parties agreed that the offer at that stage in the litigation could not be looked at and this was the basis for the appellant’s argument that the entire exercise should be deferred. On the express terms of CPR 42.2 a judge is entitled to conclude that an offer should not be taken into account yet proceed to make an interim order.


    1. CPR 44.2 is by its very nature different to CPR 36 which is a self-contained set of rules which departs from the more general rules in CPR 44.2 (see e.g. the analysis in the White Book (2021) paragraph [36.2.1ff]). The special rules in CPR Part 36 do not therefore govern or limit the broader discretion which arises under CPR 44.2 where there is no CPR Part 36 offer in play.


    1. I turn to the judge’s analysis. He held that the Calderbank offer was not admissible at the present stage of the litigation because it had not been placed before the Court (paragraph [30]). He rejected the proposition that the appellant could have it “both ways” by withholding “admission” but nonetheless requiring the court to take account of it. He considered that the offer had a nil probative value since it was incapable of being analysed and it was wrong to speculate about its terms. The Judge highlighted the practical difficulties of assessing an offer the nature and terms of which were undisclosed (paragraph [33]). Finally, he rejected a “read across” between CPR Part 36 and CPR 44.2 (paragraph [31]). He also observed, reflecting the differences between CPR Parts 36 and 44.2, that the appellant could have obtained protection from interim costs by making a CPR Part 36 offer, or by the making of an “O’Neill offer” (paragraph [32]).


    1. I agree with this analysis. The appellant’s submissions turn the language of CPR 44.2 upon its head. It entails the proposition that a Calderbank offer that is prima facie inadmissible: (i) becomes admissible; and (ii) acquires such compelling probative value that it ousts all the considerations that are otherwise required to be taken into account under CPR 44.2(4); and (iii) leads (subject only to exceptional circumstances) to a decision not to make any immediate costs order; and (iv), requires a legal effect equivalent to a CPR Part 36 offer to be accorded to a Calderbank offer even though Part 36 offers are excluded from the mandatory exercise of discretion under CPR 44.2(4)(c). The appellant’s submissions lead to these conclusions even though the court remains ignorant of the terms of the offer and whether, had it been disclosed, it would have made any difference to the outcome. The appellant’s submission is, in my view, inconsistent with the clear and express language of CPR 44.2.


Policy considerations

    1. I turn now to issues of policy. The courts have identified a number of policy considerations which underpin decisions on costs. These shed light on “the circumstances” which a court is required to have regard to under CPR 44.2. Without intending to set out a definitive list the following have been identified as having potential relevance.


    1. First, there is a general “salutary” rule that costs follow the issue rather than the “event”. This is because an overly robust application of a principle that costs should follow the final event discourages litigants from being selective as to the points they take in litigation and encourages an approach whereby no stone or pebble, howsoever insignificant or unmeritorious, remains unturned: Phonographic (ibid page [1523A]); Mean Fiddler Holdings Limited (ibid paragraph [30]); and Merck KGaA v Merck Sharp & Dohme Corp & Ors [2014] EWHC 3920 (Ch) (“Merck“) where Nugee J (as he then was) stated at paragraph [6]) that it was “… in general a salutary principle that those who lose discrete aspects of complex litigation should pay for the discrete applications or hearings which they lose, and should do so when they lose them rather than leaving the costs to be swept up at trial“. In the present the merits were overwhelmingly in favour of the respondent and the Judge recorded his displeasure at the taking of unmeritorious points by the appellant.


    1. Secondly, the making of discrete issue-based costs orders encourages professionalism in the conduct of litigation, which is an objective sought to be achieved by the Overriding Objective in CPR 1.1 and 1.2 and which parties are under a duty to facilitate pursuant to CPR 1.3. Parties do this by being required to “help the court”. In the present case the Judge condemned the behaviour of the appellant in the conduct of the litigation which had a material effect on delay and costs, as falling below the standards to be expected of a professionally advised litigant (paragraphs [32] and [34] the latter in relation to the award of indemnity costs). Interim costs orders therefore serve the good administration of justice by incentivising parties to conduct litigation professionally.


    1. Thirdly, the principle of equality of arms plays a part as was recognised by Lord Hoffman in O’Neill (ibid page [1107H]). This is also reflected in the Overriding Objective at CPR 1.1(2)(a) which instructs courts, when exercising any of the powers in the CPR, to have regard to the object of “…ensuring that the parties are on an equal footing and can participate fully in proceedings…”. This applies to the exercise of a discretion to order costs: See e.g. Allan Attwood v Geoffrey Maidment et ors [2011] EWHC 3180 (Ch) at paragraph [40]. An inequality of arms can be manifested in a variety of different ways, such as in an asymmetry of information as between the parties (as recognised by Lord Hoffman in O’Neill ibid). In some types of litigation, of which minority shareholders’ suits might be an illustration, a claimant may be poorly placed to assess the reasonableness of an offer to settle not being in possession of the internal financial documents of the company. A similar scenario may confront a successful litigant in an intellectual property case who seeks an account of profits but who may have no knowledge of what profits the defendant has earned. Such situations may be contrasted with a successful claimant in, for example, a personal or clinical injury case or a routine case for breach of contract, where the relevant facts needed to determine quantum may be largely in the possession or under the control of the claimant. It is consistent with the above considerations that costs rules should encourage the making of reasonable offers to settle such that a refusal by a litigant to accept a reasonable offer can militate against the making of a costs order in the successful party’s favour. However, a refusal on the part of a petitioner to accept what might turn out subsequently to be a reasonable offer might weigh less heavily against that party where there is asymmetry of access to information and this obviously includes where there has been inadequate disclosure by the party in possession of the relevant information.


    1. The appellant’s solution, if accepted, would represent the antithesis of good policy. It would reward bad behaviour, encourage the taking of unmeritorious points, exacerbate problems associated with the inequality of arms and accentuate the adverse litigation consequences of informational asymmetry.


    1. The appellant’s submission would, in my view, be an enticement to strategic gameplaying. On the appellant’s analysis a majority shareholder could instruct solicitors that if, following the hearing of a liability trial, an adverse draft judgment was sent to the lawyers by the court the solicitors should then serve an immediate, but derisory, Calderbank offer since this would, on the appellant’s analysis, prevent an otherwise nigh on inevitable negative costs order being made against the majority shareholder.


    1. In the present case, the judge adopted an approach consistent with the policy considerations underpinning the costs regime. He emphasised the importance of issue-based costs determinations. He took into account the need to reflect merits and the desirability of not incentivising unprofessional behaviour. He refused to base his decision upon speculation. He correctly reflected the differences between CPR Parts 36 and 42.2 in terms of their ability to enable litigants to protect their positions.


Case Law

    1. I turn then to the case law. I can state my conclusions in summary form.


    1. First, almost all the cases relied upon by the appellant concern the operation of CPR Part 36 which sets out a costs regime intended to differ from the more general rules under CPR 42.2. Case law on CPR Part 36 provides but scant guidance in a case not involving a Part 36 offer. The Judge, in my view rightly, observed that there was no read across from CPR Part 36 to CPR Part 42.2 and that his discretion under this latter regime was broad. The Judge was correct to focus upon case law where there was no Part 36 offer and where, as it was put in Merck (ibid), there is a discretion whether to award costs but that in “general” in complex litigation those who lose should pay costs as and when they lose. The Judge there was not laying down a hard and fast rule but only identifying a “salutary” starting point for the exercise of discretion. I agree with that analysis.


    1. Secondly, as for the factors the Judge took into account (merits, conduct, offers to settle, the undesirability of speculating, etc) these are all factors that decided case law on CPR 42.2 recognises as relevant.


    1. Thirdly, and in any event, even under CPR Part 36 it is accepted that there may be exceptional circumstances where the Court retains a discretion to award costs on an issue by issue basis and not defer a costs order until the end of the trial. So, even if the appellant was correct in his equating of a Calderbank offer with a Part 36 offer a court could still make an interim costs order in a case such as the present. Ms Lintner, for the respondent, argued that if we were minded to accept the appellant’s submissions on their primary argument (that a Calderbank offer be treated as equivalent to a Part 36 offer) we should nonetheless reject the appeal upon the basis that there were “exceptional circumstances” which arose. She relied upon: (i) the existence of the O’Neill offers made by the respondent petitioner which turned out, in the light of the liability judgment, to be more favourable to the appellant than the judgment itself but which the appellant persisted in rejecting (see paragraph [9] above); (ii) the reprehensible behaviour of the appellant in the conduct of the litigation to date; (iii) the wholesale failure of the appellant on the merits; (iv) the Judge’s conclusion that on the evidence before him it was likely that the respondent would succeed in the next stage of the litigation in obtaining a share valuation substantially in excess of that advanced in offers by the appellant (i.e. a maximum of £25k); and (v), the respondent’s impecuniosity relative to that of the appellant. The appellant argues that all of these considerations are irrelevant, and the sole relevant exceptional circumstance would be that an immediate costs order created no risk whatsoever of an injustice to the appellant if he prevailed at the final trial. It is strictly unnecessary for me to express a definitive view on this given my conclusion that the Judge must be upheld for the reasons he gave. Nonetheless, I found the respondent’s submissions to have very considerable force.


    1. There are two additional points that I would make about the case law. First, the appellant relies upon the judgment in Lifestyle Equities (ibid) which it is said highlights the rigour with which the courts refuse to entertain interim costs orders prior to the end of the case. As set out above (see paragraph [27]) the Judge expressed the view in general terms not seemingly confined to the facts of the instant case, that courts should not make costs orders even in respect of costs incurred prior to the making of a Part 36 offer. With respect to the Judge I disagree. Nothing in CPR Part 36 precludes a costs order being made in relation to costs incurred prior to a CPR Part 36 offer. Given that this is a power that exists in law it would be wrong in principle for a court to fetter its discretion and refuse even to consider whether to exercise that power. In a case such as the present, for instance, substantial costs were incurred prior to the making of the Calderbank offer. Had it been necessary the Judge could, in my view, have made an order about these costs. The second point concerns the decision of two judges (in Beiber (ibid) and Ted Baker (ibid)) to speculate about whether a Part 36 offer had been made and then to proceed to determine costs upon the unestablished premise that such an offer had been made. I strongly suspect that the “speculation” in those cases was in truth very well-informed surmise, and not genuine speculation. In my view no judge seeking to take a decision should be compelled to speculate about a fact that the parties are aware of and then, by virtue of the speculation, take into account a supposed fact that is or might be false. Legal representatives owe an overarching duty to the Court which must encompass ensuring that a judge does not proceed – usually unfairly to one party – upon a premise that the parties know to be untrue. Nothing precludes parties being candid with a court as to whether a Part 36 offer has been made or not (see CPR 36.16). In the present case the Judge expressed his concern at being asked to speculate about matters the parties declined to put before him (the details of the Calderbank offer) but about which they of course were well informed. He did not have to speculate about whether a Part 36 offer had been made; it was common ground that no such offer had been made. If however it had been suggested to him that he should proceed upon the hypothesis that a Part 36 offer had in fact been made but where the parties knew that this was not true, then they were duty bound to prevent this from happening.



  1. For all these reasons I would dismiss the appeal.