FIRST POST ON PART 36 IN 2023: IT WAS NOT UNJUST FOR THE DEFENDANTS TO BEAR THE NORMAL CONSEQUENCES OF FAILING TO BEAT CLAIMANTS’ PART 36 OFFER

January 2, 2023 · by · in Applications, Costs, Part 36

In Von Westenholz & Ors v Gregson & Anor [2022] EWHC 3374 (Ch) Robin Vox, sitting as a Deputy High Court Judge, found that it was not unjust for the defendants to face the normal consequences of failing to beat a Part 36 offer. The fact that the pleadings had been amended to put the claim a different way after the offer had been made was not relevant. The claimants had succeeded on one of the original aspects of their pleaded cases.

“As Briggs J noted in Smith v Trafford Housing Trust [2012] EWA 3320 Ch at [13], the burden of showing injustice is a “formidable obstacle to the obtaining of a different costs order” in the light of the purpose of Part 36 to promote compromise and avoid unnecessary expenditure of costs and court time.”

THE CASE

The claimants had succeeded at trial in obtaining a sum of £400,000 for equitable compensation.  The claimants had made two Part 36 offers. The first, was made by one of the claimants for £150,000, prior to the issue of proceedings. The second was made on behalf of all the claimants shortly after proceedings were issued, for £120,000. The claimants had clearly done better than their offers.

THE JUDGE’S CONSIDERATION OF THE PART 36 OFFERS.

THE FIRST OFFER

The judge held that the first offer was only made on behalf of one of the claimants and was in relation to a claim that was differently constituted. It was not, therefore a relevant offer for the purpose of this action.

 

The first Part 36 offer

    1. On 25 October 2018, a Part 36 offer was made on behalf of Mr Sanders in respect of proceedings which it was proposed should be brought against ASL, ASLG and the Defendants. The offer was to settle for £150,000.

 

    1. The present proceedings were commenced in March 2020. The Claimants acknowledged that the 2018 Part 36 offer was made before the proceedings were commenced but point out that there was nothing in Part 36 which prevents such an offer.

 

    1. The Defendants however say that the proceedings which were contemplated in 2018 were different proceedings. Not only were the parties different (the sole Claimant being Mr Sanders and the Defendants including the companies as well as Mr Gregson and Mr Evans) but the claims were also materially different to the proceedings which were ultimately issued in 2020.

 

    1. I accept the Defendants’ points in relation to the 2018 Part 36 offer. The offer was made on behalf of different parties to a potentially different claim. It cannot be said to be an offer to settle the claim that was made in the current proceedings. In particular, the draft 2018 particulars of claim did not make any mention of the Guardian Trust principle. As far as breach of fiduciary duties were concerned, the only reference to this related to a potential breach of fiduciary duties said to arise as a result of the Defendants denying that Mr Sanders made the investments which he claimed to have made. There was no mention of breach of fiduciary duties in relation to the circumstances surrounding the payment of the dividend itself in 2018.

 

    1. My conclusion therefore is that the 2018 Part 36 offer has no impact on these proceedings.

THE SECOND OFFER

The second offer was clearly a valid offer and the claimants had done better than the offer made.   The judge rejected the defendants’ arguments that it was unjust for them to face the normal consequences of failing to beat the offer.
The second Part 36 offer
    1. A further Part 36 offer was made on 28 July 2020. The offer was to accept £120,000 in full and final settlement of the claim and was made shortly after the claim form and the particulars of claim were served and before the Defendants filed their defence.
    1. This was clearly a valid Part 36 offer in relation to the present proceedings and should therefore in principle give rise to the consequences set out in CPR Rule 36.17 given that the judgment against the Defendants was more advantageous to the Claimants than the proposals contained in the Part 36 offer (CPR Rule 36.17(1)(b)). Those consequences follow unless the court considers that it is unjust for them to do so.
    1. The Defendants say that it would be unjust to give effect to the consequences set out in CPR Rule 36.17 since, at the time the offer was made, the Guardian Trust claim had not been pleaded and the focus of the claim was on the claims based on the economic torts which all failed.
    1. Whilst it is of course true that the Guardian Trust claim had not been pleaded at the time the Part 36 offer was made, the court also found against the Defendants on the basis of a breach of their fiduciary duties towards the Claimants. This was part of the original pleaded claim. In my view, the normal consequences of the Part 36 offer should therefore follow. However, the fact that the Guardian Trust claim had not been pleaded is a factor which I should take into account in deciding the extent of those consequences.
    1. As far as costs are concerned, the first consequence is that the Claimants are entitled to all of their costs from the expiry of the relevant period (in this case from 18 August 2020) on the indemnity basis. In principle this means the whole of the costs without considering any reduction resulting from CPR Rule 44 (Webb v Liverpool Women’s NHS Foundation Trust [2016] EWCA Civ 365). Instead, the Defendants must show that requiring the payment of all costs on the indemnity basis is unjust.
    1. As Briggs J noted in Smith v Trafford Housing Trust [2012] EWA 3320 Ch at [13], the burden of showing injustice is a “formidable obstacle to the obtaining of a different costs order” in the light of the purpose of Part 36 to promote compromise and avoid unnecessary expenditure of costs and court time.
    1. In this case, the fact that the Guardian Trust claim had not been pleaded at the time of the Part 36 offer is not a reason for denying the Claimants all of their costs on the indemnity basis after the expiry of the relevant time given that the Claimants would have been successful even if that claim had not been pleaded.
    1. The second consequence in relation to costs is that the court should order interest on the costs at a rate not exceeding 10 per cent of that base rate. It is clear that the maximum is not the default position either in relation to interest on damages or on costs (see for example BXB v Watch Tower and Bible Tax Society of Pennsylvania [2020] EWHC 656). Instead, any award must be proportionate taking into account all relevant circumstances.
    1. This is not a case where the Defendants have acted in any way fraudulently or dishonestly and have not benefited personally. In addition, the Guardian Trust claim had not been pleaded at the time the offer was made which might have made a difference to whether the offer was accepted. Whilst I accept that the Defendants had all the information available to them in order to make a decision at the relevant time whether to accept the offer based on the claim as it was then pleaded and that the offer was made at a relatively early stage, this is not a case in my view where the maximum interest should be awarded. Instead, I will award interest on costs at 4 per cent above base rate (from time to time) from the 18 August 2020 up to the date of this order.
    1. The next consequence is that the Claimants are entitled to interest on the equitable compensation at a rate which is again not to exceed 10 per cent above base rate. For the reasons I have set out above, the appropriate rate is in my view 4 per cent above base rate from time to time, reflecting the fact that the award of interest is not purely compensatory (OMV Petrom SSA v Glencore International AG [2017] EWCA Civ 195) but which takes account of the mitigating factors I have mentioned.
    1. In both cases, the interest should be simple interest and not compounded. Although the Claimants have suggested that the interest on the equitable compensation should be compounded, the Defendants have referred to the decision of the court of appeal in Wallersteiner v Moir (2) [1975] QB 373 in which Buckley LJ explains at [397E] that a defaulting trustee is normally charged with simple interest only but that compound interest may be charged if it is shown that they have used the money in some way which benefits themself as part of their business operations.
    1. In this case there has clearly been no benefit to either of the Defendants and no use by them of the funds representing the dividends which should have been received by them in respect of the Disputed Shares. It is for this reason that simple interest rather than compound interest is appropriate.
    1. The final consequence provided for in Rule 36.17 is the payment of an additional amount which, in this case, is 10 per cent of the amount awarded. The Claimants seek £40,000, being 10 per cent of the equitable compensation (accepted by the Claimants to be £400,000 – i.e. not including any interest for the period up to the expiry of the relevant period). For the same reasons I have concluded that it would not be unjust to award indemnity costs, there is in my view no reason why, taking into account all of the circumstances, it would be unjust to require the Defendants to pay this additional amount, having failed to beat the Part 36 offer made by the Claimants.