THE OFFERS WERE NOT PART 36 OFFERS: COURT COULD DETERMINE COSTS OF A PRELIMINARY TRIAL

In  Holden v Holden & Anor [2024] EWHC 453 (Ch) Mr Nicholas Thompsell (sitting as a Deputy High Court Judge) considered offers made by the defendant to see whether they were in fact Part 36 offers. He held that they were not.  The court was, therefore, able to make orders in relation to costs following the trial of a preliminary issue.

“… it was my determination that the offers should not be regarded as being offers under CPR 36. Now that I had seen the offers, I considered that they should be regarded as admissible Calderbank offers for me to take account of under CPR rule 44.2(4)(c).”

THE CASE

The judge had given judgment on certain preliminary issues in a dispute relating to a farming partnership.  He was now considering the question of costs.  One of the issues that arose was whether certain offers made by the defendant were Part 36 offers.  A judge cannot make a costs determination following a trial on a preliminary issue if there have been Part 36 offers.  There was a dispute as to whether the offers that had been made were Part 36 offers.  The parties agreed that the judge should look at the offers.

THE RESULT

The judge found that the offers made were not Part 36 offers.  He was able, therefore, to make orders as to costs following the trial of the preliminary issue.

THE JUDGMENT ON THIS ISSUE

2. SHOULD COSTS BE DEALT WITH NOW?
    1. Before turning to the substantive issue of costs, I was obliged to consider an argument which had been raised by Mr Marsden that I should not now make any order for any party to pay the other party’s costs at this stage, but I should instead defer the issue of costs until the conclusion of the case as a whole.
    1. In his skeleton argument, Mr Marsden made reference to the White Book commentary on CPR rule 44.2 at CPR 44.2.6:
“If there is a split trial, the court may defer the issue of costs until the conclusion of the case as a whole, especially if it is unclear whether the successful party will ultimately be successful overall, or if an offer has been made which either cannot be communicated to the court at the relevant time, or the effectiveness of which cannot be judged until the conclusion of the litigation as a whole.”
    1. This is, of course, correct and reflects the broad discretion that a court has under CPR rule 44.2(1) to decide whether costs are payable and the amount of those costs. However, the operative word is that the court “may” defer the issue of costs. Whether the court should defer the issue of costs is a different matter.
    1. The modern approach to costs is that, rather than deferring costs to the end of any litigation costs generally should be dealt with as issues arise and are determined – see my comments and analysis in McKeown v Langer [2021] EWHC 451(Ch) at [11] to [18], which were referred to and approved by the Court of Appeal in McKeown v Langer [2021] EWCA Civ 1792 (“McKeown (CA)“) when this matter came to appeal.
    1. There are good policy reasons as to why costs orders should be made as and when issues are determined, and these were further explained by Green LJ in McKeown (CA) (see [36] to [39]) as including: encouraging litigants to be selective as to the points that they take in litigation; encouraging professionalism in the conduct of litigation; and promoting the principle of equality of arms. This last point is particularly important in the current circumstances where there is a substantial difference of wealth between David and Robin and a delay to Robin in obtaining costs (if he is entitled to them) could conceivably prejudice his ability to carry on with the litigation.
    1. There are circumstances, however, where it is appropriate for the judge to depart from this general approach. One such circumstance is where the court is aware that a Part 36 offer has been made. The effect of a Part 36 offer is to bring into play prescriptive costs consequences relating to the final outcome of the litigation. As a result, it will not usually be appropriate to make an order of costs at the end of an interim hearing after a Part 36 offer has been made (other than a Part 36 offer relating only to the issues dealt with at the interim stage). This is the case even though the judge dealing with an interim trial or hearing usually will not be aware of the terms of a Part 36 offer because CPR rule 36(4) provides that the judge should not be told the contents of a Part 36 offer except in particular circumstances.
    1. The position under Part 36 is to be contrasted with that applying to split trials or interim matters where a party has made a without prejudice offer save as to costs (otherwise known as a Calderbank offer) and the judge at the interim stage is not made aware of the terms of that offer. In those circumstances, as confirmed by the Court of Appeal in McKeown (CA), the fact that there has been an offer is of no probative value to a judge unless he knows the contents of that offer. Under CPR rule 44.2(4)(c) the judge considering a costs order is enjoined to consider:
“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”.
However, a settlement offer which is not before court because one or more parties will not waive privilege in respect of it is not (at this stage) an “admissible offer”.
    1. Given the different treatment to be made of a Part 36 offer and a Calderbank offer in the case of a split trial, if an offer has been made, it is important to know whether or not this is a Part 36 offer.
    1. This originally presented a difficulty in the current matter since it was David’s case that offers had been made that were Part 36 offers, but it was Robin’s case that any offers made were not Part 36 offers. In the absence of seeing the offers, there was an obvious difficulty in determining which position was correct.
    1. Originally, I tried to see if this matter could be determined without sight of the offers by running through the characteristics of a Part 36 offer set out in CPR rule 36.5. I also considered that, without breaching the prohibition in CPR rule 36.16 on seeing the terms of the offer, I could be shown how the tick boxes on the form used for the offers (but not the text boxes which set out the terms of the offers) as these boxes describe the offer rather than set out the terms of the offer. However, in these particular circumstances, this was not sufficient to understand Robin’s case as to why the offers did not count as Part 36 offers.
    1. The matter was resolved, however, when Ms Scott pointed out that the court could be showed the terms of the offers under CPR rule 36.16(c) if the offeror and the offeree agreed in writing and, after a short adjournment, such an agreement was produced.
    1. This allowed me to peruse the offers. On perusing the offers, I determined that they should not be regarded as Part 36 offers.
    1. The offers did take the form of a Part 36 offer. Generally, they complied with the conditions set out in CPR rule 36.5. There was a degree of uncertainty about whether they met the requirement under CPR rule 36.5(e) since the relevant tick-boxes on the form for confirming whether or not the offers took into account any counterclaim had not been completed. However, as it was clear that the offers meant to cover all matters in dispute, I considered this could be disregarded as it was clear from the substance of the offers that they were dealing with counterclaims.
    1. Nevertheless, there was a compelling objection to treating them as Part 36 offers. This was that the offers had been made by David, who was a defendant in this matter, but the Part 36 offer form had been completed on the basis that he was the claimant. This was not, in my view, an insuperable objection of itself to the offers being treated as Part 36 offers but, as a defendant was making the offers, this brought into play CPR rule 36.6.
    1. CPR rule 36.6(1) provides that a Part 36 offer by a defendant to pay a sum of money in settlement of the claim must be an offer to pay a single sum of money. One of the offers breached this requirement as it envisaged two payments.
    1. CPR rule 36.6(2) provides that an offer by a defendant that includes an offer to pay all or part of the sum at a date later than 14 days following the date of acceptance will not be treated as a Part 36 offer unless the offeree accepts the offer. Both of the offers envisaged payments at a date later than 14 days following the date of acceptance. They were not accepted, and therefore are not to be treated as a Part 36 offers.
    1. Ms Scott argued that there was a further objection to the treatment of the offers as Part 36 offers. Under CPR rule 36.11 a Part 36 offer is accepted by serving written notice of acceptance on the offeror. The offers made by David envisaged that as well as there being acceptance of the terms of the offer there would be a Settlement Agreement in a form similar to that entered into by David with Nick. The fact that there was an agreement to agree as part of the offer creates doubt whether acceptance of the offer created a binding contract. This was another reason not to treat this as a Part 36 offer. I consider that there is substantial force in this argument.
    1. Having regard to all these points, it was my determination that the offers should not be regarded as being offers under CPR 36. Now that I had seen the offers, I considered that they should be regarded as admissible Calderbank offers for me to take account of under CPR rule 44.2(4)(c).
  1. In the absence of any requirement arising from Part 36 of the CPRs to await the outcome of the litigation, I consider that, I should follow the approach that costs should be dealt with as and when specific issues are resolved for the reasons explained at [12] and [13] above: I should look to make an order relating to costs now and not defer costs to the final determination of the litigation.