Ted Baker plc and another v AXA Insurance UK plc and others [2014] EWHC 4178 (Comm)

This was the costs judgment following a long-running dispute that involved a split trial on liability and quantum. Although the claimants succeeded in relation to the preliminary issues on liability, the result of a subsequent judgment given on quantum was that the claimants failed to obtain a money judgment more advantageous than any of the defendants' three settlement offers, including a Part 36 offer made at an early stage of the action. The defendants were the successful parties in the proceedings. The claimants' claims were dismissed; and the claimants did not succeed on any part of their case to any useful effect

The court held there were exceptional circumstances that meant it would be unjust for the claimants to pay the entirety of the costs of the preliminary issues, notwithstanding the defendants' offers. Those circumstances included the defendants' approach to the central issue which left "no stone unturned". The fact that a defendant may make a Part 36 offer did not give him carte blanche to run any defence whatsoever, so as to entitle him necessarily to expect that the Part 36 consequences would automatically apply to those issues on which the defendant lost.

However, in relation to the quantum judgment, the defendants were entitled to all their costs to be assessed on the standard basis and interest on those costs. The fact that the claimants had won on some issues did not of itself make it "just" to displace the general rule, particularly as they had lost on the three main issues on which they needed to succeed in order to recover a monetary judgment in their favour.

Part 36: Costs consequences when claimant fails to accept the defendant's offer

Under CPR 36.14(2), if a claimant fails to beat a defendant's Part 36 offer, the court will award costs and interest against the claimant from the date on which the relevant period (under CPR 36.3(1)(c)) expired, unless "it considers it unjust to do so".

In considering whether it would be unjust to make such a costs order, the court will take into account all the circumstances of the case including:

  • The terms of any Part 36 offer.
  • The stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made.
  • The parties' conduct in giving or refusing to give information to enable the offer to be made or evaluated.

Under CPR 44.2, the court has a wide discretion in deciding what order to make about costs, including:

  • The conduct of all the parties.
  • Whether a party has succeeded on part of its case, even if that party has not been wholly successful.
  • Any admissible offer to settle made by a party that is drawn to the court's attention, and which is not an offer to which costs consequences under Part 36 apply.

Under CPR 44.2(5), conduct of the parties includes:

  • Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue.
  • The manner in which a party has pursued or defended its case or a particular allegation or issue.

The defendants had made various settlement offers in the course of the proceedings. In particular, in July 2010, at an early stage of the action, the defendants made a Part 36 offer in the sum of £50,000 (the first offer). This carried with it an offer to pay the claimants' costs, to which the claimants would have been entitled under CPR 36.10(1) if they had accepted it.

In October 2011, the defendants made a further offer under CPR 44 in the sum of £250,000 plus the claimants' costs (the second offer). In December 2011, the defendants made a further Part 36 offer in the sum of £250,000 (the third offer). This last offer also carried an offer to pay the claimants' costs. 

Shortly before the trial of Part 2, the claim had reduced to approximately £904,000. However, following that trial, the total combined costs bill in the proceedings (excluding costs of an appeal) were estimated to be near to £7 million.

Although the claimants succeeded in relation to the preliminary issues in Part 1, the result of Part 2 was that they had ultimately failed to obtain a money judgment more advantageous than any of the defendants' settlement offers.

The defendants therefore submitted that:

  • The claimants success on Part 1 resulted in no ultimate financial benefit to the claimants at all.
  • On this basis, the claimants' failure to obtain a judgment more advantageous than the defendants' Part 36 offers meant that, pursuant to CPR 36.14(2)(a), the court should order the defendants their costs of the proceedings from 29 July 2010 (the date of expiry of the relevant period of the first offer).
  • There were no grounds on which that order could be considered unjust.
  • It was in effect, unnecessary to consider the factors that would otherwise need to be taken into account under CPR 44.2. 

Held: Eder J held that there were exceptional circumstances that meant it would be unjust for the claimants to pay the entirety of the costs of Part 1, notwithstanding the defendants’ offers (in particular, the first offer). However, in relation to the costs of Part 2, the claimants had failed to overcome the "formidable obstacle" to displace the general rule under Part 36.

Costs of Part 1

The just course was to reduce the amount of the costs to which the defendants were entitled in relation to Part 1 by a substantial amount to reflect the exceptional circumstances. Those circumstances included the defendants’ approach to the central issue which left "no stone unturned" and seemed to ignore all sense of proportionality. As a result, the trial took an "inordinate" 7 days (instead of what should have been a short trial of possibly 1-2 days) in which much of the evidence was inadmissible on the central issue.

While recognising that any assessment of a reduction in costs involved an exercise which was imprecise and broad-brushed, the judge ordered the defendants should be entitled to 25% of their costs assessed on the standard basis, together with interest on those costs, from the expiry of the relevant date.

Costs of Part 2

On the other hand, the defendants were entitled to all their costs in respect of Part 2 to be assessed on the standard basis and interest on those costs. For the court to order otherwise than in accordance with the general rule would fail to have proper regard to the defendants' Part 36 offers (in particular, the first offer) and, indeed, undermine the Part 36 regime.

The bottom line was that all of the costs were avoidable, and could and would have been avoided if the claimants had accepted the defendants' first offer.

This case highlights the considerable costs risks that a claimant takes in failing to accept a Part 36 offer. If he subsequently fails to 'beat' that offer at trial, he faces a "formidable obstacle" to show injustice and displace the general rule under Part 36.

It also shows the importance of proportionality in litigation. The exceptional circumstances which persuaded Eder J that the usual order would be unjust in relation to the costs of the preliminary issues included that the defendants’ approach seemed to ignore all sense of proportionality. In addition, as the judge noted, the costs had spiralled both in absolute terms and out of all proportion to the amount in dispute. This was a matter of “huge regret” and “an appalling state of affairs which brings no credit to modern commercial litigation”.

Astonleigh Residential v Goldfarb [2014] EWHC 4100 (Ch)

The High Court has held that nothing in the CPR indicates that a payment on account of costs may only be ordered if a relevant schedule of costs has been produced.

The key point in the case was whether the court can only order a payment on account of costs if it has a schedule of costs to work from. The judge stated that:

  • Under CPR 44.2(8) where, as in the present case, the court orders a party to pay costs subject to a detailed assessment, it will order that party to pay a reasonable sum on account of costs unless there is good reason not to do so.
  • In the present case, there was no suggestion that there was any good reason not to order a payment on account of costs.

The only issues were whether the sum ordered was within the district judge's discretion and whether the district judge needed a costs schedule to determine the appropriate amount. Rejecting the application for permission to appeal, Asplin J held that:

  • Nothing in the CPR requires a costs schedule to be available before a judge can order a payment on account of costs.
  • In the present case, the sum ordered was within the scope of the district judge's discretion.

Barratt -v- East & North Hertfordshire NHS Trust [2014]

The Claimant applied for an interim payment of £450,000 in his personal injury claim against the NHS trust, who had admitted liability for injuries caused by a failed tracheostomy.

The Claimant had been left with brain damage, physical and neurological problems, and very limited eyesight. As a result he was not able to return to his home and had been living in a care home. His wife also lived in the care home because of a terminal degenerative illness. The Claimant did not have capacity to make decisions about his claim. A case manager was appointed and assessed the former home would never be suitable for them. The Defendant made an interim payment of £350,000 and a bungalow  was purchased after which planning permission was obtained for adaptations. The Claimant applied to the court for a further interim payment to fund the adaptations as the Defendant refused a further voluntary interim payment.  The Claimant submitted that he wanted to resume a life in which he was free to do as he chose. The Defendant submitted that the application was premature, and that the Claimant was better off at the care home with his wife (who would not be moving to the bungalow).

HELD

It was not clear how well the Claimant would manage in the community, but it was what he wanted. His wish not to live under the care home regime and to live informally was a lifestyle choice he should be free to make.

In terms of the Claimant living further away from his wife, her health was deteriorating and the Claimant found it hard to see her.

The size of the interim payment relative to the likely damages would not fetter any future periodical payments; nor would the trial judge be inhibited from taking a different decision. By then, probably a year and a half away, the Claimant would be able to tell if the move to the bungalow had been successful. The interim payment would constitute a reasonable proportion of the damages and was ordered to be made.

Comment

The fact that liability had been conceded was a significant consideration, but this case illustrates the willingness of the courts to be sympathetic to the wishes of Claimants to fund a chosen lifestyle.