This costs hearing followed a successful negligence claim by the Sugar Hut Group (Sugar Hut) against their insurance broker, AJ Insurance, for business interruption (BI) losses that Sugar Hut failed to recover from insurers. One issue debated at the hearing was the impact of an offer compliant with Part 36 of the CPR (a Part 36 offer) by AJ Insurance for £250,000 (which was based on a figure for lost profit of £600,000).

Eder J accepted that, as AJ Insurance’s Part 36 offer did not “beat” Sugar Hut’s award at trial, the automatic cost consequences in favour of AJ Insurance did not apply. However, Eder J did consider it was open to the Court to assess all the circumstances including the conduct of all the parties (CPR 44.2(4)(a)) and whether it was reasonable for a party to pursue or contest a particular allegation or issue (CPR 44.2(5)(b)).

Eder J considered it was unreasonable for Sugar Hut to pursue an amount for loss of profit higher than the figure the Part 36 offer was based on, and denied that his decision would support or reintroduce the “near-miss” principle by “the back door”. Ramsey J warned against its application in Hammersmatch Properties (Welwyn) Ltd v Saint Gobain Ceramics & Plastics Ltd1 where the Claimant failed to successfully argue that as their Part 36 offer nearly beat the amount awarded to the Defendant, it was appropriate to penalise the Defendant on costs. Eder J considered that his decision had distinguishable features from Hammersmatch, and would not reintroduce the principle as it was not based on a “near-miss” analysis, nor did it speculate on the negotiations which were clear from the correspondence. Instead, it was based on the fact that Sugar Hut had unreasonably insisted on a higher figure for BI losses (in response to the Part 36 offer).

In considering the “unreasonableness”, he noted (i) the case was “a paradigm example” of one where the overall claim and certain individual components were exaggerated, (ii) Sugar Hut’s approach to disclosure was slow and on a piecemeal basis causing AJ Insurance difficulties in protecting its position, and (iii) BI profits were the main issue that divided the parties. For these reasons, AJ Insurance was awarded costs from 21 days after the Part 36 offer on a standard basis.

This Judgment is an important example of how other factors, including Part 36 offers and negotiations, can be taken into account by the Court when considering the conduct of the parties when using their discretion to decide on the costs award.

A copy of the judgment can be found here: http://www.bailii.org/ew/cases/EWHC/Comm/2014/3775.html.