In September 2009 new court rules became effective on the Isle of Man which introduced the possibility of parties being able to make Part 7 offers. Such offers are akin – if not identical – to Part 36 offers under the English Civil Procedure Rules. A Part 7 offer was used to good effect in EMEA Oil Limited v Petrodel Limited,(1) which determined for the first time the effect of the rules following a judgment obtained which beat the offer to settle previously made by the claimant.
The case centred on a breach of contract and a claim for damages. The claimant made an early Part 7 offer at around the same time as it undertook the process of disclosure to the defendant. The Part 7 offer made was approximately 80% of the total of the amount claimed. The offer was not accepted and was not withdrawn by the claimant.
At hearing, the claimant was awarded damages claimed in full. Accordingly, the court was asked to consider the effect of the Part 7 offer as regards costs and interest on damages and costs. Rule 7.65(3) of the rules provides that:
"The court shall, unless it considers it unjust to do so, order that the claimant is entitled to:
- interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;
- his costs on the indemnity basis from the date on which the relevant period expired; and
- interest on those costs at a rate not exceeding 10% above base rate."
The claimant asked the court to apply Rule 7.65(3) and accordingly award interest at a rate of 10.5% (ie, 10% above the Bank of England base rate) and also requested interest on damages and costs prior to the offer at the rate of 9% be granted, as claimed and pursuant to the discretion of the court under Section 41 of the High Court Act 1991. An interim costs order was also sought per Rule 11.3(9), pending assessment.
The defendant sought to persuade the court that it would be unjust to apply Rule 7.65(3) and therefore that costs should be awarded on the standard basis because of the conduct of the claimant.
The defendant also argued that interest at a rate lower than 10.5% should be applied if the court sought to apply Rule 7.65(3).
The court did not accept the defendant's submission. It found that the claimant had been fully successful in the case and was entitled to all of its costs, specifically stating that:
"the claimant has obtained judgment against the defendant on a significantly more advantageous basis, from the claimant's point of view, than had its offer to settle been accepted by the defendant."
Referring to English authority (there being no Manx authority on the point), and the fact that the offer had been made in a timely fashion at a time when the defendant could have focused on the issues at large in the case, the court was satisfied that the interest and costs provisions of Rule 7.65 should apply and include application of interest at 10% above base where appropriate.
Accordingly, indemnity costs were awarded in favour of the claimant from the date of expiry of the relevant period of the offer. Interest was awarded on those costs and on damages from the same date at the rate of 10.5% per annum.
Regarding the position before expiry of the relevant period, although the court awarded interest on damages, it did so at the rate of 4% rather than 9% as requested. In doing so, it applied its discretion under Section 41 of the High Court Act 1991 and thus, in turn, the rate of interest applied on judgment debts under Section 9 of the Administration Justice Act 1991.
The court did not award interest on costs prior to expiry of the relevant period, citing Parkinson v Simmonds.(2) The door was left ajar for this position to be altered in the future on fuller argument as the court did not have the benefit of detailed and thorough submissions on this issue, as the court pointed out.
The court also awarded an interim payment to be made on account of costs per Rule 11.3(9). In doing so, and in the absence of any Manx authority on point, it applied English authority by reference to commentary from The White Book and specifically Paragraph 44.3.15 of the 2010 edition. The commentary states that the only reason for a party to not be awarded costs immediately is because there is to be an assessment, but points out that this is not necessarily a good reason to keep a party out of all of the costs owed, and that therefore the payment of a lesser amount is a closer approximation to justice. Thus, the court found that in general, as a starting point, there should be an interim costs order, but the court should retain discretion and, in applying that discretion, must take into account all circumstances of the case (eg, the likelihood of an appeal and the relative financial means of the parties).
As such, the defendant argued that the Manx assessment procedure is streamlined when compared to the English procedure. In response, the claimant referred to various other interlocutory costs orders made against the defendant and following which it had chosen not to take part in assessment proceedings, thus potentially delaying agreement.
The court ordered the defendant to pay an amount which was approximately equivalent to half the amount that would be requested on assessment.
It appears that the following conclusions can be inferred where a claimant's Part 7 offer is made and, at hearing, the award beats that offer:
- The award must beat the offer by a significant amount. There is no Manx guidance as to what will be considered significant, but it can perhaps be assumed that an offer of 20% less than that awarded will be considered significant.
- Unless unjust, the claimant will be awarded indemnity costs from the date of expiry of the relevant period and interest on damages and costs from that date.
- In circumstances where the offer is made early, at a time when the defendant has had the opportunity fully to consider its effects, and there being no failure on the part of the claimant found as to the progress of the litigation as a whole, the court may exercise its discretion as to the amount of interest to award in the sum of 10% above base.
- As there is no set rate of interest to be applied on damages under Section 41 of the High Court Act 1991, the appropriate rate to be applied is that which is applicable to judgment debts under Section 9 of the Administration Justice Act 1981 (ie, 4%, although the court retains its discretion on this point).
- While there is authority to suggest that interest cannot be awarded on costs prior to the expiry of the relevant period of a Part 7 offer, the court is mindful that the Rules of the High Court of Justice 2009 could (but do not definitely) justify departure from this position on fuller argument.
- The starting point with regard to interim costs orders is that they should be made subject to the discretion of the court in considering, for example, the likelihood of appeal and the relative financial position of the parties. Circumstances in which a party has failed to take part in interlocutory costs assessment proceedings may justify the making of an interim order.
For further information on this topic please contact Damian Molyneux at M & P Legal by telephone (+44 1624 695800), fax (+44 1624 695801) or email ([email protected]).
(1) Costs judgment SUM 09/0059, September 27 2010.
(2) MLR [1999-01] Notes, page 2.