Defendants, and litigants who behave appropriately, will be encouraged by the outcome of Transocean Drilling UK ltd v Providence Resources plc (2016) EWHC 2611, in which a Claimant was penalised for inappropriate behaviour.
Transocean had supplied an oil rig to Providence and they then claimed damages, due to delay in the drilling of an oil well.
Transocean succeeded in December 2014 to the extent of approximately $7.6 million, inclusive of interest. The Court made no order for costs because 70%-75% of the costs had been incurred on points which Providence had won, and because of unreasonable conduct by Transocean.
Transocean successfully appealed part of the Judgment, and their damages were increased to c.$13.86 million, in April 2016.
The Court were then asked to consider the costs consequences which flowed from a Part 36 offer made by Transocean, to accept c.$13 million inclusive of interest, in August 2014. Transocean argued that it had "beaten" the Part 36 Offer and so it should be awarded the consequences in it's offer namely indemnity costs, 10% interest on damages and costs and a surcharge of £75,000, from the expiry of the offer. Providence argued that the Part 36 Offer was not "beaten" because if you took the overall costs position into account, Transocean were not in a more advantageous position.
Mr Justice Popplewell dealt with the trial and the costs. Following the decision of the Court of Appeal to increase the damages awarded to Transocean, the application to vary the costs order was heard by him.
He stated that the Court of Appeal decision did not alter his view that approx. 70% of the costs had been incurred in points which Transocean had lost. He determined that the issue on which they had succeeded in the Court of Appeal was a "very small proportion of the costs".
He concluded that costs should not be taken into account when deciding whether a Part 36 was beaten, or not. The critical words in Part 36 were "held liable" and "Judgment", which should be construed as separate to costs or other "ancillary" issues, and on that basis Transocean had beaten the Part 36 offer and the costs consequences set out might ordinarily be expected to follow.
However the Court does have a discretion in the Rules as to whether it is unjust that the Part 36 consequences should apply. Mr Justice Popplewell had ruled in his initial costs Judgement that there had been some unreasonable conduct in the litigation by Transocean and he was determined to disapply some of the Part 36 consequences to reflect those criticisms. He found a number of circumstances where Transocean had been not merely unreasonable but dishonest.
For example, Transocean "cannot have believed" the case they advanced on maintenance, didn't call the employee with the relevant knowledge as a witness but relied upon a different employee whose evidence "contradicted" the documents. Further they called two employees to comment on an internal report. The report had been altered and one of them conceded that it had been altered to remove comments which were adverse to Transocean, whereas the other had not. Both men had signed witness statements with incorrect statements.
Taking everything into account, Mr Justice Popplewell ordered Providence to pay Transocean's costs, but only from the date of the payment in, and only on a standard basis but with none of the uplifts envisaged in the Part 36 offer.
It is encouraging to see any party to litigation suffer real financial consequences for a failure to behave properly in their conduct of litigation.