The costs judgment in Brit Inns Ltd v BDW Trading Ltd could be seen as an encouragement to defendants to make Calderbank offers where the claim is exaggerated and they do not think it fair that they should pay the claimant’s costs. A closer examination of the case reveals otherwise.

The claimants brought a subrogated claim for insured losses of about £660,000 arising out of the defendant’s defective development works. Liability was never in issue but they only recovered about £157,000, having incurred costs of about £528,000.

The parties made several settlement offers. The claimants made two Part 36 offers, one for £550,000 and one for £300,000. The defendant made a Part 36 offer of £139,000 on 28 June 2011, about £35,000 less than the judgment sum. Nearly a month before the trial, on 16 May 2012, the defendant made a Calderbank offer of £267,046, including interest, plus £85,000 for costs. This offer expired on 30 May 2012. On 11 June 2012, the defendant made another Calderbank offer of £200,000 plus interest and £100,000 costs. The trial began on 12 June 2012.

The order for costs

Coulson J ordered the defendant to pay 60 per cent of the claimants’ costs up until 30 May 2012, excluding all costs incurred in connection with the claimants’ experts whose evidence was fundamentally flawed from the outset. The claim was exaggerated and not properly supported by the evidence and the claimants, their experts and solicitors did little or nothing to address these deficiencies.

As for the costs from 30 May 2012, essentially all the costs of the trial, the judge ordered the claimants to pay the defendant’s costs.

The rationale

Coulson J reviewed the authorities and endorsed the Court of Appeal’s statement in Fox v Foundation Piling Ltd that a defendant cannot expect to secure costs protection unless it makes a sufficient Part 36 offer. He also referred to the recent statement in F&C Alternative Investments (Holdings) Ltd v Barthelemy that non-Part 36 offers should not be treated as having the same effect as those made under Part 36.

The defendant in this case had made a Part 36 offer but it was not high enough to provide costs protection. For this reason, the judge awarded the claimants their costs up until 30 May 2012, but deprived them of 40 per cent of those costs because of their conduct of the claim. He found that, had the claimants adopted the same detailed approach to the claim as the defendant, the action would have settled well before 30 May 2012.

As for the costs after 30 May 2012, the judge concluded that the claimants would have been better off accepting the offer of 16 May 2012 than going on to trial. The same could be said of the defendant’s offer of 11 June 2012. Only the claimants’ unreasonable conduct and unrealistic expectations could explain their decision to proceed to trial.

Reviewing the conduct of the parties, the judge noted that the claim was exaggerated, in some instances grossly, but that this was not deliberate or dishonest. However, the claimants and their solicitors adopted a consciously unhelpful attitude in correspondence. The claimants’ offers were also consistently unrealistic. These factors justified awarding the defendant its costs from 30 May 2012.

Comment

Those with the unenviable task of deciding what offers to make on behalf of a defendant could justifiably be confused by this decision. The Court of Appeal has said repeatedly that full costs protection cannot be obtained with a non-Part 36 offer and here is a defendant achieving just that. Perhaps, after all, it is fine to make a Calderbank offer where the claimant is being unrealistic and has racked up hundreds of thousands of pounds in costs.

That would be a dangerous and misleading lesson to draw from this case. The defendant’s Calderbank offer provided full costs protection because of the claimants’ unreasonable conduct. The Supreme Court in Fairclough Homes v Summers acknowledged that a defendant would be entitled to obtain full costs protection from a Calderbank offer where the claim is dishonestly exaggerated. The present decision takes this a little further by entitling a defendant to full costs protection from a Calderbank offer where it has already made a sensible but insufficient Part 36 offer and the claimants’ conduct has been so unsatisfactory that it is fair to make them pay the defendant’s costs of the trial.

It will be rare that a claimant, its solicitors and experts, all fail to this degree. Where this does occur, a defendant may be able to rely on a Calderbank offer with confidence. Think, however, of the costs thrown away in arguing about costs – the judge commented that every possible point that can arise on costs was in issue here – and how much better it would have been for the defendant had it made a sufficient Part 36 offer in June 2011.