Case Alert - [2016] EWHC 2611 (Comm)

Judge confirms that costs should not be taken into account when deciding whether Part 36 offer has been beaten.

Ince & Co for claimant, Herbert Smith Freehills for defendant

The claimant made a Part 36 offer to accept USD 13 million. The offer was not accepted and the claimant was eventually awarded USD 14.6 million, with no order for costs. However, the defendant argued that the judgment was not "at least as advantageous to the claimant as the proposals contained in a claimant's Part 36 offer" (see CPR r36(1)(b)), because, had the offer been accepted, it would have had to pay the claimant's costs up to the date of acceptance ie an extra USD 3.3 million (thus resulting in a payment of USD 16.3 million as opposed to the USD 14.6 million ordered by the court).

That argument was rejected by Popplewell J.

The decision of Mitchell v James [2004] held that, in deciding whether a claimant had beaten a Part 36 offer, no account should be taken of costs. Although that was not a binding authority on the judge, and was decided under a former version of the Part 36 rules, the judge said he had "little hesitation" in accepting that costs do not fall to be considered when deciding whether CPRr 36.14(1)(b) has been satisfied.

That was because "judgment" means what the trial judge decides on the substantive issues in the case, as distinct from the ancillary question of costs. Furthermore, when deciding whether Part 36 is engaged, the court will not normally have embarked yet on the exercise of assessing what costs would have been in the absence of the Part 36 offer: "Moreover, if costs were to be taken into account in determining whether a Part 36 offer were effective to trigger the Part 36 consequences, this would create difficulties for the parties in determining where to pitch a Part 36 offer and whether to accept it".

However, the judge did accept that he was not bound to ignore the costs position when deciding whether it would be unjust to order the usual Part 36 costs consequences. But that is one of many factors to be taken into account. Here, other relevant factors included the conduct generally of the claimant and the fact its Part 36 offer was too high, but also the fact that it had been open to the defendant to make a counter-offer which protected its costs position.

Weighing up all the different factors, the judge concluded that it would be unjust for the full Part 36 consequences to follow, but it would not be right to disapply them in full either.