Although successful in its substantive claim, the Claimant was ordered to pay a proportion of the Defendant’s costs due to its unrealistic approach to the litigation. Although the Claimant’s claims were not dishonestly or deliberately exaggerated, the Court found that the approach and conduct justified a costs order in the Defendant’s favour despite the Claimant bettering the Defendant’s Part 36 offer. This case illustrates the way in which the Court will use its wide discretion on costs under CPR rule 44 and should serve as a warning against taking a ‘kitchen sink’ approach to claims.
The Claimant engaged the Defendant contractor to construct a new building intended to comprise a basement restaurant, ground floor bar and residential flats. The basement flooded in December 2006, when the fit out works were largely complete. As a result of defective restorative fit-out works by BDW Trading, the basement flooded again in January 2007. The insurers of Brit Inns Ltd commenced a subrogated action against BDW Trading in the sum of around £660,000 for the negligent fit out works. A second action was commenced for uninsured losses for an additional £522,000. Liability was admitted in each case and only quantum was in issue.
The Claimant only recovered about £157,000 in the main action, having incurred costs in the region of £528,000.
The parties made various without prejudice offers before the Trial.
The Claimant made two Part 36 offers, one for £550,000 and one for £300,000. The defendant made a Part 36 offer of £139,000 in June 2011 (about £35,000 less than the judgment sum awarded). Approximately a month before the Trial, the defendant made a without prejudice ‘Calderbank’ offer (under CPR Part 44) of £267,046 plus £85,000 in respect of costs. The offer expired on 30 May 2012. On 11 June 2012, the Defendant made a further Calderbank offer of £200,000 plus interest and £100,000 costs.
The Court ordered the Defendant to pay 60% of the Claimant’s costs up to 30 May 2012, excluding all of the Claimant’s expert’s costs whose evidence the Court considered fundamentally flawed from the outset. The claim was found to be exaggerated and not properly supported by the evidence and the experts and solicitors had done little to address these deficiencies before the Trial. Also taken into account was the Claimant’s dilatory approach to disclosure and late offers of settlement. Even though the Claimant bettered the Defendant’s Part 36 offer, the Court decided that, in these circumstances, it would be manifestly unjust to allow the Claimant to recover all of their costs up to 30 May 2012, but neither was it appropriate for the Claimant to pay any of the Defendant’s costs up to that date.
The Court accepted that the Defendant’s position changed when the Claimant failed to better its Calderbank offer (which expired on 30 May). As a result of the rejection of the Claimant’s expert’s evidence and because the Defendant had won on every substantive point at Trial, the Court ordered the Claimant to pay the Defendant’s costs from 30 May 2012, making the Claimant liable for the entire costs of the Trial.
Therefore in practice, the Defendant’s Part 44 offer gave the Defendant exactly the same costs protection had an effective Part 36 offer been made.
The Court commented that, had the Court decided that the claims were deliberately exaggerated then it would have likely been appropriate to make an exceptional order for indemnity costs against the Defendant (or – more severe still – striking out a claim for abuse of process).
Judge Coulson reviewed the authorities and highlighted the following legal principles in support of his decision:
1. In commercial cases, the successful party will usually be the party that recovers money from the other;
2. The only certain way for a defendant to shift its potential costs liability is to make a Part 36 offer which it then betters at trial;
3. The pursuit of exaggerated claims may deprive the claimant of some or all of its costs but the most severe sanctions are only likely to be imposed where exaggeration is deliberate; and
4. For costs liability to be shifted as a result of conduct (so that the claimant who recovers something at trial still has to pay something to the defendant) there needs to be (i) more or less a total failure on the issues that went to trial; or (ii) a failure to accept a Part 36 offer that would have put the claimant in a better position than proceeding.
The Court also referred to the decision in F&C Alternative Investments (Holdings) ltd v Bathelemy  EWCA Civ 843 in which the Court of Appeal emphasised the importance of Part 36 offers and said that offers not made under Part 36 should not have the same effect as Part 36 offers.
The general position remains that Part 36 offers and “without prejudice save as to costs” offers are treated differently by the Courts.
However, where a claimant’s offers are consistently unrealistic and a claimant’s conduct is viewed by the Court as unreasonable, a defendant may be awarded costs protection in circumstances where it has not necessarily beaten its Part 36 offer.
Where it is clear that a party’s claim is exaggerated or unfounded, a party may be able to rely upon a Part 44 offer for costs protection.
However, in circumstances such as these (which – granted - may be unusual as it is rare that a claimant, its solicitors and its experts will fail to this degree), neither party can be considered a winner of the litigation and the parties both spent a huge sum arguing about costs. The lesson therefore: a commercial and pragmatic approach to the litigation is key; parties should make sensible settlement offers as early as possible to avoid ending up in a situation where the litigation goes wrong for everybody.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.