Issue 33

Welcome to the 33rd issue of Costs in Focus. This edition is going to consider a number of recent developments in costs law and the impact they will have on Costs Drafters and Practitioners.

Effect of withdrawn Part 36 offers

Mevani Jagodage considers the recent case of UWUG Limited (in liquidation), UWE Haiss v Derek Ball [2015] EWHC 74 (IPEC) and the effect on the claimant’s costs when awarded lower damages than the defendant’s withdrawn Part 36

The claimant argued that the defendant’s withdrawn Part 36 offer should not be taken into account when assessing costs in this intellectual property dispute. The defendant initially made a £15,000 Part 36 damages offer in 2013, which was later withdrawn when rejected. Subsequently, the defendant made the same Part 36 offer in 2014, prior to a CMC. This too was rejected and the matter proceeded to trial, where the claimant was awarded only

£2,859.20. The defendant submitted that the court has wide discretion when assessing costs and should consider the withdrawn Part 36 offer, especially since costs greatly outweighed damages. The claimant argued that the Part 36 offer should be disregarded, as no information was provided for how it was calculated and the defendant’s status as a litigant in person not a good reason. Further, attention was drawn to the defendant’s refusal to

enter into mediation. While the claimant was the overall successful party at trial, the court agreed with the defendant’s submissions on costs, as the withdrawn Part 36 offer held significant weight not only for damages but also for costs. The claimant was awarded costs until the expiry of the first Part 36 offer and the defendant awarded costs from the expiry of the second Part 36 offer to conclusion.

The usual consequence of failing to obtain a judgment more advantageous than the defendant’s Part 36 offer does not apply if the offer has been withdrawn. The court, however, could not treat the withdrawn Part 36 offer as non-existent. The court retains discretion to consider all factors, including offers made in the claim and the overriding objective. Although the Part 36 offer was not

broken down, there is no strict obligation to do so. There would be costs consequences if the other party is completely unable to assess an offer, but here, the claimant retained sufficient information to evaluate the defendant’s offer. The refusal to enter into mediation was not considered as significant, as it would have been unsuccessful in any event. To further go against the claimant,

the defendant was awarded counsel’s CMC hearing fee, which was incurred before the initial 21-day period to accept the second CPR 36 offer, with the hearing itself then taking place after the initial 21 days had passed. The claimant was awarded £2,500 in costs and the defendant £12,210; the damages and costs were set off and the defendant was owed just over £6,200.

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Partial success on case issues and proportionality Ruby-Ann Fernando considers the recent case of Ted Baker v AXA [2014] EWHC 4178 (Comm)

The claimants succeeded in establishing a potential liability at a preliminary hearing. At the final trial, the claimants lost on the main issues and failed to beat the defendants’ Part 36 offer. The claimants relied upon CPR 36.14(2) and submitted that it would be “unjust” to award costs to the defendants, by virtue that the claimants had succeeded on some issues. Eder J. adopted the

approach in Smith v Trafford Housing Trust [2012], with the reminder that, where a claimant fails to beat a Part 36 offer, the court is required to order costs and interest to the defendant unless it is “unjust” to do so. Eder J. ruled that the defendants should be entitled to only 25 per cent of their costs of the preliminary issues, because of the defendants’ conduct unreasonably extending the

trial of the preliminary issues. The defendants were granted all their costs and interest of Part 2. Considering all the circumstances of the case under CPR 44.2, it was held that the claimants had lost on the central issues and indeed failed to recover any damages. In addition, the costs of litigation would have been avoided if the claimants had accepted any of the defendants’ Part 36 offers.

This case highlights the importance of proportionality in litigation and the “formidable obstacle” to displace the normal costs order when a claimant fails to beat a defendant’s CPR 36 offer at trial. Eder J quoted the case of Smith v Trafford Housing in that: “The burden on a claimant who has failed to beat the defendant’s Part 36 offer to show injustice is a formidable obstacle to the obtaining of a different costs order. If that were not so, then the salutary purpose of Part

36 in promoting compromise and the avoidance of unnecessary expenditure of costs and court time, would be undermined.” The mere fact that the defendants failed on some preliminary issues and also on some issues at the final trial did not make it unjust to make the usual costs award in favour of the defendants. Indeed, success on the preliminary issues did not yield any financial benefit to the claimants. This case also underlines that

should a defendant make a Part 36 offer they consider ‘protective’, it does not give them leeway to run any defence without regard to proportionality. A defendant should not also assume that where they are the successful party at trial that the Part 36 consequences automatically apply to issues in which they are unsuccessful. All litigators should bear in mind the above when considering the weight of Part 36 offers and the potential costs liability faced.

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