Part 36 offers – what happens when they have been withdrawn?

• Party recovering around 10% of the claim sought did not recover costs, with the final order “no order as to costs”, despite the Defendant’s Part 36 offer having been withdrawn.
• Impact of a withdrawn Part 36 remains at the discretion of the Court, taking into account the overall justice of the case.

BritNed Development Limited v ABB AB and ABB Limited [2018] EWHC 3142 (Ch)

In this case Mr Justice Marcus Smith’s Judgment on costs offers sets out guidance on how Courts can give weight to Part 36 offers which were made but subsequently withdrawn during the main action.

The Claimant was claiming damages in excess of €135 million; the Claimant was ultimately awarded around 10% of that sum at Trial.

In the main action the Defendant ABB had made a Part 36 offer exceeding the amount of damages awarded, although that offer was withdrawn after trial, but before judgment was handed down. The automatic costs consequences of CPR 36 did not therefore apply.

Mr Justice Smith’s Judgment can be split into three parts: the non-contentious matters, the live costs issues and his determination.

The non-contentious matters were set out by Mr Justice Smith and are summarised below.

1.The court has a broad discretion on costs, subject to any contrary provision in the Civil Procedure Rules (CPR). That discretion extends to whether costs are payable at all, how much those costs are, and when they should be paid.

2. The starting point is that it is the unsuccessful party who will be ordered to pay the successful party’s costs.

3. The court must have regard to all the circumstances without limitation, to include: the parties’ conduct; whether a party succeeded in part in its case, even if not in whole; and any admissible offer to settle where the offer falls outside CPR 36.

4. The consequences of an offer made in line with CPR 36 are clearer than those which are not, given the former are subject to the provisions set out within the CPR. The discretion of the court in such cases is curtailed (but not excluded) when compared with non-CPR 36 cases.

5. The parties’ conduct includes, but is not limited to, conduct before and during proceedings, whether it was reasonable to advance certain allegations or issues, the manner in which a case was brought or defended and whether a party who was successful exaggerated its claim.

The live costs issues:

6. BritNed submitted that it is the party who writes the cheque at the end of the day who is the unsuccessful party, and the party who receives that cheque who is the successful party. On that basis, BritNed was the successful party. Mr Justice Smith however noted that from the outset there was a binding finding against ABB meaning quantum was substantially the only issue before the court.

7. Given ABB’s Part 36 offer was withdrawn, its existence was no more than a factor that must be taken into account in the assessment of costs. Mr Justice Smith noted that the fact that such an offer was made may be very significant; or it may not be. That depends on the individual case.

8. There were essentially four issues before the court in the main action, all substantially intertwined, albeit with one being far more   central to the claim than the other three satellite issues. Mr Justice Smith did not consider it would be just, or possible, to allocate costs issue-by-issue and neither party contended for such an approach.

9. BritNed failed on the main issue in the claim, but did succeed on a number of points leading to the positive damages award.

10. In terms of expectation, BritNed was substantially the loser in this case, when measured by reference to its own Part 36 offer of  €135 million. BritNed recovered approximately 10% of this amount.

11. ABB had made an offer, which remained open throughout the trial, that BritNed failed to beat and ABB’s case on costs turned on two points:

a) BritNed’s failure in the litigation and in particular its failure to recover anything like the amounts it sought.

b) The fact that ABB made a Part 36 offer (albeit withdrawn before Judgment) that BritNed failed to beat.

12. For the above reasons, ABB contended that it should have its costs, and interest on them, from the latest time that its Part 36 offer could have been accepted (without the permission of the court) by BritNed.

13. BritNed’s response was that these factors were not enough to displace the starting point; that BritNed as the recipient of the cheque should have its costs.

14. BritNed also placed great reliance on the informational imbalance that existed between the parties (which was noted given the main action related to the presence of an unlawful cartel).  Mr Justice Smith considered that the informational imbalance between BritNed and ABB might have been more relevant if this were a case of the late acceptance or the attempted late acceptance by BritNed of ABB’s Part 36 offer.  The information imbalance might in those circumstances be deployed to explain the late acceptance of a stale offer. The issue of information imbalance was not however considered to be of particular relevance where there was no acceptance at all of ABB’s Part 36 offer.

Mr Justice Smith’s Judgment

15. This was something of a novel case given the complexity of the quantification exercise. Properly predicting the outcome, at least in the earlier stages of the case, would have been a tall order, given the divergence between the experts’ approaches. In these circumstances, Mr Justice Smith was not critical of BritNed in wanting its quantum established through trial, given the level of ABB’s Part 36 offer. He made the point he did not label BritNed’s claim or its Part 36 offer as “exaggerated”, save in the sense that BritNed got far less than it thought it should.

16. Absent the withdrawn Part 36 offer made by ABB, BritNed was the winner. The fact that it recovered far less than its own Part 36 offer might be said to be a measure of failure but not a relevant one for the purpose of the incidence of costs. Of course, that relative failure would be relevant in an issue-based costs approach, although that was not the approach taken for this claim.

17. Had he held that BritNed should have its costs, it would have been on the basis of a substantial discount of the order of 40% to reflect BritNed’s relative failure on the main point in the claim.

18. In many cases, the fact that the winner loses on some points, but nevertheless wins in the round, may make no difference to the successful party’s entitlement to costs. Very often the general rule – that costs follow the event – will be the right outcome. This however was not such a case. BritNed lost on the main issue in the claim and Mr Justice Smith highlighted that the substantial discount of 40% would have been higher but for the fact that he found BritNed’s expert evidence more helpful in reaching the conclusions than ABB’s expert evidence.

19. As to the impact of the withdrawn Part 36 offer, he noted that settlements out of court are to be encouraged, and ABB put in an offer that backed its expert’s judgment and which proved to be more than BritNed recovered. Mr Justice Smith considered it would be entirely wrong to leave this offer out of account.

20. He did however have to have regard to the fact that CPR 36 is a self-contained procedural code, and that had ABB wanted to ensure a costs outcome in its favour, it should not have withdrawn the offer. By withdrawing the offer it made, ABB put the offer outside the CPR 36 regime.  In this case, where quantification of the claim was so difficult, the existence of the ABB Part 36 offer was not enough to reverse the incidence of costs.

21. He concluded that ABB should not have a costs order in its favour although the making of a commercial offer early on that was not beaten by BritNed did mean it would be unjust for ABB to pay any of BritNed’s costs. Looking at the overall justice of this case, he concluded there be no order as to costs.

Lessons Learned

22. The fact BritNed recovered approximately 10% of its own Part 36 offer was not relevant to the incidence of costs. It was only relevant to amount of costs BritNed could recover.

23. CPR 36 continues to encourage parties – especially Defendants – to make early Part 36 offers. The impact of a withdrawn Part 36 offer lies entirely at the discretion of the Court and whilst that is not the ideal position to be in, this case does offer some support for withdrawing an offer which was made late in the day.

24. Defendants will need to investigate liability and quantum early with a view to making Part 36 offers as swiftly as possible. If further investigations reveal the sum offered to be excessive, Defendants can consider a Notice of Variation, whether that is to take effect immediately on service or at a set date in the near future.