The costs judgment in Burgess & Anor v Lejonvarn  EWHC 369 (TCC) is probably a judgment that should be shown to all litigants. The claimant rejected an offer of £25,000 and failed to beat that offer at trial. The defendant’s budget was £724,265.63 excluding VAT and the costs of preparing the budget. This has proven to be a very expensive garden.
“The Claimants must now rue the day they rejected the Defendant’s offer to settle but this was never an obviously hopeless case. But unlike a successful Claimant, the fact that the Defendant did better than her relevant offer does not give rise to an automatic entitlement to indemnity costs.”
The claimants brought an action against the defendant for alleged breach of contract and negligence in the design of a garden. The claimants were successful at the court of appeal stage in establishing that the defendant owed a duty of care, although working gratuitously. However the claimants were (somewhat spectacularly) unsuccessful at trial. They claimed nearly £360,000 and received nothing. What is interesting is that this judgment shows that, although the claimants were seeking £360,000 they had made Part 36 offers to settle at £45,000.
The judge commented:
This was very fact-sensitive case and this is why the evidence had to be heard at trial and findings had to be made.
- Stepping back and reviewing all these matters related to the Claimants’ conduct of this litigation, I do not think that this conduct was out of the norm. This litigation was hard fought but much litigation in the TCC is hard fought. This was litigation between former friends who fell out somewhat dramatically. However, at all stages this litigation was closely and carefully case managed by experienced TCC Judges and I do not think the Claimants’ conduct of this litigation can be said to be out of the norm.
(4) The without prejudice and Part 36 offers
- On the 26th March 2015, before she had served a Defence, the Defendant made an offer under Part 36 of some £25,000. The offer was not accepted. Part 36 is a comprehensive code as to how such offers should be treated, and indeed a comprehensive code that should be followed. It may be unfortunate where a Claimant beats a Defendant’s offer they are entitled to indemnity costs, but where the Defendant does better than a Defendant’s offer the Court does not award indemnity costs automatically. That is what has been prescribed by Part 36 and it is a code which I am obliged to follow.
- The Defendant’s Senior Counsel, Louis Flannery QC, in his written submission stated:
“Somewhat scandalously, there is no provision in the CPR where a Defendant beating its offer gets any other benefit i.e. is entitled to his costs from 21 days from the offer as compared to the Claimant who beats its offer (indemnity costs as standard, uplift on costs, enhanced rate of interest etc.)”
These are the rules I must apply. However, as part of my general discretion, the fact that the Defendant did better than her offer made very early in these proceedings is an important matter which I should take into account as part of the exercise in judging whether the Defendant is entitled to indemnity costs.
- Therefore, stepping back and reviewing all the matters raised by the Defendant in her written and oral submissions, I do not think that in the exercise of my discretion as the Trial Judge and in the circumstances of this case an award for indemnity costs for the whole or part of her costs is appropriate. Applying, in particular, the principles set out by Coulson J (as he then was) in Elvanite Full Circle Limited v. Amec Earth and Environmental (UK) Limited  EWHC 1643 (TCC):
“(a) Indemnity costs are appropriate only where the conduct of a paying party is unreasonable “to a high degree”. ‘Unreasonable’ in this context does not mean merely wrong or misguided in hindsight”: see Simon Brown LJ (as he then was) in Exam v MGN Ltd  1 WLR 2810.
(b) The court must therefore decide whether there is something in the conduct of the action, or the circumstances of the case in general, which takes it out of the norm in a way which justifies an order for indemnity costs: see Waller LJ in Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson  EWCA (Civ) 879.
(c) The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided that the claim was at least arguable. But the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may well lead to such an order: see, for example, Wates Construction Ltd v HOP Greentree Alchurch Evans Ltd  BLR 45.
(d) If a claimant casts its claim disproportionately wide, and requires the defendant to meet such a claim, there was no injustice in denying the claimant the benefit of an assessment on a proportionate basis given that, in such circumstances, the claimant had forfeited its rights to the benefit of the doubt on reasonableness: see Digicel (St Lucia) Ltd v Cable and Wireless PLC  EWHC 888 (Ch).”
I do not think the Defendant is entitled to an order for indemnity costs for the whole or part of her costs.
- The Claimants must now rue the day they rejected the Defendant’s offer to settle but this was never an obviously hopeless case. But unlike a successful Claimant, the fact that the Defendant did better than her relevant offer does not give rise to an automatic entitlement to indemnity costs.
- Having considered all the matters raised and pursued by Senior Counsel on behalf of the Defendant, I do not consider that the Claimants’ conduct of the action or the circumstances of the case including the Claimants’ rejection of the Defendant’s very early Part 36 Offer takes it out of the norm and justifies an order for indemnity costs for the whole or part of her costs. Therefore, costs will be ordered on a standard basis
The judgment of Mr Justice Bryan in Assetco Plc v Grant Thornton UK LLP  EWHC 592 (Comm) provides a helpful review of the principles and authorities relating to the approach to be adopted when a claimant beats their own Part 36 offer, in particular in relation to interest.
The claimant had succeeded at trial in obtaining judgment for over £22 million. The claimant had made two Part 36 offers to settle, one for £10 million, the other for £17 million. Both offers were comfortably beaten. Given the sums involved the rate of interest to be applied is of some considerable significance.