Summary

The principle expressed in Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC), 122 Con. L.R. 88, namely that a costs penalty might be appropriate where one party made a Part 36 offer which was nearly sufficient and the other party rejected that offer outright without any attempt to negotiate, no longer applied to Part 36 and should not be applied as a special "near miss" rule through the CPR r.44.2(4)(c).

Facts

The court had to consider the issue of costs arising out of a judgment awarding damages to the claimant landlord (H) in proceedings against the defendant tenant (S) for dilapidations on the termination of a lease.

H had been awarded £900,000, which was limited to the value of the diminution of the reversion. Including the agreed cost of schedules, the total sum awarded was £1,058,768. S had made a Part 36 offer in the sum of £1 million. If interest was added to H's award up to the last date of acceptance of that offer, the sum awarded to H exceeded the Part 36 offer by only £3,637.

Held

(1) As H had only received a very small amount more than the sum offered, the court should not approach the CPR r.44.2(4)(c) on the basis that it could lead to an order that H should pay S's costs. To do so would be using the provisions of r.44.2(4)(c) to give a similar effect to a Part 36 offer and thereby introduce the same uncertainty into Part 36 offers which were near to but below the sum awarded, Carver v BAA Plc [2008] EWCA Civ 412, [2009] 1 W.L.R. 113 considered. While S should have offered a very small amount more and H should have reasonably accepted such an offer, the court should resist invitations to speculate whether offers to settle litigation which were not in fact made might or might not have been accepted, Johnsey Estates (1990) Ltd v Secretary of State for the Environment, Transport and the Regions [2001] EWCA Civ 535, [2001] L. & T.R. 32 followed. In reality, where a Part 36 offer was not sufficient to give rise to the automatic cost consequences of Part 36, an argument could always be made that if the parties had negotiated, the matter could have been resolved. However, most negotiations were conducted on a without-prejudice basis and were therefore not admissible in relation to costs. It was not desirable that the court should seek to attribute a particular consequence to a failure to negotiate when necessarily the court did not have the full information of any negotiations which did take place and both parties had sought costs protection under Part 36 by making offers. The principle expressed in Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC), 122 Con. L.R. 88, namely that a costs penalty might be appropriate where one party made a Part 36 offer which was nearly sufficient and the other party rejected that offer outright without any attempt to negotiate, no longer applied to Part 36 and should not be applied as a special "near miss" rule through r.44.2(4)(c), Multiplex not followed. It was doubtful that a "near miss" offer could generally add anything to what otherwise would be conduct in the form of an unreasonable refusal to negotiate. In any event, the instant case was not one in which the general principle in r.44.2(2)(a) should be departed from (see paras 26, 29-31, 34, 36-37 of judgment). (2) It was evident that S had not undertaken a proper pre-action process. Until proceedings were far advanced, it had not properly engaged in the detail of the schedule of dilapidations or in relation to the quantum of its case on diminution in value. Equally, at the time of S's Part 36 offer, the information it had provided to H made it difficult to assess S's case. The absence of information made it unrealistic to suggest that H was obliged to negotiate on receipt of the Part 36 offer. However, the fact that H recovered less than it claimed did not give rise to particular cost consequences. In relation to H's case on diminution, the sum awarded fell between the sums argued for by the parties. It could not be said that the conduct of either party in pursuing the case properly supported by its expert could be classed as unreasonable conduct. The fact that the court came to a figure closer to that put forward by S in relation to the schedule of dilapidations did not mean that H had exaggerated its claim. However, H had incurred additional costs by its approach to the carrying out of remedial works and had sought to rely on an intention to carry out the works to support its case when it did not have any clear intention to do so. Therefore, H did not intend to carry out the dilapidations for which it claimed, and that had to be reflected in costs (paras 48-49, 51-52, 54). (3) S's failure to undertake a proper pre-action process did not have a costs impact; if anything, it neutralised a number of points made by S in relation to the claims for dilapidations and diminution in value. In all the circumstances, it was appropriate to reduce the order for costs in favour of H accordingly. S would pay 80 per cent of H's costs (paras 65-66).

Costs determined