Dutton and Others v Minards and Others

1. This appeal is an appeal against a costs order made by His Honour Judge Armitage QC on 15 April 2014 following the late acceptance of a Part 36 offer.

The underlying dispute arose out a joint venture between the parties for the provision of financial services to clients of a firm of chartered accountants called Allwoods. When Allwoods' business was sold to a purchaser that itself provided financial services, the rationale for the joint venture ceased and the parties agreed to bring it to an end. What was in issue was what commission, if any, the Defendants were liable to pay the Claimants.

The Claimants' pleaded case was that there had been an agreement between them and the Defendants for the payment of trail commissions and renewal commissions. That allegation was denied by the Defendants. However, the Defendants had in fact paid some commission to the Claimants and by counterclaim, they claimed repayment. The sum for which they counterclaimed was £44,000 odd.

The Claimants began the proceedings by claim form issued on 8 February 2011. In fact, there had been considerable correspondence between the parties before the issue of proceedings. That correspondence included a number of letters relevant to this appeal.

In a letter of 15 December 2006 the Defendants' solicitors, DTM Legal, had said that they were instructed to advance a counterclaim for the virtual drying up of referrals in the months leading up to the sale of the business. That counterclaim was not quantified at the time and in any event was not the counterclaim that eventually materialised.

The next relevant letter was a letter from DTM Legal dated 30 July 2010. The letter was headed "without prejudice save as to costs". That letter raised the possibility of a different counterclaim based on an allegation that the Claimants had solicited the business of the clients transferred to the buyer. It concluded:

i. "Our clients offer to pay to your clients the sum of £25,000 plus your clients' reasonable costs. This offer is made pursuant to CPR Part 36. As such, it will remain open for a period of 21 days from the date of receipt by you. The offer is intended to have the consequences of section 1 Part 36 and relates to the whole of your clients' claim and any counterclaim that may be advanced by our client."

The Claimants did not accept that offer. There was some inconclusive correspondence about mediation, but nothing came of it.

During the course of proceedings, the Claimants made a series of Part 36 offers, each on form N242A. On 23 September 2010 they offered to accept £35,000. The offer of 23 September 2010 was limited to the claim because at that stage there was still no counterclaim to take into account. The remaining offers took the counterclaim into account. On 24 September 2010 DTM proposed instructing a forensic accountant to take an account, although they pointed out that the authority of the purchaser would be needed. That proposal was turned down by the Claimants' solicitors, Hill Dickinson, on the ground that it would not be cost effective while liability remained in dispute.

The Claimants made further Part 36 offers. On 8 February 2011 they offered to accept £24,000 and on 21 October 2011 they offered to accept £18,000. It will be noticed that the Claimants' offer of 8 February 2011 was £1,000 less than the Defendants' offer of 30 July 2010. Even that was before the Defendants had actually pleaded the counterclaim which, as I have said, was not the same as the two counterclaims intimated in earlier correspondence.

The last of the offers, that is 21 October 2011, said that if the offer were accepted within 21 days of service, the Defendants would be liable for the Claimants' costs in accordance with Rule 36.10 of the CPR.

The Defendants did not accept that offer within the 21-day period. Quite deliberately, they sent a fax accepting the offer one minute after the period of 21 days had expired. The Claimants' counterclaim had therefore been compromised by a stay, but the parties could not agree the incidences of costs. That was left to the judge to decide.

At the relevant time, CPR Part 36.10 provided, so far as material, as follows:

i. "(1)… Where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings up to the date on which notice of acceptance was served on the offeror.

ii. (2)…

iii. (3) Costs under paragraphs (1) and (2) of this rule will be assessed on the standard basis if the amount of costs is not agreed…

iv. (4) Where —

v. (a)… or

vi. (b) a Part 36 offer is accepted after expiry of the relevant period, if the parties do not agree the liability for costs, the court will make an order as to costs.

vii. (5) Where paragraph (4)(b) applies, unless the court orders otherwise —

b. the Claimant will be entitled to the costs of the proceedings up the date on which the relevant period expired; and

c. the offeree will be liable for the offeror's costs for the period from the date of expiry of the relevant period to the date of acceptance."

The relevant period in this case was 21 days. If, therefore, the Defendants had accepted the Claimants' Part 36 offer within the period of 21 days, the Claimants would have been entitled to their costs in accordance with CPR Part 36.10 (1). As it was, however, the case fell within Part 36.10(4)(b). Since the parties could not agree liability for costs, that took the case into Part 36.10(5).

It is clear from Part 36.10(5) that the starting point is that the Claimants would be entitled to their costs up to the expiry of the 21-day period and that the offeree, here the Defendants, would be liable for the Claimants' costs up to the time of acceptance. In short therefore, the starting point was that the Defendants would pay the Claimants' costs of the proceedings.

That starting point is, however, subject to the important qualification "unless the court orders otherwise". Although CPR Part 36.10(5) itself gives no guidance about the circumstances in which the court should order otherwise, it was common ground that the test applied by this court in SG v Hewitt [2012] EWCA Civ 1953, [2013] 1 All ER 1118 was applicable.

In that case, this court said, by analogy with CPR Part 36.14 which concerns costs after judgment, the court should make the order envisaged by Part 36.10(5) unless it considers it unjust to do so. In considering whether or not it is unjust to make that order. The court should take into account all the circumstances of the case, including:

i. "(a) the terms of any Part 36 offer;

b. the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

c. the information available to the parties at the time when the Part 36 offer was made; and

d. the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated."

The essence of the Defendants' argument before the judge was that he should "order otherwise" because the Claimants should have accepted the Defendants' offer of £25,000 plus their reasonable costs. Instead, the Claimants had pursued the litigation at considerable additional cost and had ended up with a lower principal sum. It would not be fair or just, in those circumstances, for the Defendants to have to bear those additional costs. Instead, it was argued that the Claimants should be ordered to pay the Defendants' costs incurred after 23 August 2010, which was the date 21 days after the making of the offer of 30 July. That argument, with a little elaboration, was repeated on appeal.

The judge recounted the procedural history and the various offers that had been made by each side. He noted that there had been an order for a trial on liability only and that the Claimants' application for disclosure relating to quantum had been refused in July 2011 as being premature. He noted the argument advanced by each side that the other side was guilty of tactical manoeuvring, but said that was a factor which should not weigh heavily with him.

The Claimants argued that the Defendants' offer of 30 July 2010 was not in fact a Part 36 offer, even though it purported to be, for two reasons. First, it was time limited and second, it contained its own proposal about costs, whereas the question of costs fell to be decided only in accordance with Part 36. The judge rejected that argument, which was revived before us by a Respondent's notice.

The judge referred to a number of cases and said at paragraph 21:

i. "It seems to me on the authorities cited that the rule itself provides an outcome which should be just in most cases and the court may order otherwise where the facts show that application of the rule will cause injustice."

The Defendants do not, I think, criticise that self direction.

The first point that the judge made was that in accepting the Claimants' Part 36 offer, the Defendants achieved a reduction of the judgment sum minus the increase in costs in July 2010 and also avoided the...