Mitchell and Others v James and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Peter Gibson,Sir Murray Stuart-Smith |
| Judgment Date | 12 July 2002 |
| Neutral Citation | [2002] EWCA Civ 997 |
| Docket Number | Case No: CHANF/A3/2001/2655 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 July 2002 |
[2002] EWCA Civ 997
Lord Justice Peter Gibson
Lord Justice Potter and
Sir Murray Stuart-Smith
Case No: CHANF/A3/2001/2655
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Park J.
Royal Courts of Justice
Strand,
London, WC2A 2LL
Mr. Peter Brunner (instructed by Messrs Cleaver Thompson of Alfreton) for the Appellants
Mr. Neil Mendoza (instructed by Messrs Ward Hardaway of Newcastle upon Tyne) for the Respondents
This appeal raises points of some general interest on the applicability of CPR Part 36 relating to offers to settle.
They arise in the context of an action brought by the Claimants in effect for specific performance of an oral agreement. The Claimants were in July 1969 the four partners in Edward Mitchell and Son ("Mitchells"), a firm of chartered accountants in Chesterfield. They allege that in July 1969 the First and Second Defendants, Mr. and Mrs. James, orally agreed with the Second Claimant, Mr. Bargh, on behalf of the Claimants that in return for certain consideration to be provided by Mitchells Mr. and Mrs. James would work in a garage business in Matlock Green in Derbyshire and the net profits would be split 50/50 between Mr. and Mrs. James and Mitchells. It became part of the agreement that the business would be incorporated and carried on by a company. The Third Defendant, Matlock Green Garage Ltd., was acquired for that purpose. No shares were issued to the Claimants, who did not wish it to be known that they were taking an interest in a garage business; instead 50 shares were issued to each of Mr. and Mrs. James, each of whom signed a blank transfer of 25 shares and left the transfer with Mitchells. In July 1985 the relationship between the parties broke down. Mr. and Mrs. James contended that no agreement had been made, alternatively that if it had, it should be set aside on a number of equitable grounds. Proceedings were commenced as long ago as March 1986. The Claimants claimed a declaration that they were entitled as beneficial owners to 50 shares and other relief including an account. The Defendants denied the claim and counterclaimed for, amongst other things, an account. The firm of Mitchells, as then constituted, was joined as a Third Party.
On 2 March 2000, that is to say 14 years after the commencement of the action, the Claimants' solicitors sent the Defendants' solicitors what was called a "Claimant's Part 36 Offer to Settle". With it was sent a covering letter. The offer dated 2 March 2000 stated:
"1. The Claimants are prepared to compromise this action in respect of the whole of their claim, inclusive of interest, on the following terms:
(i) Payment by the Third Defendant to the Claimants of the sum of £91,410. 00;
(ii) The Counterclaim be dismissed;
….
(viii) Each party to bear his own costs (including for the avoidance of doubt, costs in the Third Party proceedings);
(ix) Each party to bear 50% of the Third Party's costs.
2. This offer will remain open for acceptance for 21 days from the date of this notice."
By para. 1(iii) to (vii) the assets of the Third Defendant other than bank deposits were to be sold, and the proceeds and the bank deposits were to be divided 50/50 between the Claimants and Mr. and Mrs. James.
In the covering letter an explanation was provided of how the sum of £91,410 had been computed on the basis of information provided by the Defendants.
The offer was not accepted. The action was tried by Park J. In his judgment he held that the Claimants' case succeeded in principle. Counsel were invited to agree an order.
There was a further hearing on 20 November 2001 to settle the order and to consider costs. The order provided for a declaration that the Claimants were entitled to 50 shares and for the dismissal of the counterclaim. Mr. Brunner for the Claimants submitted that the judgment obtained by them was more advantageous than the proposal contained in their offer of 2 March 2000 and that they should be awarded costs on an indemnity basis pursuant to r. 36.21. The Defendants did not dispute that they should pay the costs, but argued that they should be on a standard basis.
The judge in his judgment on costs said:
"I am not sufficiently satisfied that the outcome of this case for the Claimants will be such that they have clearly beaten their Part 36 offer. It is possible that they will have done so, but in terms of the assets of the company (ignoring the point on costs), on balance it seems unlikely that a 50% shareholding in the company as it is today is worth more than £91,410. That would be so even making the assumption which has been adopted in the correspondence that a 50% shareholding can be valued at 50% of the value of the entire assets of the company. I think all of us know that that assumption is regarded as incorrect for tax valuations: for example, a 50% shareholding will invariably be valued at considerably less than a 50% aliquot share of the entire net asset value of the company.
The other element which is relied on by the Claimants in support of their argument for indemnity costs is that under their Part 36 offer they, the Claimants, would have been liable to pay their own costs up to that point. In the event, the offer having been turned down and the Claimants having won, they will recover the costs of the action from the Defendants.
On balance Mr Brunner may be right, that that costs recovery will mean that the Claimants are better off than they would have been had that Part 36 offer been accepted. However, that point is far from certain, and I do feel uncomfortable about the whole principle of taking into account, in the exercise required by the Civil Procedure Rules of comparing a judgment with a Part 36 offer, the costs which are in the event incurred by the trial and dealt with by the judgment.
In all those circumstances, while freely acknowledging that I do not feel confident about this, I have come to the view that the conditions of Part 36.21 of the Civil Procedure Rules are not present. On that basis, I would not be given power by Part 36.21 to order indemnity costs. I would only add that if I did have the power, then even with Rule 36.21.(4) (which certainly gives the court a steer towards ordering indemnity costs where the power exists), I would still regard the matter as so marginal that I would be disinclined to order indemnity costs in this case. I add the observation (in case it is of assistance) that the scope of Civil Procedure Rule 36.21 and in particular the impact on it of terms as to costs in a Part 36 offer is a matter which could very helpfully be considered at some stage by the Court of Appeal.
For all those reasons (good or bad), I will direct costs to be assessed on the standard basis. I do not have huge confidence in the correctness of that conclusion, but, on balance, I believe it is more likely to be the correct conclusion than the reverse."
The judge then heard argument on an interim payment. The Claimants submitted that their costs amounted to some £450,000, of which some £150,000 related to an insurance premium. Mr. Brunner suggested discounting that by 50% and that the amount of the interim payment should be £185,000. The judge ordered an interim payment of £150,000. He gave the Claimants permission to appeal against the refusal to order indemnity costs. He explained his reasons in writing as follows:
"Two different questions arose. (1) Costs apart, did the decision (C[laimant]s are owners of 50% of the Company) beat the C[laimant]s' Part 36 offer (D[efendant]s were left with 100% of the company, but would pay C[laimant]s £91,400). (2) One of the elements of the Part 36 offer was that each side paid its own costs. So if it had been accepted the C[laimant]s would have paid their own costs. In the event, the offer not having been accepted the C[laimant]s having won, the D[efendant]s are ordered to pay the C[laimant]s' costs. Can this be taken into account in deciding (under CPR 36.21(1)(b)) whether the judgment is more advantageous to the C[laimant]s than the Part 36 offer?"
At this point it is convenient to set out the material provisions of Part 36.
R.36.1 provides:
"(1) This Part contains rules about—
(a) offers to settle and payments into court; and
(b) the consequences where an offer to settle or payment into court is made in accordance with this Part.
(2) Nothing in this Part prevents a party making an offer to settle in whatever way he chooses, but if that offer is not made in accordance with this Part, it will only have the consequences specified in this Part if the court so orders."
R.36.2(1) defines "a Part 36 offer" as an offer made in accordance with the requirements of Part 36 if not made by way of a payment into court. By r.36.2(4) a Part 36 offer may be made at any time after proceedings have started.
R.36.5 relates to the form and content of a Part 36 offer, and provides (so far as material):
"(1) A Part 36 offer must be in writing.
(2) A Part 36 offer may relate to the whole claim or to part of it or to any issue that arises in it.
(3) A Part 36 offer must—
(a) state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue;
(b) state whether it takes into account any counterclaim; and
(c) if it is expressed not to be inclusive of interest, give the details relating to interest set out in rule 36.22(2).
….
(6) A Part 36 offer made not less than 21 days before the start of the trial must—
(a) be expressed to remain open...
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