Phaestos Ltd and Another v Peter HO

This case has had a very chequered and contentious history. There is no need for me to set out now the substance of the 12 to 15 rulings or judgments I have already issued in this matter, almost all of which were to do with straight case management matters. It looked as if light was on the horizon and the darkness of the litigation was over when, on 9 November of this year, after litigation which in one form or another, had been going for the best part of four years between these parties, was resolved by the acceptance by the claimants of a Part 36 offer made by the defendants.

I am not going to summarise the history of the issues between the parties, other than to say that the claimants were related to a hedge fund, known as the IKOS hedge fund, and the two defendants were highly qualified computer experts who, over many years, helped construct and then operate the computer systems which, in these modern days very substantially help to run successful hedge funds. After they were summarily dismissed just before Christmas in 2008, proceedings were commenced and essentially the claimants' very substantial claim against these defendants was that the defendants had acted in breach of their respective contracts in failing to construct, maintain or operate the computer systems in an appropriate and careful way. In addition to that, it was said by the claimants that the defendants had misused a substantial amount of confidential information which they had and, it was said, had retained after the termination of their employment.

The defendants denied all those allegations but also counterclaimed for bonuses which were said to be due and not paid and/or alternatively for profit shares which were said to have been agreed. The claims on both sides ran to eight-figure sums. The case was transferred to the TCC late in 2011 and directions were given for trial by Ramsey J initially in December 2011 and a trial date was fixed for January 2013. I became the judge responsible for case managing this case in about February of this year and there were a substantial number of applications whereby each party sought orders against the other. They related to matters such as security for costs, striking out, disclosure, and other important timetabling matters.

By 10 August 2012 the claimants were in breach of an "unless" order made in July 2012 relating to disclosure. The defendants sought, pursuant to that "unless" order, to have confirmation from the court that the claim should be struck out and that they should be given judgment on their counterclaim. I fixed a hearing during the long vacation on 16 August 2012 for the parties to attend before me. I did that before there was any question of any breach of the "unless" order because I appreciated that there was a risk, at least, that there would be remaining residual issues between the parties relating to disclosure. Given that the timetable had already fallen behind and that the trial was due, at that stage some five months ahead, I felt that it was important to ensure that following the disclosure exercise, the parties were clear as to where they had to go.

On 16 August, having heard argument, particularly from the claimants' leading counsel, Mr Goulding QC, I adjourned the hearing until 24 August so as to give the claimants principally the opportunity to put in evidence and to issue an application for relief from sanctions. So it was that the matter came back before the court even further into the long vacation on 24 August 2012. So far as I recall, the hearing started at about 2.00pm and it was a hard fought, indeed a well fought, hearing. It went on until about 8.30pm at night. I gave judgment there and then but it was appreciated, after an exceptionally long day, and given that there were, it was thought, bound to be contentious issues about costs, that I should reserve the question of costs. To save time and money, it was resolved and, indeed, I recall agreed, that representations about costs and summary assessment should be made in writing. The order is dated 24 August 2012 but it was stamped by the court on 18 September 2012. It is clear that the court reserved to itself the right and, indeed, the duty to resolve questions of the costs of and occasioned by the hearings of 16 and 24 August 2012 and all questions of summary assessment.

Unknown obviously to the court, on 7 September 2012 the defendants made a without prejudice save as to costs Part 36 offer to the claimants. I will come back to the wording of that because it was clarified and amended later. It was dated 7 September 2012. On 14 September 2012 the claimants' solicitors came back with several apparently legitimate queries and they said this:

"We refer to your without prejudice save as to costs letter of 7 September 2012 which purports to be made pursuant to Part 36.

Given the nature of the offer contained in your letter, we assume that it has been made as a claimants' offer in respect of your clients' Counterclaim, but it is intended to settle all of our clients' claims as well. Please confirm that this is correct or otherwise clarify the offer in accordance with CPR 36.8.

The letter is marked as a Part 36 offer but goes on to state, unequivocally, 'The relevant date for expiry of this offer is therefore Friday 28 September 2012'. You will be well aware of case law to the effect that a Part 36 offer must not contain a time frame for expiry of acceptance: see C v D 2011 EWCA Civ 646, Thewlis v Groupama Insurance Company Limited [2012] EWHC 3 (TCC).

If your clients' offer was intended to comply with Part 36, it should be reissued with this point corrected."

A few days later on 18 September 2012, the defendants put forward a clarified Part 36 offer in these terms:

"We refer to your letter received on 14 September 2012 in relation to our clients' Part 36 offer. We confirm that our clients' Part 36 offer is made as a claimants' Part 36 offer and is intended to settle all claims in the entire consolidated proceedings, including any claims or counterclaims.

Thank you for pointing out the syntactical error. We confirm that the line you have referred to in our letter should read, 'The date of expiry of the relevant period is therefore Friday 28 September 2012.' This error should not alter the substance of our clients' Part 36 offer, but, should your client contend that it does, we now restate the offer, below:

This is an offer to settle under Part 36 of the CPR with the associated cost consequences. In particular, your clients will be liable for our clients' costs up to the date of a notice of acceptance which must be in writing in accordance with CPR 36.10, if the offer is accepted within 21 days.

Our clients make the following offer for full and final settlement of the entire consolidated proceedings, including any claims or counterclaims which any party may have against the other, on the following terms:

1. Your clients, are to pay to our clients within 14 days of accepting this offer, the following sums: £4,000,000 in respect of Dr. Peter Ho, inclusive of interest; £4,000,000 in respect of Dr. Sam Gover, inclusive of interest.

2. The settlement sums do not include costs, which shall be payable pursuant to Part 36.

3. This offer is not severable. It can only be accepted in whole and not in part."

The letter goes on to give technical bank account details as to where payment might be made and it continues:

"As set out above, this settlement does not include costs and your clients will liable to pay our clients' costs on the standard basis, to be assessed if not agreed, up to the date of service of notice of acceptance if this offer is accepted within the relevant period.

If your clients do not accept this offer and fail to do better than this offer at trial, our clients will rely on CPR 36.14.

In the event that your clients are of the view that this offer is in any way defective or non-compliant with Part 36 of the CPR, please let us know."

Now that offer, it is accepted by both parties, properly, was a valid Part 36 offer, but it was not accepted within the 21 day period. On 9 November 2012 Messrs Herbert Smith Freehills wrote back to the defendants' solicitors saying this:

"We refer to your clients' full and final settlement offer pursuant to Part 36 of the CPR dated 18 September 2012, which is intended as a full and final settlement of the entire consolidated proceedings, including any claims or counterclaims (the 'Part 36 Offer').

We are instructed that the Claimants hereby unequivocally accept the Part 36 Offer.

We confirm that a copy of this notice of acceptance will be filed with the court in accordance with CPR 36.9(1) and 36APD3.1."

Meanwhile, while all that was going on, the parties' counsel in accordance with the order made following the August hearings had, probably broadly within the agreed timetable, submitted written submissions and response submissions on the question of costs, a substantial element of which was to...