Sugar Hut Group Ltd and Ors (Claimants/Appellants) v A J Insurance Service (A Partnership)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Tomlinson,Lord Justice McCombe,Lord Justice Longmore |
| Judgment Date | 03 February 2016 |
| Neutral Citation | [2016] EWCA Civ 46 |
| Docket Number | Case No: A3/2014/4047 |
| Court | Court of Appeal (Civil Division) |
| Date | 03 February 2016 |
[2016] EWCA Civ 46
Lord Justice Longmore
Lord Justice Tomlinson
and
Lord Justice McCombe
Case No: A3/2014/4047
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
MR JUSTICE EDER
Royal Courts of Justice
Strand, London, WC2A 2LL
Andrew Post QC (instructed by Thomas Cooper LLP) for the Appellants
Angus Piper (instructed by Caytons Law) for the Respondent
Hearing date: 17 December 2015
This is an appeal against a costs order made by Eder J in the Commercial Court after a three day hearing to assess the quantum of damages to which the Claimants/Appellants were entitled, liability having earlier been compromised on terms that the Defendant/Respondent pay 65% of the Claimants' recoverable losses.
The claim arose out of a serious fire on 13 September 2009 at a well-known nightclub in Brentwood, Essex, the Sugar Hut Club. The fire destroyed one wing of the Club and all of the office areas. There was also extensive water, extinguishing and carbon damage. The Club was effectively unusable for a period of some 49 weeks until it eventually reopened on 25 August 2010. During that period repairs and reinstatements were carried out. The capacity of the Club was increased by minor changes to the design. It was common ground at trial that the time taken for the repair works was reasonable.
The First Claimant is the ultimate holding company of the Sugar Hut Group and the Claimants compendiously may be regarded as the owners and operators of the Sugar Hut Clubs in Brentwood, Fulham, Basildon and Hertford. The Defendant firm was the Claimants' insurance broker. The Claimants alleged that the fire gave rise to loss under the following heads:—
i) Property Damage — capped at the policy limit, £345,000;
ii) Business Interruption Losses of £1,345,794;
iii) Accountants' costs of £19,275 excluding VAT;
together with interest accrued on these losses.
The insurers with whom the Defendant had placed cover on the Claimants' behalf for "All Risks of Physical Loss or Damage Including Material Damage and Business Interruption" avoided the policy for material non-disclosure. The Claimants sued the insurers, and there was a trial of liability in the Commercial Court in October 2010 before Burton J. The Judge dismissed the claim, upholding the insurers' right to avoid for non-disclosure and, additionally, holding that there had been breaches of warranty under the policy. The Judge awarded the insurers their costs on the standard basis.
Having failed against their insurers, the Claimants sued their brokers, the Defendant, alleging negligence in and about the placement of the policy. To the heads of loss itemised above was added the Claimants' own and the insurers' costs in the failed action.
Following the compromise of liability, which included resolution of the issue of the costs of the liability issue, the parties were able to narrow their differences. Property Damage costs were agreed at a mediation to be £310,000. The costs of the failed claim against insurers were agreed at £573,136.88. Payments on account were made by the Defendant in the sum of £813,000.
The parties were however unable to compromise their differences over the level of Business Interruption losses, accountants' fees, the rate of interest to be applied and whether the period for which interest was claimed should be reduced to reflect delays by the Claimants in bringing the matter to trial, compounded by a failure to provide adequate disclosure on a timely basis. These matters all went to trial before Eder J on 6, 7 and 8 October 2014.
The effect of his judgment delivered on 20 October 2014 was as follows, expressed in gross terms before application of the agreed 65% recovery:—
i) Business Interruption losses were held recoverable in the sum of £568,670;
ii) The accountants' fees were held irrecoverable as not having been "required by the insurer under the General Claims Conditions" as would have been a condition of their recovery under the "professional accountants clause" of the policy;
iii) Interest was payable at 5% for the entirety of the periods claimed.
The overall gross level of recovery was therefore in the event £1,676,955.30. The amount recoverable from the Defendant was 65% thereof, being £1,090,021.02, inclusive of interest. After taking into account the two interim payments, the effect of Eder J's judgment was that a further £277,021 was payable by the Defendant to the Claimants.
Part 36 and Calderbank offers had been made by both sides, but it was common ground that none had been "effective", in that each of the Claimants' offers had been for sums higher than in the event recovered, and each of the Defendant's offers had been for sums lower than in the event allowed. The last of the Part 36 offers made by the Defendant was on 23 May 2014. It offered to settle the claim for a payment of a further £250,000 in addition to the payments made on account. The letter explained that the basis for the calculation of the Defendant's offer was a figure of £600,000 for Business Interruption losses. It also explained that interest was calculated at 2.5% over various periods reduced from those claimed by the Claimants.
The Judge heard the parties' submissions on costs on 10 November 2014. He announced his decision at the end of the hearing and gave his reasons in a reserved judgment handed down on 19 November 2014. In summary, the Judge allowed the Claimants their quantum costs up to 13 June 2014, but subject to a reduction of 30% by reason of the issues on which the Claimants had failed at trial. Secondly, the Judge ordered that in relation to the period from 13 June 2014 the Claimants should receive no costs save for the costs of the issue of interest, and should pay the Defendant's costs, save again for the costs relating to the issue of interest. This was reflected in the Judge's Order of 19 November 2014 which, so far as material, provided:
"1. The Defendant shall pay 70% of the Claimants' costs of the assessment of damages up to and including 13 June 2014 on the standard basis, to be assessed if not agreed.
2. That the Defendant shall pay the Claimants' costs after 13 June 2014 relating to the assessment of interest on the standard basis, to be assessed if not agreed.
3. The Claimants shall pay the Defendant's costs of the assessment of damages after 13 June 2014 (excluding the Defendant's costs relating to the assessment of interest) on the standard basis, to be assessed if not agreed."
It is against paragraphs 2 and 3 of the Judge's costs order that the Claimants now appeal with permission of Lewison LJ. They submit that the Judge has effectively treated the Defendant's Part 36 offer of 23 May 2014 as having been successful. True he has not awarded the Defendant interest on its costs incurred after 13 June 2014, as pursuant to CPR 36.17(1)(a) and 3(b) he would have done if the Part 36 offer were regarded as effective and he did not consider it unjust to do so, but in all other respects the Judge has, subject to the costs relating to the assessment of interest, treated the 23 May 2014 offer as having been a successful and effective offer under Part 36. Furthermore the Judge justified his order denying the Claimants their costs as from 13 June 2014 and awarding the Defendant its costs incurred over the same period by his conclusion that the Claimants had after 13 June 2014 acted unreasonably in persisting in pursuit of a claim for Business Interruption losses in excess of the £600,000 on which the Part 36 offer was based. This the Claimants submit involved an element of double counting or double penalty. The Judge had already reduced the costs recoverable by the Claimants in respect of the period up to 13 June 2014 to reflect the issues on which the Claimants had failed at trial. To justify depriving the Claimants of their costs and requiring them to pay the Defendant's costs incurred in the period after 13 June 2014, the run-up to trial, amounted to penalising the Claimants twice for the same shortcoming.
Although the Judge directed himself correctly by reference to the relevant authorities concerning the exercise of the court's discretion under CPR 44.2, I have no doubt that he fell into error in his approach to the Part 36 offer and, partly in consequence thereof, mischaracterised the conduct of the Claimants as unreasonable. His award of costs fell outside the ambit of reasonable decision-making.
The Judge acknowledged that the general rule pursuant to CPR 44.2(2)(a) is that the unsuccessful party will be ordered to pay the costs of the successful party. He acknowledged too that the Claimants were here properly regarded as the successful party. Furthermore, whilst noting that CPR 44.2(2)(b) provides that the court may nonetheless make a different order, the Judge notes also that the court is enjoined to give "real weight" to the overall success of the winning party. He further noted the observation of Simon Brown LJ in Budgen v Andrew Gardner Partnership [2002] EWCA Civ 1125 at paragraph 35 that: "the court can properly have regard to the fact that in almost every case even the winner is likely to fail on some issues". To similar effect, in Travellers' Casualty v Sun Life [2006] EWHC 2886 (Comm) Christopher Clarke J said, at paragraph 12:—
"If the successful claimant has lost out on a number of issues it may be inappropriate to make separate orders for costs in respect of issues upon which he has failed,...
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