Tim-Alexander Gunther Nikolaus Hertel v John Francis Saunders
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice David Richards,Lord Justice Coulson |
| Judgment Date | 31 July 2018 |
| Neutral Citation | [2018] EWCA Civ 1831 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2015/3581 |
| Date | 31 July 2018 |
[2018] EWCA Civ 1831
Lord Justice Lewison
Lord Justice David Richards
and
Lord Justice Coulson
Case No: A3/2015/3581
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT, CHANCERY DIVISION
Mr Justice Morgan
CH/2015/0269
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Mark Smith (instructed under the Direct Access Scheme) for the Appellants
The Respondents did not appear and were not represented
Hearing date: Tuesday 24th July 2018
Judgment Approved
Introduction
In this appeal I shall refer to the appellants as ‘the claimants’, and I shall refer to the respondents as ‘the defendants’. Save on one or two specific issues, identified below, it is unnecessary to differentiate between the two claimants and the two defendants.
This appeal raises a potential point of importance regarding the meaning of ‘claim or part of [a claim] or an issue’ as these words are used in CPR Part 36. It arises in circumstances where an offer was made by the defendants in respect of a new claim which had been indicated by the claimants by way of a proposed amendment to the particulars of claim, but which had not yet been the subject of a court order granting permission. All the pleaded claims were abandoned when that offer was accepted by the claimants. Deputy Master Lloyd said that the offer was in accordance with Part 36 and ordered that, in consequence, the defendants should pay the claimants' costs of the abandoned claims. Morgan J allowed the appeal, finding that the offer was not in accordance with Part 36 and that, because the defendants were the successful party, the claimants should pay the defendants' costs of the abandoned claims. The claimants appeal to this court, originally seeking to reinstate the order of Deputy Master Lloyd.
The structure of this Judgment is as follows. I set out first the relevant parts of Part 36 in force at the time of the offer, cross-referring (where appropriate) to the current version of the CPR. I then set out the factual background and the course of the dispute about costs. Having dealt briefly with the authorities, I then analyse the two issues which arise on this appeal: was the offer in accordance with Part 36 and, even if it was, was Morgan J wrong to exercise his discretion in favour of the defendants?
The Relevant Parts of Part 36
The version of Part 36 which applied to this case was the version that existed prior to the amendments which came into force in April 2015 (set out in the 2014 edition of the White Book).
Rule 36.2 dealt with the form and content of a Part 36 offer. R.36.2(2) provided:
“A Part 36 offer must –
(a) be in writing;
(b) state on its face that it is intended to have the consequences of Section I of Part 36;
(c) specify a period of not less than 21 days within which the defendant will be liable for the claimant's costs in accordance with r.36.10 if the offer is accepted;
(d) 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 which part or issue; and
(e) state whether it takes into account any counterclaim.”
It should be noted that the wording of r.36.2(2)(d) – the rule in issue in this appeal — is preserved by the current r.36.5(1)(d).
Rule 36.3(2) made plain that a Part 36 offer could be made at any time, including prior to the commencement of proceedings. That rule is preserved by the current r.36.7(1).
Rule 36.10(2) provided:
“Where
(a) a defendant's Part 36 offer relates to part only of the claim; and
(b) at the time of serving notice of acceptance within the relevant period the claimant abandons the balance of the claim,
the claimant will be entitled to the costs of the proceedings up to the date of serving notice of acceptance unless the court orders otherwise.”
R.36.10(2) has not been preserved. On the contrary, current rule 36.13(2) expressly states that, where a Part 36 offer relates to part only of the claim, “the claimant will only be entitled to the costs of such part of the claim unless the court orders otherwise”. In other words, whilst the version of the CPR with which we are concerned provided a steer towards allowing the claimant to recover all of the costs of the proceedings (unless the court ordered otherwise), the steer in the current rule is only as to the costs of that part of the claim which has been compromised, again unless the court orders otherwise. It might be thought that this is a change for the better, because it more closely accords with simple justice. The change also means that, if the current rule had applied to these proceedings, this costs dispute would not have arisen.
The Factual Background
The original claim form sought a declaration that there was a partnership or joint venture between Mr Hertel and Mr Saunders. This was denied by the defendants. On 11 July 2014, before Master Teverson at a case management conference, the claimants indicated that they wished to serve amended particulars of claim. Master Teverson ordered that the claimants were to serve copies of the proposed amendments by 25 July and that the defendants were to indicate, by 1 August, whether they accepted the proposed amendments. He ordered that, if they did not, the claimants had to make an application for permission to amend. He omitted to make any order about what was to happen if the amendments were agreed.
The claimants served a draft amended claim form and draft amended particulars of claim on 25 July. This added a new claim for a declaration that there was an agreement between Mr Hertel and Mr Saunders under which the defendants were to account to the claimants in relation to certain matters. The existing claims (in respect of the alleged partnership and joint venture) were maintained.
The defendants' solicitors replied to the proposed amendments on 30 July 2014. No copy of the letter was before Morgan J or before us, but it was cited by Deputy Master Lloyd in these terms:
“Thank you for providing your draft Amended Claim Form and Particulars of Claim upon which we have taken instructions from our clients. Without prejudice to our clients' case and the complete denial of the claims you make by Amendment (and otherwise) we see no value in opposing the Amendment in the terms you have sought but this is strictly without prejudice to our client's full defence to the claim as made and as Amended. For the present purposes however we have no issue with you moving your Amendment in front of the Court on the next occasion.”
There were mediations in November 2014 and again in January 2015 but the proceedings were not compromised. The next court hearing was due on 30 March 2015. However, before that, there was an exchange of correspondence which I should set out in full.
On 17 February, the defendants' solicitors wrote to the claimants' solicitors the offer letter, in these terms:
“ Our Clients: Mr John Saunders/ Liquid Strategies Limited
Your Clients: Mr Tim Hertel/ Artemis International SARL
Claim No: HC13E02592
PART 36 OFFER
WITHOUT PREJUDICE SAVE AS TO COSTS
We write on behalf of our clients to make an offer in settlement of your client's proposed claim, by amendment, for an account based on an agreement. We do so before the case begins its next stage and with a view to conserving the costs that will otherwise be incurred consequent upon the amendment and the orders likely to be made by Master Teverson on 30 March.
Our offer is predicated upon the basis that your clients' currently pleaded claim based [on] a partnership or joint venture is going to fail. Our clients have always denied that there was any such partnership and that the only genuine claim your clients have is the one based on an agreement between Messrs Hertel and Saunders for and on behalf of their respective companies, Artemis International SARL (“Artemis”) and Liquid Strategies Limited (“LS”). That remains our clients' position and our clients are confident that, if and when this matter goes to trial, that position will be vindicated.
The claim which your clients are now seeking permission to bring is one for a declaration that there was an agreement whereby LS was to account to Artemis for Mr Hertel's expenses and share of remuneration for collaborating on projects with third parties. Our clients are willing to consent to the making of a declaration. They will consent to the making of a declaration that there was an agreement between LS and Artemis whereby LS agreed to account to Artemis on the following basis:
1. LS would pay to Artemis any direct project-related expenses recovered from third party clients on projects on which Mr Hertel worked.
2. LS would pay to Artemis 66.66% of any remuneration recovered from third party clients on projects on which Mr Hertel worked.
3. LS would deduct or be paid by Artemis 50% of its operating costs during the period in which Mr Hertel worked on third party client projects.
The result of this is that Artemis will become entitled to a substantial payment (by our calculations £130,303 but the precise figures will hopefully be uncontroversial) and 2/3 of the shares which have been recovered from BRG pursuant to the settlement agreement. Artemis will also become entitled to further sums from LS as and when further sums are received from BRG.
This offer is made without prejudice to the existing claims and counterclaims of the parties made in these proceedings. It is a matter for your clients as to whether they want to pursue their existing claim. It is a matter for LS as to whether it wishes to pursue its existing counterclaim.
This offer is intended to have the consequences of Section 1 of CPR Part 36. If accepted within 21...
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