Mitchell v James, Court of Appeal

Part 36 – costs.

The Claimants brought an action for specific performance of an oral agreement relating to shares. They submitted an offer to settle prior to the action being commenced, which was entitled “a Part 36 Offer”. The Offer included an offer that each side pay its own costs. At Trial, the Judge described it as a marginal issue as to whether, in respect of the substantive Order itself, the Claimant had done better than his Part 36 Offer. The Claimant argued that having regard to the Costs Order, the balance was swung in the Claimant’s favour and that therefore they were entitled to indemnity costs.

It was not intended that terms as to costs should be included in a Part 36 Offer. This was because Part 36 Rule 14 applied whenever an offer was accepted without the permission of the Court being needed. (Part 36.14 provides that when the offer is accepted, the Claimant is entitled to his costs up to the date upon which the Defendant to a Claimant’s offer serves Notice of Acceptance). The wording of 36.14 did not indicate that the parties could agree other terms. Similarly, the Practice Direction at 7.2 and 7.5 was not consistent with a term as to costs being part of a Part 36 Offer. Moreover, Rule 36.21 (costs consequences where Claimant does better than he proposed in his Part 36 Offer) referred to a Defendant being held liable for “the Judgment” against a Defendant being more advantageous to the Claimant than the offer. These words were intended to refer to the substantive issues in the case and not the ancilliary issues of costs. Moreover, it would cause difficulties in cases where the Judge was required to assess costs at the end of the Trial. Nothing however in Part 36 permitted a party to include a term as to costs as part of a Part 36 Offer for the purpose of getting an Order for costs on an indemnity basis.

This case highlights a problem with the Part 36 regime. In damages and money cases, it is relatively easy for a Claimant or a Defendant to propose a settlement which they may be in a position to better at Trial. However, in cases like this of specific performance or cases relating to the delivery up of land etc, it is hard to see how a “compromise” offer can be put on any realistic basis without making some concession as to costs as part of the offer. One would have thought that the offer put forward by the Claimant in this case was wholly within the spirit of the Rules and of the Reforms generally and to that extent, the decision of the Court of Appeal is perhaps surprising.

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