In a recent decision, the High Court has confirmed that a party can obtain the costs benefits of making a "claimant's" Part 36 offer in relation to its counterclaim, even though it is not formally the claimant in the litigation. The party's role in making the offer and the terms of the offer are more important than its title in proceedings: The Huntsworth Wine Company Ltd v London City Bond Ltd [2022] EWHC 97 (Comm).

Under CPR 36.17, where a claimant obtains a judgment that is at least as advantageous as its own Part 36 offer, the court must (unless it considers it unjust to do so) award the claimant costs on the more favourable indemnity basis from the date on which the relevant offer period expired, together with certain other favourable consequences. On the other hand, if a defendant has made a Part 36 offer that the claimant fails to beat, the defendant is entitled to its costs on the standard rather than indemnity basis from the expiry of the relevant period (reversing from that point the usual position that a claimant who is awarded damages is entitled to an award of costs in its favour). Further, on acceptance of a Part 36 offer (whether a claimant's or defendant's offer) the claimant is entitled to its costs.

This case is a reminder that the question as to who is entitled to make a claimant's Part 36 offer, with its potentially more attractive consequences, cannot be determined simply by looking at who issued the proceedings or who made the first "claimant's offer": instead a court must consider the substance of the Part 36 offer. This follows the decision of the Court of Appeal in the case of AF v BG [2009] EWCA Civ 75 (considered here), where it was held that a defendant could be treated as a claimant in respect of its counterclaim even in circumstances where the counterclaim had not yet been pleaded, and indeed CPR Part 36 has since been amended to make it clearer that a Part 36 offer can be made in respect of a counterclaim.

As this decision illustrates, in a case where there are claims in both directions, parties should consider carefully how to frame any Part 36 offer and whether they may be able to benefit from making a claimant's Part 36 offer, regardless of their formal status in the proceedings.

Background

Huntsworth Wine Company Limited ("Huntsworth") brought a claim in the London Circuit Commercial Court for £125,000 in respect of losses suffered after its wine was stolen from a warehouse owned and operated by London City Bond Limited ("LCB"). LCB counterclaimed for a reimbursement of excise duty. Huntsworth was awarded £1,067.88 on the claim and LCB was awarded £3,905.41 on its counterclaim, making LCB the successful party in the litigation.

Shortly before bringing proceedings, Huntsworth had served on LCB draft particulars of claim and a claimant's Part 36 offer. LCB then made its own Part 36 offer (the "Offer"). The Offer was also stated to be a claimant's Part 36 offer relating to proposed proceedings in the Aldershot County Court, naming Huntsworth as defendant. It offered to settle LCB's claim for excise duty and Huntsworth's anticipated counterclaim for losses of its wine on the basis that Huntsworth make a net payment of £2,000.

LCB argued that the Offer was valid under CPR Part 36 and, as it had beaten the Offer with a net judgment of £2,837.53 in its favour, the court should award it the favourable costs and other consequences of a claimant's Part 36 offer under CPR 36.17. Huntsworth on the other hand contended that LCB could not make a claimant's offer since it had never actually brought proceedings in the Aldershot County Court or elsewhere: in fact Huntsworth was the true claimant because it had already served draft particulars of claim and made its own claimant's Part 36 offer. It invited the court to make an issue-based costs order instead.

Decision

The High Court (HHJ Pearce sitting as a High Court judge) held that the Offer was a valid claimant's Part 36 offer and therefore, having beaten the Offer, LCB was entitled to benefit from the favourable costs and other orders set out in CPR Part 36.17(4).The judge observed that "it would be a most unfortunate interpretation of the rules" if the question as to who could make a claimant's Part 36 offer was determined simply by who made the first Part 36 offer or who issued proceedings where a counterclaim was probable. He referred to the dicta of Lloyd LJ in AF v BG [2009] EWCA Civ 75, referred to above, that "whether [a Part 36 offer] is properly to be regarded as a claimant's offer depends on the construction of the offer as a whole not just on the statement by the offeror".

He noted the apparently conflicting decision of the High Court in The Procter & Gamble Company v Svenska Cellulosa Aktiebolaget SCA [2012] EWHC 2929 (considered here) but the court in that case had not considered AF v BG and in any event did not consider directly the question of whether a party who is named as a defendant in proceedings can make a claimant's Part 36 offer.

The judge referred to a list set out in Friston on Costs of features that may be relevant to whether an offer is in truth a claimant's Part 36 offer, namely:

  • The relevant facts of the litigation and, in particular, the perceived status of the offeror given how the competing claims were presented at the time the offer was made.
  • The label attached to the offer and whether its effect was clarified.
  • Whether the offer was to pay a net amount or to receive a net amount.
  • Whether the offer made reference to paying or receiving costs if accepted.
  • Whether the offer referred to the costs consequences of non-acceptance in terms that have the hallmarks of being a defendant's offer or a claimant's offer and, in particular, whether it mentioned any of the claimant-only benefits of making a Part 36 offer.
  • Whether the offer's terms were incompatible with it being either a claimant's offer or a defendant's offer.

The judge said this represented a useful list of factors for the court to have in mind, so long as the emphasis in the first bullet point is the perceived status of the offeror in making the offer, not its perceived status more generally in the litigation, eg whether it is named as claimant or defendant.

He found on the facts that most of these factors pointed towards the Offer being treated as a claimant's part 36 offer, for example because it referred to LCB's claim in relation to the excise duty and the potential counterclaim for the theft and sought a net sum payable by Huntsworth.

The judge rejected Huntsworth's submission that condoning LCB's approach would "impermissibly and incoherently contort the Part 36 regime" because it would permit a defendant to: (a) avoid paying costs that are properly due to a claimant on acceptance of a Part 36 offer; (b) obtain costs benefits which properly belong to a claimant on acceptance; and (c) effectively select whichever costs consequences it preferred following judgment, irrespective of its status in the litigation.

He said that all three points are wrong. If the court's findings result in a net sum being due and owing to a party, there is "nothing remotely wrong" in permitting that party to recover its costs of recovering that net balance. Huntsworth's submission confused what a party is called with who the true claimant is. This did not mean a defendant could select the costs consequences it preferred; it merely allowed a defendant to make an offer that reflected the true situation and what ought to be the burden of costs.

Having found that LCB had obtained a judgment more favourable than the amount of the Offer, since the net sum payable to it exceeded the £2,000 it offered, the judge next considered whether there was any reason why it would be unjust to make an order under CPR Part 36.17(4). He found that it would not be unjust to make such an order simply because LCB failed to engage in mediation at an early state in the litigation and was not successful on all of the issues at trial.

The judge therefore awarded LCB costs on the indemnity basis, interest on both damages and costs at 4.5% from the end of the relevant offer period until judgment, and an additional 10% of the damages awarded.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.