In the High Court decision of Transocean Drilling UK Ltd v Providence Resources Plc [2016] EWHC 2611 (Comm), Mr Justice Popplewell, at a costs application, held that costs should not be taken into account when deciding whether a part 36 offer has been beaten, but that they are relevant when deciding whether to apply the consequences of beating an offer.
The claim arose after the claimant, which had supplied an oil rig to the defendant, had claimed damages for remuneration incurred as a result of alleged delays by the defendant in the drilling of a well.
Four months before judgment, the claimant had made a Part 36 offer whereby it would accept $13 million inclusive of interest in settlement of the entire proceedings. A sum of $13.8m was eventually awarded in favour of the claimant, plus interest to the date of the offer of $800,000 and as such, the claimant applied for the part 36 consequences (including, having its costs assessed on the indemnity basis, interest accrued at 10% on the principle sum and on costs and a surcharge of £75,000) to apply from the date of the expiry of the offer. However, Mr Justice Popplewell pointed out that the defendant had succeeded on issues which consumed around 75% of the costs of the action and as such there was no order as to costs made.
The defendant argued that Part 36 was not engaged, because when one took account of costs, the claimant did not achieve a result which was as advantageous as the outcome which its Part 36 offer was seeking. This is because if it had accepted the offer, it would have had to pay the claimant's costs up to that date; those costs amounted to roughly $3.3 million. Accepting the offer would have involved paying some $16.3 million, which was to be compared with the eventual outcome of roughly $14.6 million (principal and interest with no order for costs).
This submission was rejected by Popplewell J, who stated:
‘…the word ‘judgment’ naturally connotes what the trial judge holds or decides on the substantive issues in the case, as distinct from the ancillary question of costs which falls for consideration after the substantive issues have been decided’.
Additionally, the judge said that rule 36.14(1)(b), which sets out when Part 36 applies, only applied ‘on judgment being entered’, which it was found could not include any decision on costs. This is because, if ‘judgment’ in rule 36.14(1) were to include a decision on costs, it would be necessary for the court to undertake the exercise of determining what the incidence and basis of costs would be in the absence of the Part 36 offer. It would first have to exercise its discretion under Part 44, on the basis of all the circumstances of the case, before considering the effect of Part 36. Popplewell J concluded that such a potentially elaborate and impractical exercise could not have been intended.
The defendant's argument was contrary to the purpose of Part 36, which was to provide a clear rule so that it could easily be determined whether the party had or had not beaten the offer. Moreover, if costs were to be taken into account in determining whether a Part 36 offer was effective to trigger the Part 36 consequences, that would create difficulties for the parties in determining where to pitch a Part 36 offer and whether to accept it.
Whilst costs could not be considered when determining when Part 36 applied, it could be considered when deciding on the consequences of Part 36.
Popplewell J, claimed that the claimant’s Part 36 offer was ‘too ambitious’. Had it been accepted, the defendant would have paid more than it would if the court had given judgment on liability and costs at the date of the expiry of the offer.
It was held that, the overall justice of the case justified an order that the defendant should pay the claimant's costs from the expiry of the claimant’s offer but without the other Part 36 consequences. Such costs were to be assessed on the standard basis.
The full judgment can be accessed here.