Failing to Beat a Withdrawn Part 36 Offer – Who is the ‘Successful’ Party? BritNed v ABB [2018] EWHC 3142 (Ch)

Are parties compromised on costs if they withdraw their Part 36 Offers before judgment is handed down? In the recent case of BritNed v ABB [2018] EWHC 3142 (Ch), this issue was considered.

With the exception of qualified one-way costs shifting (QOCS) cases, it is usually the unsuccessful party which is ordered to pay the successful party’s costs – see CPR 44.2(2)(a).

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However, the rules within Part 36 form a ‘self-contained procedural code’, which empowers the court with broad discretion on costs.

In BritNed, the defendants offered to settle the claimant’s claim for €135 million. The Part 36 Offer remained open during the trial, but was withdrawn before judgment. Subsequently, the claimant obtained judgment for around 10% of the defendants’ Offer.

Pursuant to CPR 36.17(3), the court must order a claimant to pay the defendants’ costs (plus interest) if they fail to beat a Part 36 Offer [CPR 36.17(1)(a)].

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However, this rule does not apply to cases where the more advantageous Offer has been withdrawn – see CPR 36.17(7)(a).

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So, what is the costs consequence of a withdrawn Part 36-compliant Offer, where CPR 36.17(3) does not apply?

At the High Court, Mr Justice Marcus Smith reasoned, at paragraph 8:

‘... given that the Part 36 offer was withdrawn ... the existence of the offer is no more than a factor that must be taken into account in my assessment of costs’.

Since the claimant ‘failed to recover anything like the amounts it sought’, the defendants maintained that that they were entitled to their costs (plus interest) from the moment that the claimant was no longer able to perform acceptance, i.e. as if the Part 36 Offer had not been withdrawn.

However, the claimant contended that the receipt of a cheque for damages is evidence of ‘success’. As a result, it was submitted that the starting point, established by CPR 44.2(2)(a), should not be displaced:

‘It is the party who writes the cheque at the end of the day who is the unsuccessful party, and the party who receives that cheque who is the successful party’.

Nevertheless, the judge did not concur with the claimant that ‘the definition of success is so easy a concept’.

Indeed, in a judgment handed down earlier this week, Butcher J found that a claimant, having been awarded just 2% of the value of claim, was not to be regarded as the ‘successful party’ (Rotam Agrochemical Company & Anor v GAT Microencapsulation GmbH [2018] EWHC 3006 (Comm).

In BritNed, Smith J accepted that the Offer was a relevant factor to be taken into account. He deliberated, at paragraphs 24 and 25 of his judgment:

‘The question is, to what extent? Is this withdrawn Part 36 offer enough to turn the tables, and cause the incidence of costs to shift? Settlements out of court are to be encouraged ... It would be entirely wrong to leave this offer out of account.

But I also have to have regard to the fact that CPR 36 is a self-contained procedural code, and ... to ensure a costs outcome in its favour, it should not have withdrawn the offer. By withdrawing the offer it made ... it accepts, put itself (or, rather, put its offer) outside the CPR 36 regime’.

Accordingly, the judge concluded, at paragraph 26, that in this instance:

‘... the existence of the ... Part 36 offer is not enough ... to reverse the incidence of costs’.

To avoid injustice, no order as to costs was made in favour of any party. The costs laid where they fell, up to and including the present hearing.

Full text judgment can be accessed here.