Costs News

24 November 2021
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Part 36 offer for 99% of damages was “genuine attempt to settle”

A part 36 offer for 99% of the damages claimed was a genuine attempt to settle given that the claimant did not think the defendant had a realistic prospect of defending the case, the High Court has ruled.

In a judgment packed with decisions of interest to Costs Lawyers, Robin Vos, sitting as a deputy High Court judge, also suggested that the Court of Appeal needed to resolve the question of whether the 10% uplift in part 36.17(d) was ‘all or nothing’.

His ruling in London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and Ors [2021] EWHC 3103 (Ch) concerned the costs to be awarded against the third defendant, Cineworld Cinemas, following a successful summary judgment application made by the claimant landlord in respect of arears of rent and service charges against all three defendants.

The offer only related to part of the claim – the rent which had become due on 30 June and 30 September 2020 together with contractual interest. The total rent due was £841,965 and the interest up to the date of the offer was £8,402. The part 36 offer was for the full amount of the rent without any interest – 99% of the amount claimed.

It was accepted that the summary judgment was at least as advantageous as the offer and so in principle triggered the consequences set out in rule 36.17.

The third defendant contested this on the basis that the offer was not properly served and that, in any event, it would be unjust to impose the consequences for a number of reasons, including the fact that it was not a genuine offer to settle but instead simply a litigation tactic designed to put pressure on the defendant.

The claimant accepted that the offer was not properly served in accordance with part 6 as it was sent by email and the requirements of paragraph 4 of practice direction 6A were not complied with – the offeree had not stated that it was willing to accept service by email.

The judge said that, while a failure to comply with part 6 should not be taken lightly and the claimant had not explained why it happened, “it is clear that the defendants' solicitors received the part 36 offer on 15 December 2020”.

No complaint was made about the method of service until shortly before the hearing on 3 November and there was no suggestion that the defendant suffered any prejudice.

“In these circumstances, it would in my view be (as Popplewell J put it in Integral Petroleum at [37]) ‘a triumph of form over substance’ if the court were to make an order invalidating the part 36 offer.

“Although it may be unnecessary to do so, for the avoidance of any doubt, I will make an order either under CPR rule 3.10(b) or CPR rule 6.28 that the part 36 offer is to be treated as having been validly made on 15 December 2020.”

In relation to whether it was a genuine offer, Deputy Judge Vos accepted that claimant’s submissions that this was a case with a binary outcome – either the rent was due or it was not – and there was no dispute as to the amount.

“It is quite clear (and remains the case) that the claimant considered that the defendants were able to pay the rent but had simply chosen not to do so in order to preserve liquidity. It is equally clear that the claimant considered that the defendants did not have a realistic defence to the claim, as was demonstrated by the fact that they issued their summary judgment application shortly after the expiry of the relevant period in relation to the part 36 offer.

“This is reflected in the very small concession made by the claimant. Nonetheless, there was a concession.

“The fact that the offer was made on the eve of the third lockdown and against a backdrop of other landlords and tenants agreeing concessions does not, in my view, mean that the offer was not a genuine offer to settle, particularly in circumstances where the claimant had previously been told that the defendants intended to ‘vigorously defend the proceedings’ as well as to pursue a number of counterclaims.”

It could also not be said that, objectively, no defendant would have accepted the offer bearing in mind the surrounding circumstances.

However, the judge found other reasons why it would be unjust to order the full part 36.17 consequences, including “the wholly exceptional circumstances created by the Covid pandemic”.

He explained: “I appreciate that, in reaching the conclusion I have, I am taking into account events which have occurred after the date when the part 36 offer was made. However, although the specific factors listed in CPR rule 36.17(5) all relate in one way or another to the part 36 offer itself, it is clear that the court should take into account all of the circumstances of the case.

“There is no restriction on taking into account matters which occur after the offer has been made.”

The defective service was another reason, but equally the fact that the defendant failed to accept the offer meant some of the consequences should apply.

The judge decided not to grant the additional sum laid out in rule 36.17(d) – he had been asked in the alternative not to order the full amount. “Although I did not hear detailed submissions on the point, had I needed to decide, my provisional view is that the court does have power to order the defendant to pay a lesser amount rather than the court only having a choice between awarding the full amount or nothing at all.

“Where questions of justice arise, it would be surprising if it were not open to the court to take a view as to the extent of any injustice and to make an order accordingly.”

But he observed that there was “a divergence of views” on this point at first instance “and it can only be hoped that, at some point, the Court of Appeal will have the opportunity to resolve this uncertainty”.

He also decided against ordering an enhanced rate of interest.

Judge Vos considered whether the part 36 consequences should apply in relation to the whole of the claim or only that part in respect of which the part 36 offer was made – neither party referred to any authorities on this point, he said.

“It would, in my view, be wholly disproportionate if a defendant who chooses not to accept a part 36 offer in relation to a relatively small part of a claim is then saddled with all of the part 36 consequences in respect of the entirety of the claim and the costs of the claim should the claimant ultimately be successful…

“My conclusion, therefore, is that any award should be based on the sum awarded and the costs incurred in relation to the part of the claim to which the part 36 offer relates.”

Nicholas Trompeter QC (instructed by Druces) appeared for the claimant. Jonathan Seitler QC (instructed by CMS Cameron McKenna Nabarro Olswang) appeared for the defendants.

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