A deputy High Court judge was right to find that a global Calderbank offer made in a split trial case was not the equivalent of a part 36 offer, the Court of Appeal has ruled.
Lord Justice Green said to hold otherwise would be inconsistent with the language of CPR 42.2, “which by its express terms confers a broad discretion upon a court and which makes the existence, scope and effect of admissible offers to settle but one of the factors which a court is required to take into account”.
It would also have been inconsistent with the policy considerations which underpin CPR 42.2 and “nothing in the case law on either CPR 36 or CPR 42.2 compels such a conclusion”.
McKeown v Langer [2021] EWCA Civ 1792 involved an unfair prejudice pursuant to section 994 of the Companies Act 2006. There was a split trial of the petition, with liability to precede valuation, and, in December 2020, Mr Nicholas Thompsell, sitting as a deputy High Court judge, found that John McKeown had unfairly prejudiced the interests of Diana Langer.
In January, the judge ordered Mr McKeown to acquire Ms Langer’s shares in the company and to assume the liability to repay her shareholders’ loan account. Permission to appeal was refused by the Court of Appeal.
At a subsequent hearing, he ordered Mr McKeown to pay Ms Langer’s costs, mostly on the indemnity basis because of Mr McKeown’s unreasonable conduct leading up to and during the trial. He ordered a payment of £450,000 on account of costs.
A few week later, the judge ordered Mr Keown to make a £200,000 interim payment on account of the sum that he was likely to be ordered to pay for the shares and costs of £35,000 for the interim payment application.
Various offers to settle were made during the course of the proceedings, including the global Calderbank offer. The judge was aware an offer had been made and that it was not under part 36. but not who had made it, what its terms were or when it had been made.
Mr McKeown contended that the court should take its existence into account in deciding whether to award costs at this stage and that it should be treated as equivalent to a part 36 offer.
Mr Thompsell rejected this argument on the basis that it was not an “admissible” offer under CPR 44.2, to take it into account would involve unacceptable speculation as to its terms and possible effect, and Mr McKeown could have protected himself from the risk of an interim costs order by making a part 36 or an O’Neill offer, but chose not to.
Mr McKeown appealed and Green LJ agreed with the judge’s analysis. “The appellant’s submissions turn the language of CPR 44.2 upon its head. It entails the proposition that a Calderbank offer that is prima facie inadmissible: (i) becomes admissible; and (ii) acquires such compelling probative value that it ousts all the considerations that are otherwise required to be taken into account under CPR 44.2(4); and (iii) leads (subject only to exceptional circumstances) to a decision not to make any immediate costs order; and (iv), requires a legal effect equivalent to a CPR part 36 offer to be accorded to a Calderbank offer even though part 36 offers are excluded from the mandatory exercise of discretion under CPR 44.2(4)(c).”
This was, Green LJ said, “inconsistent with the clear and express language of CPR 44.2”.
To agree with the appeal would “represent the antithesis of good policy”, he continued. “It would reward bad behaviour, encourage the taking of unmeritorious points, exacerbate problems associated with the inequality of arms and accentuate the adverse litigation consequences of informational asymmetry.
“The appellant’s submission would, in my view, be an enticement to strategic gameplaying. On the appellant’s analysis, a majority shareholder could instruct solicitors that if, following the hearing of a liability trial, an adverse draft judgment was sent to the lawyers by the court, the solicitors should then serve an immediate, but derisory, Calderbank offer since this would, on the appellant’s analysis, prevent an otherwise nigh-on inevitable negative costs order being made against the majority shareholder.”
Rather, the appeal court held, Mr Thompsell adopted an approach consistent with the policy considerations underpinning the costs regime.
“He emphasised the importance of issue-based costs determinations. He took into account the need to reflect merits and the desirability of not incentivising unprofessional behaviour. He refused to base his decision upon speculation. He correctly reflected the differences between CPR parts 36 and 42.2 in terms of their ability to enable litigants to protect their positions.”
Jamie Carpenter QC and Maxwell Myers (instructed by Brook Martin & Co) for the appellant. Anna Lintner (instructed by Russells) for the respondent.