1 Legal Update November 2016 Costs not relevant to whether a Part 36 offer has been beaten The High Court recently held that costs do not fall to Was the Part 36 offer engaged? be taken into consideration in determining whether a The Court rejected Providence’s submission that costs judgment against a defendant is at least as should be taken into account in determining whether advantageous to a claimant as proposals contained in Mitchell v Transocean beat its Part 36 offer (applying the claimant’s Part 36 offer. The Court also  EWCA Civ 997). In James and other considered what factors it should take into considering whether the judgment against a defendant consideration, such as commercial realities and is more advantageous to a claimant than the Part 36 dishonest conduct, when deciding what Part 36 costs offer, Popplewell J stated that the “ judgment” means order it should make. This case concerned the pre- what the trial judge decides on the substantive issues April 2015 Part 36 costs consequences. in the case, rather than the ancillary question of costs. In addition, the rule setting out when Part 36 is Background engaged only applies “on judgment being entered”, which Popplewell J said could not include a decision In Transocean Drilling UK Limited v Providence on costs. The sum awarded by the Court of Appeal Resources PLC  EWHC 2611 (Comm), the Court was therefore more advantageous than the proposal was asked to determine the consequences of a Part 36 contained in the Part 36 offer, and the Part 36 offer ). Transocean offer made by the Claimant ( “Transocean” was engaged. had claimed damages following alleged delays by the ) in the drilling of a well. Defendant ( “Providence” Transocean was successful at first instance and was Was it unjust to apply the Part 36 awarded around US$7.6 million, inclusive of interest, in consequences? December 2014. In February 2015, the High Court held After finding that the Part 36 offer was engaged, the that there should be no order for costs on the basis that, Judge then turned to consider whether the while Transocean was the successful party, Providence consequences of it were unjust and whether the just had been successful on issues on which around 70-75% of result remained that there should be no order for the costs of the litigation had been spent. Transocean’s costs, as per the High Court’s decision in February unreasonable conduct of the litigation was also a pertinent 2015 (which Providence also submitted). Referring to factor in the determination. Webb v Liverpool Women’s NHS Foundation Trust Transocean appealed against part of the judgment and  1 WLR 3899, Popplewell J set out, among the Court of Appeal allowed the appeal in April 2016, the others, the following principles: effect being that the judgment in Transocean’s favour the court’s discretion as to whether the costs • was increased to over US$13.8 million. That was larger consequences are unjust is derived from Part 36, than the amount specified in a Part 36 offer (US$13 not Part 44; million inclusive of interest) made by Transocean on 8 August 2014. Transocean therefore applied for the Part • discretion under Part 36 is not limited to the basis 36 consequences to apply from the date of the expiry of of assessment of costs, but extends to the incidence the offer. Providence argued that, when the costs that of costs; would have been payable had the Part 36 offer been accepted were taken into account (roughly US$3.3 million), Transocean did not beat the offer.
2 • the court considers all the circumstances of the case, Considering the principles and policy of Part 36, including the terms of the offer and the information namely encouraging settlement and the avoidance of available to the parties at the time when the Part 36 wasted costs and time, the Judge stated that not offer was made. Such circumstances also include accepting the offer meant that Transocean incurred the offeror’s conduct; further costs. In addition, other litigants were delayed because of the added court time and costs. Providence by accepting the offer the offeree avoids ongoing • could also have made a counter-offer in response to litigation and further costs; and the Part 36 offer to gain costs protection. the court does not have an unfettered discretion • to depart from the ordinary costs consequences. While Providence should have accepted the offer, the a Indeed, the burden to show injustice is “ Judge concluded that, taking Transocean’s conduct formidable obstacle to the obtaining of a different (such as it seeking to deceive Providence by sending it ”. costs order a “deliberately doctored” report) and the finding that the Part 36 offer was “too ambitious” into account, it After setting out the principles, the Judge said that would be unjust that the full Part 36 consequences [i]n most cases it will not be appropriate to embark “ should follow. He held that Providence should pay upon an inquiry of how costs would be allocated in the Transocean’s costs from 30 August 2014 (the expiry absence of the Part 36 offer, either at the date of date of the Part 36 offer), but without the other Part ”. However, given judgment or at the date of the offer 36 consequences. This meant that costs were to be the particular course of these proceedings, the Judge assessed on a standard basis, interest would not run at determined that he was able to decide without much 10% on the principal sum nor on costs, and there further inquiry that, at the date of the Part 36 offer, he would be no surcharge. would have made no order as to costs (based on the same factors leading to the decision in February 2015). He then considered whether he was bound to ignore Comment the costs order he would have made under Part 44 This case serves as a useful reminder of the principles when deciding whether it is unjust that the Part 36 a court will consider in determining whether the costs consequences should apply. The Judge concluded that consequences of Part 36 are just. In certain (rare) he was not bound to ignore what costs order he would circumstances, the court may consider it appropriate have made, as the commercial reality was that both to contemplate how costs would have been allocated in parties would have had costs well in their minds when the absence of a Part 36 offer, and the court may take considering the Part 36 offer. Taking into account of the commercial reality of a Part 36 offer consideration those costs consequences, the Judge being rejected when considering the costs found that, at the time the Part 36 offer was made, consequences that should follow. Litigants should also Transocean’s offer was, in commercial terms, “too take note that the court may look at the conduct of the [h]ad it been ambitious”. As Popplewell J stated “ parties to determine whether it should deviate from accepted, Providence would have paid, and the ordinary costs consequences under Part 36. Transocean would have received, more than would If you have any questions or comments in relation to have been the case had the court given judgment on this Update, please contact the authors or your usual ”. liability and costs at the date of the expiry of the offer Mayer Brown contact. However, regardless of any hypothetical situation at Ian McDonald the date of the Part 36 offer, the Court of Appeal’s Partner, London decision in April 2016 meant that Providence should +44 20 3130 3856 nevertheless have accepted the offer, as, ultimately, [email protected] the Court of Appeal awarded Transocean more than the amount it asked for in its Part 36 offer. Daniel Cook Associate, London +44 20 3130 3153 [email protected]
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