Defendant’s failure to make early offer penalised in costs despite claimant’s Pyrrhic victory

A defendant’s failure to make an “early and admissible offer” to pay some compensation for breach of contract was the key factor in deciding on costs in a case where the claimant only recovered less than 2% of the value of its claim – although the fact that this was itself a substantial sum of money was also a significant factor.

Sir Antony Edwards-Stuart said the answer to the question of who had to write the cheque did not provide a “reliable test” for identifying the unsuccessful party in Hamad M Aldrees and Partners v Rotex Europe Ltd [2019] EWHC 526 (TCC).

The case concerned the performance of five machines supplied by the defendant for the screening and sorting of silica sand. The claim was for £40m; the judge found Rotex in breach of contract, but the claim for loss of profits as formulated failed for want of proof. He awarded damages for loss of production of around £700,000.

In deciding costs, the judge said the damages were not “derisory”. He explained: “There is, in my view, a significant difference between recovering, say, £500,000 and recovering £5,000 or £10,000, even if in each case the sum recovered is only 1-2% of the claim.

“Not only is the former sum intrinsically larger, and therefore a more worthwhile recovery, it is likely to bear a more realistic relationship to the expenditure of costs necessary to recover it.

“I do not suggest that these matters are decisive. Rather, they merely go to show that every case is different and fact-specific, and that observations made in other cases must be considered in their context.”

He went on to describe the claimant has having achieved, at best, a Pyrrhic victory. “To adopt an expression used in the authorities, while Aldrees was substantially denied the prize which it fought the action to win, it did achieve something of value which I consider that it probably would not have achieved without fighting the case.

“However, looking at the outcome from the other end of the telescope, if Rotex fought the action to defend its products, its testing regime and commercial reputation, then it fell short of achieving those aims.”

Sir Antony said each side had a “roughly equal” measure of success when judged by the issues in the case; the defendant also failed in its counterclaim.

“If Aldrees had thought that its claim was only worth, say, £1 to £2m, because it had sustained no loss beyond the end of 2014, it would still have justified the bringing of proceedings, albeit at substantially lower cost. So I do not categorise this is a case where it can be said that no rational person would have pursued the much reduced claim if that had been the sole objective.”

Further, if Rotex had accepted from an early stage in the litigation – “as I consider it should have done” – that it had been in breach of contract, it could have made a part 36 offer or an appropriate Calderbank offer. Both sides made offers after the judgment, but the judge said he did not attach “very much weight to either of them since they were not made until after all the major findings of fact were known to the parties”.

Sir Antony said an issues-based approach might lead to the conclusion that each party should bear its own costs. “However, that would take no account of the facts that Aldrees did recover a sum of money that was significantly more than nominal and that Rotex made no appropriate offer… I consider that this case… is one where the paramount consideration is the absence of any early and admissible offer to pay some compensation for Rotex’s breach of contract.”

He ordered that Rotex pay 20% of Aldrees’ costs. “In that way, Aldrees will not recover its costs of the issues on which it lost (which I have assessed at 30% of its total costs) and it will in effect forego costs (on issues on which it succeeded) to the extent of Rotex’s costs of those issues on which Rotex was successful (that is, 40% of Rotex’s costs – which is about the same as about 50% of Aldrees costs).”

Graham Chapman QC and Tim Chelmick (instructed by Pinsent Masons) for the claimant, Piers Stansfield QC and Nicholas Bacon QC (instructed by DTM Legal) for the defendant.


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Costs News
Published date
21 Mar 2019

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