Party’s successful part 36 offer was “too ambitious”

A party which made a part 36 offer that was “too ambitious” has been denied the usual consequences of beating that offer, such as indemnity costs, the High Court has ruled.

At the same time, Mr Justice Popplewell dismissed the argument that the offer would not have been beaten had costs been taken into account.

Transocean Drilling UK Ltd v Providence Resources PLC [2016] EWHC 2611 (Comm) followed a claim over the financial consequences of delays which occurred to the drilling of an appraisal well in the Barryroe Field off the south coast of Ireland. The claimant provided the rig to the defendant pursuant to a drilling contract.

Though the claimant won, the judge said the defendant succeeded on issues which consumed around 75% of the costs of the action. In all the circumstances of the case, including the claimant’s conduct, he decided that there be no order as to costs.

The part 36 offer, made more than four months before judgment, was to accept $13m and no interest. Some $13.8m was awarded, plus interest to the date of the offer of $800,000. Transocean applied for the part 36 consequences to apply from the date of the expiry of the offer.

The defendant first argued that, when the costs that would have been paid had the offer been accepted were taken into account, the claimant did not beat the offer.

Popplewell J rejected this, starting from the point that “the word ‘judgment’ naturally connotes what the trial judge holds or decides on the substantive issues in the case, as distinct from the ancillary question of costs which falls for consideration after the substantive issues have been decided”.

Further, rule 36.14(1)(b) – which sets out when part 36 is engaged – only applied “on judgment being entered”, which the judge said could not include a decision on costs.

He said the approach put forward by the defendant would require the judge to make provisional costs decisions as to the level of costs at the end and at the time of the part 36 offer.

“In all these respects Providence’s argument is contrary to the purpose of part 36, which is to provide a clear rule so that it can be easily determined whether the party has or has not beaten the offer. Rule 36.14(1)(A) was obviously included for this purpose. An interpretation which might require the court to indulge in two provisional costs decisions, which might themselves be lengthy, controversial and costly, in order to decide whether part 36 is engaged, would undermine the purpose of the rule which is one of simple application.

“Moreover, if costs were to be taken into account in determining whether a part 36 offer were effective to trigger the part 36 consequences, this would create difficulties for the parties in determining where to pitch a part 36 offer and whether to accept it…

“Finally, there is in any event a further difficulty, illustrated by the circumstances of this case where the costs decision is that each side should bear their own costs… If a decision that each side should bear its own costs, which is a not uncommon form of costs decision and that which in fact arose in the current case, cannot amount to ‘a judgment being entered’, that is another powerful indication that the expression does not extend to decisions on costs at all.”

The defendant’s second argument was that it would be unjust to apply the part 36 consequences.

Popplewell J said that, notwithstanding his first finding, the exceptional feature of the case was that he had been able to decide, without any significant additional inquiry or difficulty, what costs order the court would make in the absence of consideration of the part 36 offer, both at the conclusion of the trial and at the time of the offer.

“As to the latter, I would have made no order as to costs, a conclusion with which it would not seem that Transocean quarrels because it accepts that that should remain the order in respect of the period prior to expiry of the part 36 offer.

“Am I bound to ignore that costs position when deciding whether it is unjust that the part 36 consequences should apply? I do not consider that I am. It is well known that, in heavy commercial litigation of this kind, costs can be substantial and the costs outcome can be an important consideration for the parties. The claims and counterclaims in this case were about money.

“What ultimately matters to the parties is the bottom line of how much is paid by one party to the other. That payment has to take account not only of principal and interest but also of costs, especially in a case such as the present where the amount of costs is significant by comparison with the sums at stake. Transocean would have had costs well in mind when making the part 36 offer and so would Providence when considering whether to accept it. I see no reason in principle why the court must ignore commercial reality and leave out of its consideration something which is of real significance to the parties.”

His conclusion was that the part 36 offer was, “in commercial terms, and taking account of its costs consequences, too ambitious”. The judge continued: “Had it been accepted, Providence would have paid, and Transocean would have received, more than would have been the case had the court given judgment on liability and costs at the date of the expiry of the offer. In that sense, Transocean’s offer was too high.

“There should, moreover, be some disapplication of the part 36 consequences in any event to reflect the criticisms I have made of Transocean’s conduct, which was not merely unreasonable but dishonest. On the other hand, Providence could have avoided the windfall problem by making a counter-offer which protected its costs position; and in any event, when taking into account the subsequent adverse consequences for the parties and the court which would have been avoided by accepting the offer, Providence should have accepted it.

“Taking all those matters into account, I have concluded that it would be unjust that the full part 36 consequences should follow, but it would not be right that they be disapplied in full. The overall justice of the position is that Providence should pay Transocean’s costs from 30 August 2014 but without the other part 36 consequences. Such costs will be assessed on a standard basis, interest will not run at 10% on the principal sum nor on costs, and there will be no surcharge.”

 

This post was posted in ACL e-Bulletin

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Costs News
Published date
31 Oct 2016

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