Claimants named as the beneficial owners of the proceeds of sale of a property did not achieve a ‘monetary award’ in the litigation and so the consequences of a part 36 offer would not apply to that sum, the High Court has decided.
His Honour Judge Paul Matthews, sitting as a High Court judge in Bristol, was ruling in Knight and Anor v Knight and Ors (Costs)  EWHC 1545 (Ch), following a trial at which he held for the claimants seeking a declaration that they were the beneficial owners of the proceeds of sale of a property in Devon that were sitting in a conveyancing solicitor’s client account.
The defendants accepted in principle they should pay the claimants’ costs – and had agreed a payment on account of costs of £72,000 – but the validity of a part 36 offer made by the claimants remained in issue.
The offer was expressed to be pursuant to part 36 but HHJ Matthews held that, because it included terms as to costs, it did not comply with the rule. In this, he followed the Court of Appeal rulings of Mitchell v James in 2004 and French v Groupama Insurance Co Ltd in 2011.
The defendants had pointed to the 2013 ruling of Mr Justice Hildyard in Proctor and Gamble Co v Svenska Celluslosa AB SCA.
HHJ Matthews said he understood Hildyard J to be saying that it was still possible to comply with part 36 by including in the offer a term as to costs, provided that the term reduced the burden on the offeree that would otherwise be imposed as a consequence of accepting the offer, rather than increasing it.
“As it seems to me, that is strictly inconsistent with the decisions in Mitchell v James and French v Groupama, that no term as to costs should be included in a part 36 offer,” he said.
“The first of these decisions concerned an offer which would have altered the cost consequences otherwise flowing from a part 36 offer. The second of them concerned the offer of a sum to cover the entirety of the claimant’s claims, ‘inclusive of interest and costs’. That is very similar to the wording of the offer in the present case, which (so far as material) reads ‘to pay [to the offerees]… the sum of £35,000… inclusive of your clients’ costs’.
“It might have been argued that all that means is that the total sum to be paid is £X, and it will not be increased to take account of any offerees’ costs already incurred. Yet the Court of Appeal held that the similar wording used in that case introduced a term as to costs and therefore could not amount to a part 36 offer.
“In these circumstances, I do not think that I am free simply to follow the decision of Hildyard J, even if it applied on the facts” HHJ Matthews said, adding that the decisions in Mitchell and French were not cited to Hildyard J.
“Moreover, the offer made in the present case is materially indistinguishable from the offer made in the latter of the two cases. Accordingly, I hold that this offer is not a part 36 offer and therefore does not have the costs consequences of such an offer.”
The judge nonetheless went on to consider what would have been the costs consequences for the parties and specifically whether the ruling that the claimants were beneficially entitled to the net proceeds of sale, £204,000, fell within the expression “any sum of money awarded” in rule 36.17(4)(a) and the expression “the sum awarded to the claimant by the court” in rule 36.17(4)(d).
Neither counsel was able to find any authority on this point, but HHJ Matthews noted that rule 36.17(4)(d) was partly expressed in a binary form as “an amount which is (i) the sum awarded to the claimant by the court; or (ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs”.
He continued: “So it is clear that in this context the reference to a ‘sum awarded’ is a reference to a monetary award…
“In my judgment, a decision that a particular asset (here an intangible credit in the conveyancing solicitors’ client account) belongs beneficially to a particular claimant is not a ‘monetary award’. It is instead a decision awarding the ownership of the asset to a particular person.
“Accordingly, in my judgment there is no justification in rule 36.17 for expanding the meaning of the phrase ‘sum awarded’ beyond the case of a money remedy awarded in a claim for debt or damages, to the case of the award of beneficial ownership of a debt owned by the defendant but owed to the defendant by a third party.
“The consequence would be that, if rule 36.17 had applied at all, paragraph (4)(a) would not apply at all, and the additional amount under paragraph (4)(d) would be calculated by reference to the costs awarded to the claimants.”