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Sugar Hut and discretion as to costs

The Court of Appeal in Sugar Hut v A J Insurance Service has overturned the trial judge’s decision to impose costs consequences akin to the automatic CPR 36 costs consequences on a party who only narrowly beats a CPR 36 offer.

In brief, the defendant made a CPR 36 offer to settle the claim with a payment in the sum of £250,000. The defendant had arrived at the sum offered by taking into account payments already made to the claimant, and valuing the claimant’s claim for business interruption at £600,000 with interest calculated at 2.5%. In fact, the claimant obtained a judgment which meant that the defendant was ordered to pay £277,021, albeit the claim for business interruption was valued by the court at £568,670 and interest awarded at 5%.

The judge at first instance ordered:

  • The defendant to pay 70% of the claimant’s costs up to the last date on which the offer should have been accepted.
  • Thereafter the claimant to pay the defendant the costs in relation to the claim for business interruption and the defendant to pay the claimant’s costs of the interest point.

The Court of Appeal held that the first instance judge fell into error in:

  • Treating the defendant’s CPR 36 offer as if it included an offer of £600,000 for the claim for business interruption, which the claimant could have accepted (the Court of Appeal held that this was wrong as a matter of fact).
  • Treating as unreasonable the claimant’s conduct in continuing with a claim for business interruption in the sum of £862,024 after receipt of the CPR 36 offer.

The Court of Appeal held that the order requiring the claimant to pay the defendant’s cost of the business interruption claim after the last date upon which the CPR 36 offer could have been accepted amounted to a decision to penalise the claimant twice for the same shortcoming. This was outside the bounds of reasonable decision making.

Both the judge at first instance and the Court of Appeal approached the case on the basis that a CPR 36 offer that is not effective is an admissible offer that must be taken into account by the trial judge, pursuant to CPR 44.2(4)(c). This is undoubtedly right. It is also right that the court’s discretion as to where the costs lie pursuant to CPR 44.2 is in the widest possible terms (see, for example, paragraph 94 of Coward v Phaestos Ltd and others).

Sugar Hut does not provide very much guidance on how a court is to treat a non-effective CPR 36 offer that gets close to the relief the claimant actually recovers at trial. It does:

  • Make clear that there is no “near-miss” rule (which is clear in any event from the introduction of CPR 36.14(A)).
  • Confirm that imposing the costs consequences in CPR 36 on a CPR 44.2(4)(c) offer is not appropriate where the claimant’s conduct in pursuing the claim after receipt of the offer is not unreasonable.

It does not, however, establish any wider principles. Somewhat surprisingly, there is no reference in the judgment to the Court of Appeal decision in Coward. Here, the court held that CPR 44.2(4) and CPR 36 were different regimes and so, as a matter of principle, it:

“would be contrary to the express terms of Part 44 to read across into it a rigid approach drawn by analogy from CPR 36.14(1A)” (paragraph 102).

It is worth noting that the offers under consideration in that case were Calderbank offers and not ineffective CPR 36 offers. However, it is doubtful that this would make any difference.

How then is the court to take account of a CPR 36 offer that has just been missed pursuant to CPR 44.2(4)?

Sugar Hut strengthens the already existing body of case law (albeit without making express line to them) that establishes that one cannot simply import into CPR 44.2(4) the costs sanctions of CPR 36 (unsurprisingly given that CPR 36 is a statutory departure from established costs practice; see paragraph 56 F&C Alternative Investments (Holdings) Ltd v Barthelemy). It implicitly approves the decision of the judge in making an overall reduction to the claimant’s costs as the way to take account both of the failure of the claimant to succeed on all issues and the defendant’s offer.

Given the very wide nature of the discretion afforded to courts pursuant to CPR 44.2, we can be sure to see more cases of this sort being litigated.

39 Essex Chambers Katharine Scott

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