The case of Brit Inns Ltd & others v BDW Trading Ltd & others  EWHC 2489 (TCC) offers a useful summary of the costs principles that will apply where a claimant has exaggerated the value of its claim and a defendant has failed to protect its position by making an appropriate Part 36 offer.
A building contractor caused substantial flood damage to a restaurant. The owners of the restaurant brought two claims: (i) a subrogated insurers’ claim for £660,000 and (ii) an uninsured claim, primarily for loss of rent and profit, for £522,000.
At trial the claimants were awarded £157,467 in respect of the subrogated claim (approximately 25% of the sum claimed) and just £16,403 in respect of the uninsured claim (approximately 3% of the sum claimed).
The parties had each made several settlement offers, none of which were “beaten” at trial. The key offers made by the defendants were:
- a Part 36 offer to settle for £139,000 (about £35,000 less than the total judgment sum) made on 26 June 2011;
- a Calderbank offer to settle for £267,046 (inclusive of interest) plus £85,000 for costs made on 16 May 2012, expiring on 30 May 2012.
Whilst the Judge found that the claimants were the “successful party” in that they had recovered something at trial, he went on to criticise the claimants’ conduct: (i) they had exaggerated their claim, although not dishonestly or deliberately; (ii) their solicitors had adopted a consciously unhelpful attitude in correspondence, providing the bare minimum of information requested; and (iii) their expert’s evidence was fundamentally flawed. The Judge noted that the defendants had not beaten their Part 36 offer, and that the costs consequences of Part 36 could not therefore apply.
In respect of the subrogated action, the Judge held that the claimants’ conduct meant it would be manifestly unjust for the claimants to be awarded all their costs to 30 May 2012. The defendant was ordered to pay 60% of the claimants’ costs up to 30 May 2012, excluding the costs in relation to the claimants’ experts, which were to be met by the claimants. As the defendants had beaten their Calderbank offer, the Judge ordered the claimant to pay the defendant’s costs from 30 May 2012, which included all of the trial costs. In respect of the uninsured action, the Judge held the claimants had failed on a grand scale and ordered them to pay 90% of the defendant’s costs. All costs were to be assessed on the standard basis, if not agreed.
The case demonstrates the importance of carrying out a proper and realistic merits assessment at the outset and throughout any dispute. Had the claimants carried out such an exercise and been honest with themselves, they would not have ended up having to pay such a large costs bill. From the defendant’s perspective, the case shows how critical it is to gauge the level of your Part 36 offer correctly. As a defendant, the only way to guarantee costs shifting is to make a Part 36 offer which you then better at trial. Had the defendant’s Part 36 offer been slightly more realistic, the defendants would have beaten it at trial, and the costs consequences of Part 36 would have applied.
For more information please contact Fraser McKeating or your usual Lewis Silkin contact.