THE DANGERS OF A PART 36 OFFER: CLAIMANT PAYS THREE TIMES MORE IN COSTS THAN HE RECEIVED IN DAMAGES

The dangers of a claimant rejecting a Part 36 offer are clearly demonstrated in the case of UWUG Ltd & Haiss -v- Ball [2015] EWHC 74 (IPEC). The claimant received damages of £2,859.20 but was ordered to pay the defendant  a balance in costs of  £9,710.

THE CASE

The defendant (Mr Ball) had been found to infringe design rights of the claimant (Mr Haiss) in a leather sling used for bondage sexual activities. At the inquiry for damages the defendant was ordered to pay 10% of the selling price on each infringing frame. This came to £2,859.20.  The defendant had made several Part 36 offers which beat that offer.

KEY POINTS

THE JUDGMENT

“Judge Hacon :

  1. On 9 December 2014 I handed down my judgment in the inquiry as to damages in these proceedings ([2014] EWHC 4019 (IPEC)). I found that Mr Haiss was entitled to damages equivalent to 10% of Mr Ball’s selling price on each infringing frame sold by Mr Ball to a third party. I left the parties to calculate the sum due. They agreed that it came to £2,859.20 plus interest. There had been an interim payment of £4,000 by Mr Ball, so Mr Ball is due a repayment of £1,130.80.
  2. At the hearing on 9 December 2014 it emerged that there had been Part 36 offers on both sides. There was not nearly enough time to unravel the relevant history and to deal with the appropriate consequences in costs. I asked counsel on each side to make written submissions, which they have done.
  3. This was not ideal. Already the costs incurred in this inquiry greatly outweigh the damages due to Mr Haiss. I make two observations for IPEC litigants generally. The first is that at an early stage of an inquiry or account parties will always benefit greatly from taking a realistic view as to the likely outcome. Particularly in this court, by the time of the case management conference, or conclusion of the pleadings at the latest, parties should be sufficiently informed to make a well judged offer under CPR Part 36 or otherwise, or even to reach a settlement. Very often parties could have saved themselves considerable sums in costs had they taken a more realistic line in relation to an offer made to, or by, the opposing side in an inquiry or account. Frequently this applies even to the party which substantially succeeds at the trial of the inquiry or account.
  4. Secondly, where there has been a trial of the inquiry or account and it is clear that argument on costs is not going to be straightforward – for example because there have been one or more Part 36 offers – the parties should ensure that sufficient time is set aside by the court for the hearing following judgment.

Sequence of offers

  1. On 29 August 2013 Mr Ball made a Part 36 offer to pay Mr Haiss £15,000 including interest. No details were given as to how Mr Ball arrived at this sum save that it was divided into £13,636 plus £1,364 interest. The offer did not include costs, but it is common ground that judgment was less advantageous to Mr Haiss than was this offer. The relevant period in relation to the offer (within the meaning of CPR 36.3(1)(c)) expired on 19 September 2013.
  2. On 20 November 2013 Mr Haiss made a Part 36 counter-offer, with reasons, to accept £60,000 in damages and interest in settlement of his claim, plus costs to be paid by Mr Ball. This was not accepted and the relevant period expired on 11 December 2013.
  3. By a letter dated 30 December 2013 Mr Ball withdrew his Part 36 offer of 29 August 2013.
  4. In a letter dated 11 February 2014 Mr Haiss’s solicitors told Mr Ball that Mr Haiss was in the process of making an application for an interim payment of £30,000 on account of damages, indicating that this was 30% of Mr Haiss’s claim.
  5. On 17 February 2014 Mr Ball made two new offers. The first was a fresh Part 36 offer, in exactly the same terms as that of 29 August 2013. No further reasoning for it was given. The relevant period expired on 10 March 2014 and the offer was not accepted. It is again common ground that judgment was less advantageous than this offer.
  6. Secondly on 17 February 2014, Mr Ball made what he called a Part 36 offer of £5,000, excluding costs, in response to Mr Haiss’s request for an interim payment. It was not accepted.
  7. By an application notice dated 18 February 2014 Mr Haiss formally made his application for an interim payment in the sum of £30,000.
  8. On 19 February 2014 Mr Haiss’s solicitors wrote to Mr Ball suggesting that he may wish to mortgage or sell property in order to raise the sums that Mr Haiss was seeking. They said that Mr Haiss would resist any attempt to seek time to pay following judgment. Mr Ball was also invited to consider mediation.
  9. On 12 March 2014 Mr Haiss’s solicitors stated that Mr Haiss was willing to reduce his claim for an interim payment to £12,500 plus his costs of the application. A meeting to discuss settlement was proposed and the possibility of mediation was raised again.
  10. A case management conference was heard on the following day, 13 March 2014, which included Mr Haiss’s application for an interim payment. Directions were given and following argument I ordered an interim payment of £4,000.
  11. Having regard to the modest sum ordered as interim payment relative to what Mr Haiss had been claiming, on 21 March 2014 Mr Ball wrote to Mr Haiss’s solicitors urging Mr Haiss to accept his Part 36 offer of £15,000. He also said that due to the high cost of mediation and the low value of any settlement, mediation would not be cost effective.
  12. On 9 June 2014 Mr Haiss made a new and reduced Part 36 offer to settle for £28,000. It was not accepted.

Basis for assessing costs

  1. Mr Adams, who appeared for Mr Ball, said that the court has a wide discretion when it comes to costs, which in those broad terms I took to be common ground. Mr Adams then reinforced and I think exaggerated the point a little. He relied on the observation of Lord Lloyd of Berwick inBolton Metropolitan District Council v Secretary of State for the Environment (Practice Note) [1995] 1 WLR 1176, at 1178 (referred to by Lord Phillips MR in R (Corner House Research) v Secretary of State for Trade and Industry [2005] EWCA Civ 192; [2005] 1 WLR 2600, at [27]):

“As in all questions to do with costs, the fundamental rule is that there are no rules. Costs are always in the discretion of the court, and a practice, however widespread and longstanding, must never be allowed to harden into a rule.”

While it is true that there must always be sufficient flexibility of approach in assessing costs to achieve the overriding objective of dealing with cases justly, plainly the court must also observe the guidelines on costs in the CPR – in particular by taking into account those matters set out in CPR 44.2 to 4 and, where there have been Part 36 offers, the matters in CPR 36.14. Lord Lloyd and Lord Phillips were not suggesting that the court has unencumbered freedom in its approach to justice when it comes to costs. They had a more specific point in mind: they were, I believe, warning against the unreflective application of a familiar approach to the assessment of costs, however sound it may be in the general run of cases, without sufficient regard to the justice of the case on particular facts. I take on board that warning of course, but not the notion of unshackled freedom in the assessment of costs suggested by Mr Adams.

The impact, if any, of Mr Ball’s first Part 36 offer

  1. Pursuant to CPR 36(6)(a), the usual consequences of a claimant failing to obtain a judgment more advantageous than the defendant’s Part 36 offer do not apply where the offer has been withdrawn. However it does not follow that I must treat Mr Ball’s first Part 36 offer as if it never happened – see CPR 44.2(4)(c).
  2. Mr St Quintin, who appeared for Mr Haiss, made three points in this regard. First, the Part 36 offer contained no information on the basis of which Mr Haiss could assess whether he should accept the offer. Mr St Quintin relied on the observations of Lord Woolf in Ford v GKR Construction Ltd[2000] 1 WLR 1397, at 1403. Lord Woolf said that if Part 36 offers are to work in the way that the CPR intend, such information should be provided by those who make a Part 36 offer. Mr St Quintin pointed out that Mr Ball’s Points of Defence were not served until 7 March 2014 and he submitted that until that date Mr Haiss had no basis on which to gauge whether the £15,000 offer was fair.
  3. Secondly, whether or not the court were take the view that Mr Ball had been unwise to withdraw his first Part 36 offer, his status as a litigant in person at that time should not mean that he is given any more indulgence than would be accorded to a company awash with high powered legal advice. Mr St Quintin referred me to the observations of Maurice Kay LJ in Tinkler v Elliott [2012] EWCA Civ 1289; [2013] C.P. Rep 4, at [32].
  4. Thirdly, Mr Ball’s persistent refusal to consider mediation should weigh in the balance against Mr Ball. Mr St Quintin submitted that there was every chance that a mediator would have achieved a settlement of the dispute.
  5. With regard to the first point, there is no obligation on a party making a Part 36 offer to spell out his reasons – he is entitled to pluck a figure from the air. However for the reasons given by Lord Woolf, this may count against him in relation to costs if the opposing party is left unreasonably in the dark as to how the offer was calculated and why, and therefore is not able to reach a view as to whether to accept the offer. Lord Woolf had in mind Part 36 offers made before the commencement of litigation but it seems to me that the same applies to all Part 36 offers. Moreover, reasoned offers to and fro are more likely to promote a settlement, which is a desirable consequence of the Part 36 process.
  6. Nonetheless the extent to which a party’s position is disadvantaged by ignorance of the rationale behind a Part 36 offer will depend on the facts of the case. In the present instance Mr Haiss was aware of how many infringing frames had been sold by Mr Ball – 102, as appears from the letter from Mr Haiss’s solicitors dated 20 November 2013. That letter went on to set out Mr Haiss’s arguments in support of the various heads of his claim, which were in substance his principal arguments at the trial of the inquiry. Mr Haiss was in a position to take a view on the likely success of those arguments when he received Mr Ball’s offer of 29 August 2013. He also had information on which to base an estimate of the damages which he would receive if they were to be calculated as lost profit on the user principle (which I found to be the correct basis in my judgment in the inquiry).
  7. Mr Ball’s figure of £15,000 in his Part 36 offer was the sum he was prepared to offer to settle the inquiry and very likely not rationalised much further than that. This did not prevent Mr Haiss assessing on a more considered basis how £15,000 matched up with the damages and interest which Mr Haiss would be likely to receive, on various alternative views as to the outcome at trial. The fact that Mr Haiss pinned his faith on arguments which did not succeed at trial is neither here nor there.
  8. The view I have come to is that I should not treat Mr Ball’s first Part 36 offer as if it was never withdrawn. I accept the submission that litigants in person, like all litigants, must live with the consequences of ill advised procedural decisions. On the other hand, there is no doubt that Mr Haiss should have accepted the offer and he had enough information to come to that view. The parties would have then been saved the further cost and time expended on the inquiry.
  9. I don’t think that Mr Ball’s refusal to enter into mediation should count against him. I can see that from Mr Ball’s perspective this would be likely to have led to a waste of time and expenditure. Bearing in mind Mr Haiss’s stance with regard to the sum he felt he was due by way of damages, I doubt that mediation would have been successful.
  10. I will therefore allow Mr Haiss to claim his costs up to 19 September 2013 but no further. As against that, I do not award any costs to Mr Ball as a consequence of his first Part 36 offer.

Costs after the expiry of the relevant period for Mr Ball’s second Part 36 offer

  1. Mr Haiss did not resist an order that Mr Ball should have his costs incurred from 10 March 2014, subject to particular arguments addressed to the applications after that date.

Costs of the CMC and the interim payment application

  1. The CMC was heard on 13 March 2014. Mr Haiss argued that the bulk of the costs in preparation for the CMC were incurred before 10 March 2014 and that at the CMC Mr Haiss had succeeded in excluding from the issues certain matters raised in Mr Ball’s Points of Defence.
  2. In relation to the CMC, I will allow Mr Ball the principal cost incurred after 9 March 2014, that is to say Mr Adams’ brief fee. This was £2,500 (ex VAT) although it included the fee for arguing Mr Haiss’s application for interim damages. (I exclude VAT, as is usual, because there has been no agreement by the parties that Mr Ball is not able to recover VAT as input tax and no certificate to that effect has been filed by Mr Ball pursuant to CPD 44PD 2.5).

Application for interim damages

  1. The application for interim damages was made at the hearing of the CMC on 13 March 2014. As mentioned above, Mr Ball had earlier made, in effect, a without prejudice offer on 17 February 2014 to pay Mr Haiss £5,000 by way of interim damages. The order made on 13 March 2013 was for the payment of only £4,000. In my view Mr Ball is entitled to his costs of this application from 10 March 2014 and I will take this to be Mr Adams’ brief fee.

Mr Haiss’s application to rely on a witness statement of Philip Dunn

  1. By an application notice dated 9 June 2014 Mr Haiss sought to vary the order at the CMC to adduce a further witness statement of Philip Dunn. I decided the matter in writing in an Order dated 31 July 2014. I take the view that adding the evidence of Mr Dunn was a necessary consequence of the way the arguments had developed. The change in argument was on Mr Haiss’s side and to that extent he was the cause of the application, but there was no good reason to resist it. I make no order as to costs in relation to this application.

Mr Ball’s application for an unless order

  1. By an application notice dated 22 June 2014 Mr Ball sought an unless order for compliance with part of the order made at the CMC relating to the disclosure of certain financial and commercial documents. I also dealt with this in the Order of 31 July 2014. Disclosure of the documents in question became unnecessary because of the development in Mr Haiss’s argument referred to above. I make no order as to costs.

Overall position

  1. It follows that Mr Haiss is entitled to his costs up to 19 September 2013 and Mr Ball is entitled to the costs of counsel’s fees for the hearing of 13 March 2014 and otherwise to his costs from 10 March 2014. All are subject to the costs caps set out in Table B in Section 25C of the Costs Practice Direction, as formerly applied in the Patents County Court.
  2. Mr St Quintin made a particular point about the evidence of Mr Rice, adduced at trial by Mr Ball, which in part made an allegation of criminal conduct. Mr St Quintin described Mr Rice’s evidence as either false or so carelessly prepared as to be misleading. I found that this evidence provided no assistance in any of the matters I had to resolve at trial and did not refer to it in my judgment. I have slightly reduced the sum awarded to Mr Ball for the cost of preparing witness statements to take this into account.
  3. Mr Haiss’s costs were subject to a permissible uplift which I have included in the sum claimed by Mr Haiss for the two relevant stages.

Costs awarded to Mr Haiss incurred up to 19 September 2013

Stage Sum
Claimed
Limit in Table B Sum awarded
Points of Claim £12,615.00 £2,500 £2,500

TOTAL
   
£2,500

Costs awarded to Mr Ball

Stage Sum
Claimed
Limit in Table B Sum awarded
CMC and Application for interim payment £2,500 (Combined limit)
£5,000
£2,500
Disclosure
£810 £2,500 £ 810
Preparing witness statements £1,570 £5,000 £1,400
Trial and judgment £8,080 £7,500 £7,500

TOTAL
   
£12,210

 

  • The net sum in costs due from Mr Haiss to Mr Ball is £9,710. This should be paid within 14 days of the date of the Order following this judgment.”

 

 

 

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: