AN ATTEMPT TO LIMIT COSTS MAKES A CALDERBANK OFFER INEFFECTIVE

In Burrell -v- Clifford [2016] EWHC 578 (Ch) Mr R Spearman QC (sitting as a judge of the High Court) decided that an offer which was equivalent to the sum awarded in damages was not effective because the defendant also attempted to limit the costs.

“To my mind, somebody making an offer of this sort who includes an offer for the costs to date has all the protection they could reasonably expect by reason of the assessment regime which will have regard to reasonableness of costs and proportionality.”

KEY POINTS

  • The defendant made an offer which matched, exactly, the damages awarded in the case.
  • However when making that offer the defendant had offered only £5,000 in total for costs and disbursements.
  • When the offer was made the costs incurred were much higher than this.
  • The defendant could, and should, have protected itself by making a Part 36 offer and agreeing to pay costs to the date of the offer.
  • The defendant had the protection of the costs budgeting regime and the fact that costs would be proportional.
  • The offer the defendant made was therefore ineffective and did not affect the costs order made. The defendant was to pay the claimant#s costs throughout.

PRACTICE POINTS

This case highlights the difficulty for a defendant who wishes to impose a cap on their own liability for costs when making an offer.  A Part 36 offer in this case would have been wholly effective.  The offer made, which attempted to limit costs, was not.  This is a factor that needs to be considered when advising in relation to any offer where an attempt is being made to restrict costs.

THE CASE

The claimant successfully sued the defendant and obtained damages of £5,000. The defendant had earlier made an offer of £5,000 in damages and offered to pay costs but limited to £5,000.  The defendant argued that the offer should be taken account in the assessment of costs.  This argument was rejected by the judge.

THE JUDGMENT
  1. The sum of damages which I awarded in this case was one of £5,000. That was an award made in the context that as a result of costs budgeting the claimant’s costs were fixed at £128,695.41 excluding Value Added Tax, and the defendant’s costs were fixed at £90,295, again, excluding Value Added Tax. Today there has been placed in front of me a costs schedule relating to the defendant’s costs which shows that the costs actually incurred by him are £97,758 excluding Value Added Tax.
  2. The claimant, through Mr. Bennett, asks for costs to be awarded in his favour on the basis, in short, that he has succeeded on the claim, the usual starting point is that costs follow the event, and there are no particular circumstances which warrant any different order.
  3. The defendant, through Mr. Barrett, submits that the court has a wide discretion relating to costs. There is a jurisdiction recognised in part 44.2 of the Civil Procedure Rules to make a different order than the one that costs follow the event, and in the exercise of that discretion the court should have regard to all the circumstances, which is a wide and unfettered formula. Mr. Barrett submits that the correct order in this case is either that the claimant should pay all the defendant’s costs, or that the claimant should pay part of the defendant’s costs, or that the defendant should not have to pay any of the claimant’s costs and that each side should bear their own costs, notwithstanding, as Mr. Barrett obviously has to accept, that his client has been the unsuccessful party.
  4. At the heart of Mr. Barrett’s submissions is a letter dated 30th January 2015, which contained an offer made without prejudice save as to costs. What was offered by that letter was payment of the sum of £5,000 in respect of damages, and payment of the claimant’s reasonably incurred legal costs and disbursements up to a value of £5,000 inclusive of Value Added Tax. The letter ended by saying that in the event that the offer was not accepted, the defendant reserved the right to bring the contents of the letter to the attention of the court on the issue of costs, and (I quote):
“If your client fails to do better than the settlement offer at trial, we intend to seek an order requiring your client to pay our client’s costs from the expiry of the deadline together with the interest on those costs from that date until payment”.
  1. The sum offered in respect of damages is, as it happens, exactly the amount that I awarded Mr. Burrell as a result of the trial. The offer in respect of costs I think is not argued to be sufficient to cover the incurred legal costs and disbursements of the claimant up to that date. Mr. Bennett makes the point that the fee for the claim form alone was £1,090; and that the offer of £5,000 inclusive of VAT translates to a net figure of £4,167 net of VAT. It is stated that the costs at that stage were greater than £4,167. If you took off the costs of the claim form, of course the figure would be lower still; it would be £3,077.
  2. As far as I can see, that submission is entirely commensurate with the costs budgeting exercise in which allowances were made for pre-action costs. The budget approved was £2,920 for that, and then a claim is made for £26,741 for pleadings and the issue of the claim, both retrospectively and prospectively, and that sum was allowed in full in the approved budget.
  3. One does not know what element of the incurred costs of pleadings and the issue of the claim of £20,801 was referable to the early part of the claim, but it seems to me absolutely inevitable that at the time that it was sent the costs were well in excess of the sum offered by that without prejudice save as to costs letter. And that disregards altogether the fact that this is a claim pursued subject to a CFA, so that there would be an uplift on the claimant’s costs, subject to the CFA being enforceable and the claimed uplift for success being reasonable. And there would also be after the event insurance payments to make. Mr. Taylor has actually given me details of all that in the witness statement that is in the bundle. He says in that statement, verified by a statement of truth, that the figures were, at the date of the offer letter, base costs of the claimant’s firm of solicitors of £9,815, and counsel’s fees of £12,340; and then there is the claim form; and then you have got various other figures which have to come in, including an ATE staged premium liability of £13,515. And the two figures I have given for lawyers’ costs exclude VAT, and obviously they also exclude the fee for the claim form.
  4. So, dealing with that letter, it seems to me that it was an inadequate offer. It did not give the defendant protection. Mr. Barrett is fully entitled to invoke the last paragraph of the letter, and refer me to it. But the position is that, in my judgment, Mr. Burrell has done better than that settlement offer at trial, and Mr. Clifford’s appropriate remedy was to offer the £5,000 in respect of damages that he happens, in my judgment, to have got right, and the costs incurred down to that date subject to detailed assessment in the usual way.
  5. Now, it is submitted by Mr. Barrett, by reference to the notes in The White Book and a case called Walker Construction (UK) Ltd v Quayside Homes Ltd & Brett [2014] EWCA Civ 93 that the Court of Appeal were critical of the first instance judge in that case because he did not give appropriate consideration to the fact that the losing party could not realistically have made a part 36 offer because it would have had the automatic consequence that if it was accepted the successful party would have been entitled to all its costs in the proceedings to date. I obviously pay careful regard to that, but I do not find it a persuasive proposition, at least in the context of this case. To my mind, somebody making an offer of this sort who includes an offer for the costs to date has all the protection they could reasonably expect by reason of the assessment regime which will have regard to reasonableness of costs and proportionality.
  6. In my judgment, that is the answer also to the point that Mr. Barrett made by reference to another letter of 26th February 2014, in which the claimant’s solicitors sought at that stage to compromise the proceedings on the basis of £25,000 damages and costs, disbursements and VAT in the total sum of £56,000-odd. I accept that offer was very much higher than the offer which could reasonably be expected to be made by Mr. Clifford. However, when making a without prejudice save as to costs offer, he was not exposed to paying costs at the very high level that the claimant’s solicitors claimed by that letter to have run up (and which appear, from the inclusion of a claim for fees in respect of a QC if nothing else to relate to matters outside the ambit of the present claim). On the contrary, all that Mr Clifford would have been exposed to paying was such costs as had truly been incurred in connection with the present claim, and were reasonable and proportionate.
  7. The judgment of the court in Walker Construction (UK) Ltd v Quayside Homes Ltd & Brett [2014] EWCA Civ 93 and indeed the without prejudice save as to costs offer made by Mr. Burrell on 13th February 2015 (which was for £7,500 damages and the payment of costs down to that date in the usual way), does not make me change my mind about the proper way forward, in my judgment, for Mr. Clifford as at January 2015 when the without prejudice save as to costs offer of that date was made on his behalf.
  8. Now, it is a concern that with a claim of this modest value, costs of this level should be incurred; and indeed that is a concern that Mr. Justice Mann had in mind in his interim judgment of 14th July 2015. He addressed, at para.31, two particular mechanisms for dealing with this. One is the costs budgeting mechanism which has been invoked in this case and has reduced the suggested costs of the claimant from £232,000-odd down to the figure I gave earlier; and the other is the possibility of making a well-judged part 36 offer. I believe that my reasoning is in line with those observations of Mr. Justice Mann. I am not in any way bound by them, but I do not think I am departing from them in the approach that I have adopted.
  9. There is a difficulty about this, because this claim was a well-founded claim. It may have been for a modest amount, but it was one that the claimant was entitled to bring. The possibility of transferring it to the county court was apparently considered in front of Mr. Justice Mann and it was rejected by him on the basis that this is still a developing area of law and therefore, for the time being at least, claims for misuse of private information properly belong in the Chancery Division or the Queen’s Bench Division regardless of the fact that they may have a modest value. The difficulty that I see – while I am very sympathetic to a number of the points that Mr. Barrett has made about proportionality – is that where somebody has a proper claim with a good foundation and they bring it in the proper court, it is not in my judgment reasonable that one should end up by saying, “Well, the value is very low compared to the costs, and therefore either you shouldn’t have your costs, or you should have to pay the defendant’s costs, or you should have a radical reduction in the proportion of your costs recoverable because of the disparity between the value of the claim and the costs”. As I say, the question of reasonableness and proportionality of costs, in my judgment, is dealt with by the costs budgeting and costs assessment exercises, and in my judgment that is the answer to the thrust of Mr. Barrett’s submissions.
  10. I will just briefly rehearse the other factors that he relied on. He submitted Mr. Burrell’s claim was exaggerated, I think he means by value. Well, maybe. Mr. Burrell put forward greater value claims in front of Mr. Justice Mann and me, but the fact is his claim had a value and he succeeded on it, and it could have been met by protection by Mr. Clifford by an appropriate part 36 offer.
  11. It was submitted that the injunction claim was a fig leaf and that Mr. Clifford, advised by new solicitors and counsel shortly before trial, made a reasonable offer of an undertaking, and that this should be taken into account.
  12. Well, I am personally of the view that the injunction claim was unsustainable and could easily have been struck out, because, as far as I can see, there was no risk that Mr. Clifford was likely to re-tender the letter to anybody because, as far as I am aware, he never had the letter at any time material to the present claim. Although he must have had it years ago, he only got a copy of it in more recent times as a result of the disclosure exercise in this litigation, as I understand it. But, in any event, in this particular case Mr. Burrell had put all the information in the public domain voluntarily many years before the claim was brought, and I cannot see that there was any realistic prospect of him getting a permanent injunction to restrain further dissemination, even probably against someone like Mr. Clifford who might be said, initially at least, to have been under a specific personal obligation not to divulge the information contained in it. I consider that it would have been open to Mr. Clifford to apply to strike out the claim for an injunction as a discrete matter, but that was not done, so that claim was not addressed in that way.
  13. However, I do not base my decision on costs on the existence of Mr. Burrell’s claim for an injunction, but on the factors identified above. The claim for an injunction did not, so far as I am aware, add significantly to the costs of the claim, or have the effect of keeping the claim in the High Court when it would otherwise have been transferred to a forum in which it could have been litigated more cheaply or subject to a more restrictive costs regime, or anything of that sort. I therefore attach little weight to this particular argument.
  14. The earlier without prejudice save as to costs offer of 26th February 2014, I have already dealt with. That was another factor Mr. Barrett relied on, and he argued that it would not have been possible to make an effective part 36 offer because of the inflated costs claim advanced by Mr. Burrell’s solicitors earlier, so that the failure to do that should not be held against Mr. Clifford. I have already dealt with that.
  15. None of those factors, in my judgment, move me away from the starting point which I have already addressed.
  16. Finally, although not exhaustively, but merely illustratively, some of the circumstances to which I could have regard in accordance with CPR 44.2 include: the conduct of the parties and whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; the manner in which matters have been pursued or defended; and whether the claimant has succeeded on the claim in whole or in part or has exaggerated his claim.
  17. In my judgment, doing the best I can, none of those factors can properly be said to count against Mr. Burrell in this case, and certainly to the extent that they might be, they do not call for any departure from the general rule.
  18. And so, for all those reasons, I accede to Mr. Bennett’s submissions and I reject those of Mr. Barrett. My ruling is that in all the circumstances Mr. Burrell is entitled to his costs of these proceedings in spite of the modesty of his claim, in spite of its relationship to the level of costs incurred, and in spite of the history of the Calderbank offers which I have rehearsed.

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