REUTERS | Brian Snyder

How can parties to litigation make sure they get their costs back?

Sadly, there is some litigation that is very hard to settle. Some claimants are not very realistic about what their claim is worth or about whether they will recover their legal costs. Equally, some claimants are badly advised by either their lawyers or their experts about their prospects of success and how much they might recover.

If you are a defendant facing these sorts of claimants, how should you try to deal with it? The courts much prefer it when parties try to settle their disputes. While it is difficult to make offers to settle when the parties are a long way apart on the value of the claim, the courts do expect the parties to try nonetheless.

Brit Inns v BDW

The Civil Procedure Rules (CPR) Parts 36 and 44 include different rules about cost recovery and the court’s discretion. Some of the practical issues facing litigants were brought into sharp relief in Brit Inns Ltd v BDW Trading Ltd.

Here, the court had to decide how the question of costs should be dealt with in a case where the parties had widely divergent views on the value of the claims and where various offers had been made during the course of the litigation.

The central importance of a Part 36 offer

No matter how difficult it is to value what a claim is really worth, you need to do your best to enable you to make a Part 36 offer large enough to beat what a court would ultimately award at trial, while not being over-generous (in case the other side accepts it). A party needs commercial advice from lawyers and experts to determine this amount.

If you can’t work out what the claimant’s case is worth because the claimant won’t provide clear evidence, consider applying to court for an order that it discloses the evidence. If you don’t, there will be no use complaining later about the claimant’s failings: the court won’t be interested.

Consider making a Part 44 offer, but bear in mind the court has a discretion about how much influence such an offer has on who pays (and how much they pay).

Near misses

In Brit Inns, the court made it clear that the key thing is whether there is a Part 36 offer and whether it has been bettered. Part 36 offers a carefully structured set of rules that supply predictable results to parties involved in litigation. Those rules have to be applied (there is no discretion about whether to apply Part 36 or not, and it is most unusual for a court to find that the costs consequences would be unjust under Part 36.14(4)).

Where a Part 36 offer is made but is for too little, it would appear that a “near miss” by itself won’t necessarily help the party who made that offer. The court quoted Jackson LJ’s argument in Fox v Foundation Piling that allowing for a near miss would lead to uncertainty for parties and for their advisers, who would not know whether their offer would be treated as good enough.

The importance of Part 44

Where a party has made a Part 44 offer, the court can exercise a discretion. In Brit Inns, the court explained that the relevant principles for it to apply were:

  • In a commercial case, the successful party will usually be the party that recovers money from the other.
  • The only certain way for a defendant to shift its potential costs liability is to make a Part 36 offer that it then beats at trial.
  • Pursuing an exaggerated claim may deprive the claimant of some or all of its costs. Usually it is only where the exaggeration is deliberate that the claimant will be ordered to pay the defendant’s costs.
  • In general terms, where conduct is taken into account so that the claimant who recovers something still has to pay the defendant’s costs, there needs to be a more or less total failure on the issues that went to trial or a failure to accept a Part 44 offer that would have put the claimant in a better position than carrying on.

Principles in practice

In Brit Inns, applying these principles, the whole balance shifted once the defendant made its Part 44 offer. The court found that the claimants would have been better off accepting it than proceeding to trial and so, from that point on, the defendant was entitled to recover its costs from the claimants.

That meant that the claimants ended up having to pay for all of the costs of the trial. The court felt that was a just result, given that the defendant won every substantive argument and that the claimants’ expert evidence was basically worthless. (Unusually, the hearing also dealt with a separate action for uninsured claims, where the court ordered the claimants to pay the defendant’s costs, finding there had been “failure on a grand scale – the claimants recovery was so miserable that no other result would be fair or just.”)

A cautionary tale

This judgment is something of a cautionary tale for claimants and defendants, both of whom ended up significantly out of pocket. It should encourage all parties involved in disputes to be as objective as possible about the value of what is in dispute at the earliest possible stage.

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