The effect of a near miss on a Part 36 Offer combined with a failure to follow the Protocol.
A miss is as good as a mile so far as settlement offers are concerned!
The High Court has made an important decision regarding costs under Part 36 in light of the new Cost Rules and the Dilapidations Protocol Hammersmatch had claimed damages for dilapidations which, by the time that proceedings commenced, were quantified at some £4.5million plus loss of rent and insurance at an annual rate of £750,000.
Saint-Gobain made a settlement offer under Part 36 of the Civil Procedure Rules of £500,000 in November 2011 and had increased the Offer to £1million in December 2011. Hammesmatch offered to settle for £3,200,000 plus costs.
The case proceeded to trial; and Hammersmatch recovered £1,058,768. The amount awarded came to just £3,637.90 more than the £1million that had been offered, based on interest payable at that time.
Under Part 36, if Saint-Gobain had offered to settle at just some £4,000 more, Hammersmatch would have been automatically liable for its own and Saint-Gobain’s costs incurred since the date the Offer should have been accepted.
As Hammersmatch recovered much less than they were originally claiming, and only a fraction more than was offered, Saint-Gobain argued that the normal rule as to the winner recovering costs should not apply and that Hammersmatch should only recover 40% of its costs.
The Court first considered what the effect of a near miss now was in relation to a Part 36 Offer following the changes made to the Rules following the Reforms introduced by Lord Justice Jackson. It held that the new Rules give no room for uncertainty or discretion. If a Claimant recovered more than the amount offered by the Defendant, albeit only a fraction more, then the Claimant had succeeded in beating the Part 36 Offer and the Offer was of no effect.
The Court held that it would re-introduce uncertainty if a Defendant could rely on a near miss to reduce the costs payable to a Claimant. It was simply not sufficient for a Defendant to be able to argue that the matter could have been resolved without the need for any trial if a Claimant had been prepared to accept just a little less. It was impossible to say whether a Defendant would have actually offered a little bit more to resolve the matter if the other side had appeared more reasonable in its estimation of the value of the claim.
Given correspondence relating to settlement negotiations, and documentation relating to a Mediation, are covered by privilege, the cOurt also held there were practical difficulties in seeking to establish why a matter had not settled and whether it might have if one party had been more realistic on quantum.
Given that the parties had attended a Mediation to try to settle, and that there had not been any unreasonable refusal to negotiate, the Court thought it would not be appropriate to penalise Hammersmatch for the fact that Saint-Gobain had made an offer which was slightly too low.
Although Hammersmatch had recovered far less than they had claimed, the Court did not think that it had been guilty of unreasonably exaggerating its claim.It held that it was Saint-Gobain that had failed to comply with the Dilapidations Protocol by not making its case on liability and quantum clear earlier and, accordingly, Hammersmatch had not been able to take account of Saint-Gobain’s evidence in this respect at the time when its Part 36 Offer was made. The failure by Saint-Gobain to follow the Protocol reinforced the case for an Order for costs against it. It was held to be unrealisticfor it to claim Hammersmatch had an obligation to negotiate when it only made its case clear on serving its expert evidence at a much later stage.
Although Hammersmatch had only recovered about 20% of the amount claimed in the proceedings, and only some £4,000 more than the settlement offer, this was irrelevant in connection with the question of costs in the absence of any unreasonable behaviour on its part regarding settlement or valuation of the claim..
However, the Court has a general costs discretion under Part 44 of the Civil Procedure Rules and it held that Hammersmatch should be entitled to recover only 80% of its costs as it had been unsuccessful on certain issues, particularly relating to its intention to carry out the repair works.
Clearly, the lesson to be learned by any Defendant is to not only follow the Protocol so as to make its case very clear both as to liability and quantum at an early stage, but also to err on the generous side when making any Part 36 Offer.