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Without Prejudice Offers to settle part 36

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The recent case of Costain Limited -v- Charles Haswell & Partners Limited provides useful guidance on how the Court should allocate costs at the end of a trial when a Claimant recovers significantly less than that which it claimed.

The brief facts of this case are that the Claimant, Costain, was engaged by United Utilities Water Limited under a Design and Build Contract to carry out various works at a site in Bolton. Costain in turn engaged the Defendant, Haswell, who were Consultant Civil Engineers. Costain claimed that the foundations designed by Haswell were defective and had to be changed late in the day thus causing Costain additional cost and expense.

When Costain commenced proceedings they sought some £3.5m in damages although by the final day of the 14 day trial Costain had reduced its claim to £1.257, 377.00. Costain actually recovered £163,478.51 which was dwarfed by the joint legal costs of some £2.9m. A hollow victory indeed.

Haswell were obviously confident in their case because they made no payment into Court and no Part 36 Offer. Unfortunately because Costain did make a recovery they were able to claim victory and argue that costs should follow the event.

Notwithstanding the fact that Costain’s claims had been largely defeated, the Judge stated that he was in no doubt that Costain was the successful party and had recovered a substantial sum of money. The Judge accepted that Costain’s claims were inflated and indeed at the early stage were exaggerated, but he said they failed because Costain were unable to prove the facts upon which they relied and not because the quantum was excessive. The Judge did not think that Costain were unreasonable in pursuing their claims, nor did the Judge consider that Costain were unreasonable in pitching their offer to settle at no less than £1,150.000.00 plus costs. Perhaps surprisingly the Judge was very critical of Haswell for not protecting itself by making a payment into Court or Part 36 Offer and said, “I do not consider that Haswell acted reasonably in rejecting Costain’s offers of settlement out of hand without coming back with some form of substantive counteroffer”.

The Judge went on to consider a number of authorities including the case of McGlin v Waltham Contractors Limited and others and concluded that the modern approach of the Courts was to assess the relative success or failure of the parties and deal with costs by way of costs order stating that “the time honoured rubric that “costs follow the event” is no longer applied automatically in this kind of situation even though a clear winner of the litigation has emerged. The Court nowadays is encouraged to enquire more closely into relatively success or failure of the parties and to adjust its cost order in favour of the winner of the litigation accordingly.”

The Judge concluded that the issues upon which Costain succeeded consumed approximately 60% of the time taken at trial and Haswell succeeded on issues that consumed about 35% of the time at trial. The Judge concluded that Costain should therefore recover 65% of its total costs from Haswell and that Haswell should recover 35% of its total costs from Costain. The Judge then went on and made a deduction against each parties’ recovery to reflect the conduct of the parties. The Judge assessed that the net effect was that Haswell had to pay Costain £620,000 in respect of Costain’s costs, representing just under 39% of Costain’s total cost expenditure of £1.6m. This appears to suggest that following the litigation Costain remained £800,000 out of pocket and Haswell nearly £2m.

This case provides useful guidance on how costs should be allocated when a party is not successful on all of its claims. It will be noted that a Claimant may suffer adverse cost orders even if it recovers over and above a Defendants offer to settle. The case also serves as a useful reminder that when defending litigation, no matter how spurious or over-egged a Defendant considers a claim to be, the Defendant should give serious consideration to either making a payment into Court or a Part 36 Offer. In this case had Haswell made a small payment into Court they may have potentially saved themselves nearly £2m in legal costs.

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MJD Solicitors | Matthew Dillon

Matthew Dillon

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