P & O Nedlloyd BV v Utaniko Ltd

When we handed down our judgment on 12^th February we made certain ancillary directions, but we reserved our judgment in relation to one substantive point relating to costs. This is the judgment of the court on that point.

Mr Males QC, for the respondents, invited us to direct that his clients should receive on an indemnity basis their costs of successfully resisting these appeals. He submitted that we should apply the rules set out in CPR 36.21, alternatively that we should exercise our discretion in his clients’ favour under CPR 44.3. At the trial his clients had received an order for indemnity costs and interest at an enhanced rate from 7^th July 2001, following the non-acceptance of their Part 36 offer to accept 75% of the value of their claim in each action.

It is well known that Part 36 of the Civil Procedure Rules introduced a new procedure whereby claimants may make offers to settle, and they may benefit in due course from favourable orders in relation to indemnity costs and interest if the defendant at the trial fails to “beat their offer”. CPR 36.2(4) makes it clear that a “Part 36 offer” may be made at any time after proceedings have started, and that it may also be made in appeal proceedings. CPR 36.5 prescribes the form and content of a Part 36 offer, and CPR 36.21 provides for the costs and other consequences where a claimant does better than he proposed in his Part 36 offer. In particular, CPR 36.21(1) provides that:

“This rule applies where at trial –

a)

a defendant is held liable for more; or

b)

the judgment against a defendant is more advantageous to the claimant,

than the proposals contained in a claimant’s Part 36 offer.”

The natural meaning of this rule is that if a Part 36 offer is made between the time of the proceedings and a date not less than 21 days before the start of the trial at first instance (see CPR 36.5(6) and CPR 36.21(2) and (3)), the consequences set out in CPR 36.21(2)–(4) will generally follow if the defendant fails to “beat the offer”. If a Part 36 offer is made in appeal proceedings (pursuant to CPR 36.2(4)(b)) then the words “at trial” in CPR 36.21(1) must clearly be interpreted as meaning “on the hearing of an appeal”.

Mr Males contended that his clients ought to receive the benefit of CPR 36.21 even though they made no Part 36 offer in connection with the appeal proceedings. He said that we could interpret the word “trial” in CPR 36.21(1) as if it meant both the first instance trial and the hearing of the appeal. When we asked him to say what should happen if the defendants succeeded in reducing their liability on the judgment by, say, 15% on the appeal without “beating” his clients’ original offer, he said that this might be an occasion when the court might consider it “unjust” to make the usual order envisaged by CPR 36.21(2) – (4): see CPR 36.21(4) and (5).

In our judgment we should not strain the meaning of CPR 36.21(1) in this way. Part 36 provides a straightforward code whereby a claimant may protect himself against the subsequent costs of first instance proceedings, or the subsequent costs of an appeal, but there is no hint that the rulemakers ever considered that a claimant might make a portmanteau Part 36 offer which would provide him with the protection of the code in CPR 36.21 both at first instance and on a subsequent appeal. If he wants to protect himself as to the costs of an appeal, he must make a further offer in the appeal proceedings. Then everyone will know where they stand, and it is unnecessary to give CPR 36.21 a convoluted meaning.

Mr Males then submitted that even if he was wrong about CPR 36.21, we should exercise our discretion under CPR 44.3 to direct that his clients should receive their costs of the appeal on an indemnity basis. He did not seek to argue that there was anything about the defendants’ conduct of the appeal to take this case out of the norm. He simply argued that as an exercise of discretion we should award costs on an indemnity basis, by analogy with CPR 36.21(3), because none of the costs of the appeal need have been incurred by either side if only the defendants had been willing to accept his clients’ original Part 36 offer.

It goes without saying that if his clients had made an admissible offer to settle the appeal proceedings then this would have been a factor we would have been bound to take into account (see CPR 44.3(c)). In the absence of such an offer they must be taken to have resiled from their willingness to accept 75% of their claim, so that their original Part 36 offer can no longer be regarded as being on the table. If they did not wish to offer to settle on the appeal for less than the full amount awarded to them on the judgment, it would have been open to them to craft a letter relating to the costs of the appeal which might have persuaded us that it would be just that they should continue to be awarded indemnity costs. But in the absence of any such letter, we see no reason why the usual rule as to standard costs should not be applied. The appeal raised points of law that were considered fit for argument in this court when permission to appeal was granted, and although the defendants did not succeed, we see no reason why the usual rule as to costs should not follow, in the absence of some letter relating to the costs of the appeal proceedings.

We therefore award the respondents their costs of the appeal on a standard basis.

We are at present minded to direct that they should pay the appellants their costs of the hearing on 12^th February on a standard basis, such costs to be set off against the other costs of the appeal. Although we had to determine one other contentious issue as to costs at that hearing, we could easily have decided that issue on the written submissions we received the previous day. We are willing to receive written submissions on this point after we have sent out this judgment in draft, but subject to the effect of any such submissions we will draw up our judgment in this form.