Robert Pidgeon, head of legal operations, considers the case of Transocean Drilling UK Ltd v Providence Resources PLC  EWHC 2611 (Comm) available here.
Mr. Justice Popplewell determined that costs are not to be taken into account when considering whether an offer had been beaten under Part 36, but they can be relevant as to what consequences are to follow under the rule.
The cost application by Transocean followed a trial where it was awarded $7.6 million. On appeal this was subsequently increased to $13,858,093.51. At trial, the Court made no order as to costs, as Providence won on issues on which 70% of the costs were incurred. Prior to the trial, Transocean made a Part 36 offer, proposing to accept $13 million inclusive of interest in full and final settlement in respect of the claim and counterclaim.
Providence submitted that when including the legal costs, the offer had not been beaten and therefore Part 36 was not engaged.
Popplewell J determined that for the purpose of CPR 36.14(1)(b) costs did not form part of the ‘judgment’, as the term ‘judgment’ naturally ‘connotes what the trial judge holds or decides on the substantive issues in the case’. The Court therefore confirmed the position set out in Mitchell v James  1 WLR 158 (available here). Nevertheless, the judge went slightly further and noted that if costs were to be taken into account, this would make the task of pitching and accepting Part 36 offers ‘immeasurably’ more difficult.
Having decided that Transocean received more money than it had asked for in its Part 36 offer, the second question was whether the application of Part 36 consequences was unjust. The court noted the unusual feature of the case. It was able to decide what costs order it would have made without considering the Part 36 offer, both at the conclusion of the trial and at the time of the offer. It then relied on the principles espoused in Webb v Liverpool Women’s NHS Foundation Trust  1 WLR 3899. Popplewell J determined that it was unjust for the Part 36 consequences to apply in full because of Transocean’s conduct. However, it would have been unjust for them to have been disapplied in their entirety. It was ordered that Transocean’s costs would be paid on the standard basis from a specific date, but with no other Part 36 Consequences. The court was mindful when coming to this decision of the costs expended by Providence and the costs it would have had to pay, had it accepted the Part 36 offer.
The decision adds another factor to take into account when contending that the usual Part 36 consequences would be unjust: costs are a relevant consideration. This finding is particularly welcome in commercial litigation where costs can quickly mount. Popplewell J’s judgment arguably brings part of the Part 36 principles in line with the reality faced by lawyers providing pragmatic advice on where to pitch, and whether to accept, an offer.
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