Where a split trial has been ordered and a party has made a Part 36 offer which relates to issues that have not yet been decided, the usual order will be that costs are reserved until after quantum has been determined. Does, however, unreasonable and dishonest conduct on behalf of the offer allow the court to make a costs award?
In Original Beauty Technology Company Ltd & Ors v G4k Fashion Ltd & Ors  EWHC 954 (Ch) (28 April 2021), the Claimant submitted that under CPR Rule 36.17(3), if they did not do better than the Defendant’s Part 36 offer, then the Court would order them to the pay the Defendants’ costs, unless it was unjust to do so. It was their case that the qualification “unjust to do so” gave the court a very wide discretion and in circumstances where the Defendants’ conduct was dishonest and unreasonable, that discretion was wide enough to allow the court to make an award of costs before quantum was determined.
On that issue, David Stone (sitting as a Deputy Judge of the High Court) found that the language used in CPR Rule 36.17 prevented the court making a costs order. In particular, the Judge found that the rule required judgment to be entered, which it had not, and for that judgment to be no better than the Part 36 offer, before the qualification in CPR Rule 36.17(3) could take effect. Furthermore, it was held that the court “must” take into account the factors listed in CPR 36.17(5) before exercising its discretion. Crucially, although the court was aware of the existence of the Part 36 offer, it could not be informed of its terms; the focus of the injustice analysis in the rules was on the circumstances of the making of the offer and the provision of relevant information, not the general conduct of the parties. Of the five factors listed in CPR Rule 36.17(5), the only factor before the court was whether the offer was a genuine attempt to settle the proceedings, and that was not disputed by the Claimant.
The Claimant also relied on the comments of Jackson J in Multiplex Constructions (UK) Limited v Cleveland Bridge UK Limited and Anor  EWHC 659 TCC at paragraph 26, where he found that in an exceptional case a Judge may make an immediate order for costs despite a Part 36 offer if the circumstances warranted such a course. The Judge rejected those submissions because CPR Rule 36.17 was not in force in its current form at the time that judgment was given in that case and that no general discretion could be transferred across.
In summary, it was found that whilst reserving costs following a split trial was not the appropriate course, it was the only course of action open to the Judge.
This article was featured in our March 2021 newsletter, see the full newsletter here.