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Part 36 offers and Multiple Defendants: Do you need to reconsider your Part 36 offer?

 

We consider the recent decision in IT Protect Ltd (In Liquidation) sub nom (1) Timothy James Bramston (2) Adam Harris (as Joint Liquidators of IT Protect Ltd) v (1) Warren Pye (2) Dawn Montague (2020) which could be relevant to Claimants who are pursuing a claim against multiple Defendants.

Let’s start with the Rules

Legal practitioners are well aware that making the right Part 36 offer can pay dividends when it comes to costs.  If a Claimant makes an effective Part 36 offer (under CPR r.36.5) and subsequently Judgment is obtained against the Defendant which is at least as advantageous as the proposals contained in the offer, then the Defendant could face the prospect of stiff penalties. This is in the form of interest on the judgment sum at a rate not exceeding 10% above base, costs on the indemnity basis, interest on costs at a rate not exceeding 10% above base and a further amount (not exceeding £75,000) calculated as percentage of the judgment sum (CPR r.36.17(4)).

So, as a Claimant you’ve “played your cards right” and beaten your offer, but will you get the “Brucie Bonus”?  Not necessarily.  The Court must look at whether it would be “unjust” to make such an award and in doing so they are obliged to consider all aspects of the matter (CPR r.36.17(5)).

The Case

The Applicants were the Joint Liquidators of IT Protect Limited and issued a claim against the First Respondent on the basis that he was a de jure director of IT Protect Limited and he had engaged in misfeasance, caused the company to incur penalties and thus should be held personally liable for losses caused to creditors.  The First Respondent denied the claim but admitted he had received £10,600.00.  A claim was also pursued against the Second Respondent on the basis that she was de facto director of IT Protect Limited.

• The Applicants made a Calderbank offer to settle the proceedings for £57,000. The Respondents rejected the Applicants’ offer.
• The Second Respondent submitted her role had been purely administrative and denied that she was a de facto director of IT Protect Limited.
• The Respondents made a without prejudice offer to settle the proceedings for £57,000, such sum to be paid by weekly instalments with the balance to be paid within three years.
• The Applicants rejected the Respondents’ offer and amended their claim against the First Respondent to plead, in the alternative, abrogation of duty.
• The Applicants made a Part 36 offer to the Respondents (jointly) to settle the proceedings for £39,500 plus costs. This was made 3 months before the trial was due to start.
• The Respondents did not accept the offer.
• The matter proceeded to trial where the Applicants were awarded £114,000 against the First Respondent, £10,600 of which was in respect of the initial claim and the balance was the alternative abrogation of duty claim. The claim against the Second Respondent was dismissed.

The Costs Order

As the Applicants had beaten their offer, they sought to obtain a costs order which reflected the costs and interest advantages set out in CPR r.36.17(4).  However, the costs arguments did not pan out as the Applicants had envisaged, as it was the First Respondent’s case that he could not have accepted the Applicants’ offer as it had been made jointly and not severally.

The Court examined what “unjust” meant and determined that it had to evaluate all the factors.  CPR 36.17(5)(a) to (e) lists five factors which must be taken into account.  These include the terms of the offer, the stage it was made, the information available to the parties at that time, conduct and whether the offer was a genuine attempt to settle the proceedings.

Although the Court found that CPR r.36.17(4) applied in this instance, the Court favoured the First Respondent’s argument.  Had the First Respondent accepted the Applicants’ offer then he would have been responsible for the costs incurred in pursuing the claim against the Second Respondent; and had the Second Respondent accepted the Applicants’ offer, then she would have been required to pay costs and damages that she was not liable to pay, given the case against her had been dismissed at trial.  The Court therefore found that it would be unjust to impose the CPR r.36.17(4) consequences.

The Court also found that had the Applicants, as office holders, should have clearly pleaded their case from the outset, rather than introducing an amended alternative claim some way into the matter.  Had the Applicants done so, the trial would have been shorter, and the costs would have been somewhat less.  The Court decided against making an issues-based costs order but ordered the First Respondent to pay 50% of the Applicants’ costs.  The Applicants were ordered to pay all of the Second Respondent’s costs.  Perhaps not quite the result the Applicants were expecting when they beat their Part 36 offer.

Practice Points to Consider

It is unlikely that a Part 36 offer made jointly against more than one party will result in the application of the automatic costs consequences of CPR r.37.17(4).  When it comes to costs, and avoiding costs consequences, we suggest you carefully evaluate your case as it progresses.  Revisit any Part 36 offers made against multiple Defendants with the five factors of CPR r.36.17(5)(a) to (e) in mind.  Consider the merits of making Part 36 offers, where it is possible to make them severally.  Whilst we are keen to extol the merits of a well-placed Part 36 offer, should the facts of the case not permit this, there are advantages to making a Calderbank offer instead.  You won’t get a “Brucie Bonus”, but such an offer will still be taken into account when costs are considered.

For any queries, please contact caroline.brook@pic.legal.

03.12.20