Sugar Hut Group Ltd v AJ Insurance Service [2016] EWCA Civ 46

What’s happened?

This was an appeal against a costs order made by Mr Justice Eder following a three-day hearing to assess the quantum of damages to which the claimant was entitled. During the proceedings, both parties made part 36 offers and Calderbank offers, although none were effective. In his judgment, Mr Justice Eder held that the claimant had acted unreasonably in pursuing certain heads of loss, and as a result he ordered that the claimant should receive 70 per cent of its costs up until 13 June 2014, and its costs in relation to the assessment of interest. The claimant was then ordered to pay the defendant’s costs after 13 June 2014.

The claimant appealed on the basis that Mr Justice Eder had effectively treated one of the defendant’s part 36 offers as having been successful, even though the claimant had beat the offer at trial. Furthermore, it stated that the judge had imposed a ‘double penalty’ by reducing its costs by 70 per cent, and then also cutting the cost entitlement period and requiring it to pay a proportion of the defendant’s costs.

The Court of Appeal agreed that Mr Justice Eder had erred in his approach to the part 36 offer, and had mischaracterised the conduct of the claimant and its pursuit of certain heads of loss as unreasonable following the defendant’s part 36 offer. As a result, his award of costs fell outside the ambit of reasonable decision-making.

Why is it important?

The Court of Appeal confirmed that there is no longer a ‘near miss’ rule. The claimants had beaten the defendant’s part 36 offer, and there was no basis on which to make an order confining the claimant’s costs to a specific period, or requiring the claimant to pay a proportion of the defendant’s costs. The claimant’s failure on specific heads of loss had been adequately dealt with by reducing the costs recoverable by 30 per cent. 

How does this fit into existing law and practice?

The Court of Appeal made it clear that a ‘near miss’ offer cannot trigger the part 36 regime.

When considering costs, the court has to follow the precepts of CPR 44.2(4) and (5), which provide:

‘(4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including –

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and

(c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.

(5) The conduct of the parties includes –

(a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction – Pre-Action Conduct or any relevant pre-action protocol;

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended its case or a particular allegation or issue; and

(d) whether a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim.’

What, if anything, should I be doing differently as a result?

It will not be misconduct or unreasonable conduct if a party simply considers that its claim is greater in amount than the value placed on it by the opponent party. However, litigators should continually review the losses that are being claimed and the prospects of success. Remember that it is not enough to win overall. Losing on one or two issues can have cost consequences.