High Court finds existence of Part 36 offer prevents it from making costs order following split trial

In a recent judgment following a split trial, the High Court held that it could not make a costs award until the outcome on quantum was known, because the defendant had made a Part 36 offer which did not relate solely to the issues that had been determined: Original Beauty Technology Co Ltd v G4K Fashion Ltd [2021] EWHC 954.

Under CPR 36.17, the court must apply certain costs consequences where a party fails to beat an opponent's Part 36 offer, unless it considers it unjust to do so. In deciding whether it would be unjust, the court must take into account all the circumstances of the case including certain factors listed in the rule, such as the terms of the offer and the information available to the parties when it was made. However, under CPR 36.16, the court must not be told the terms of any Part 36 offer until the case has been fully decided, unless the offer relates only to issues that have been decided.

In this case, the court found that the combined effect of these rules was to preclude the court determining costs, as it was impossible to make an informed costs award in compliance with CPR 36.17 when quantum was unknown and the details of the Part 36 offer could not be shared with the court.

The decision suggests that parties who succeed in a trial of preliminary issues will not be able to obtain an immediate costs order where the opponent has made a Part 36 offer, unless the offer relates only to the decided issues. The court's determination as to costs will have to wait until after questions of both liability and quantum have been decided, as only at that stage will the court be able to gauge whether or not the offer has been beaten, and to assess whether it would be unjust in all the circumstances to make the usual costs order in light of the non-exhaustive list of factors set out in the rule.

Background

The claimants brought proceedings against the defendants alleging the infringement of design rights in a number of garments, as well as passing off. The court gave judgment in respect of liability, finding that a limited number of garments infringed the design rights (out of a selection of garments for which this issue was determined) and dismissing the claimants' passing off action. It provisionally listed an account of profits/damages enquiry to be heard in October 2021.

The claimants sought their costs in the sum of £934,943.98, considering themselves to be the "winners" to date. The defendants resisted the costs order, submitting that costs should be reserved, because of the existence of a Part 36 offer they had previously made to settle the proceedings.

The parties were agreed that the court should assume that:

• a genuine Part 36 offer had been made by the defendants to the claimants to attempt to settle the litigation;
• the Part 36 offer related to issues which had not yet been decided by the court; and
• the relief ultimately obtained by the claimants may be less favourable than the terms of the Part 36 offer.

It was common ground that, under CPR 36.16, the court could be told of the existence of the Part 36 offer but not its terms, since the offer did not relate only to parts of the case, or issues, that had been decided.

It was also common ground that the usual order would be for costs to be reserved until after the determination of quantum. However, the claimants submitted that the usual order was not the only order available to the court in these circumstances, and instead the court should proceed to make a costs award because of the defendants' "dishonest and unreasonable conduct to date". The defendants submitted that the usual order as to costs was the only order open for the court to make.

Decision

The High Court (David Stone sitting as a deputy judge) rejected the claimants' submissions, finding that the court did not have a discretion to award costs at that stage.

The deputy judge held that the language of CPR 36.17 clearly prevented the court from making a costs order in this case because:

• CPR 36.17 requires, for its operation, that the "claimant fails to obtain a judgment more advantageous than a defendant's Part 36 offer" (CPR 36.17(1)(a)). In this case, it would still be some time before the parties would know whether or not the defendants' Part 36 offer had been beaten, as liability had still to be determined in relation to some of the garments, and a damages enquiry or account of profits would then need to take place.
• In considering whether it is unjust to apply the Part 36 costs consequences, CPR 36.17(5) lists a number of factors that "the court must take into account". The wording is mandatory, not discretionary. That (non-exhaustive) list includes:
  • the terms of any Part 36 offer;
  • the stage in proceedings when the offer was made;
  • the information available to the parties at the time it was made;
  • the conduct of the parties with regard to the giving of or refusal to give information to enable the offer to be made or evaluated; and
  • whether the offer was a genuine attempt to settle the proceedings.

While the court had been informed of the existence of the Part 36 offer, it was expressly prevented by CPR 36.14 from being told of its terms, when it was made, what the parties knew at the time, and how the parties exchanged information for the purposes of evaluating the offer. Without that information, the court could not take it into account, and so could not comply with CPR 36.17(5) .

The deputy judge concluded that it was "impossible for the Court to make an informed costs award at this point when quantum is unknown, and the details of the Part 36 offer cannot be shared with the Court".