MITCHELL & ORS v RON JAMES & ORS (2002)

[2002] EWCA Civ 997

CA (Peter Gibson LJ, Potter LJ, Sir Murray Stuart-Smith) 12/7/2002

CIVIL PROCEDURE - CPR - COMPANY - EQUITY - FINANCIAL

CIVIL PROCEDURE 1998 SI 1998/3132 : CPR PART 36 : PART 36 OFFERS : SETTLEMENTS : FORMALITIES : TECHNICAL DEFECTS : VALIDITY OF OFFERS : COSTS CONCESSIONS : BEARING OWN COSTS : COSTS OF THIRD PARTY PROCEEDINGS : THIRD PARTIES' COSTS : INCONSISTENT WITH CPR 36.14 : WHETHER JUDGMENT BEATS PART 36 OFFER : MORE ADVANTAGEOUS : INDEMNITY COSTS : STANDARD BASIS : DISCRETION OF TRIAL JUDGE : SUBSTANTIVE ISSUES : COSTS NOT A FACTOR : ANCILLARY ISSUES : QUANTIFICATION : QUANTUM : COSTS JUDGES : RISKS OF ABUSE :

Costs orders were not relevant to deciding whether a judgment was more advantageous than if a CPR Part 36 offer had been accepted. Only the substantive issues should be considered.

Appeal by the claimants ('C') from the decision of Park J (summarised below) concerning payment of costs following a CPR Part 36 offer of settlement in their action against the defendants ('J') for specific performance of an oral agreement. Edward Mitchell & Son ('M') was a firm of accountants. C alleged that J had orally agreed that one of the claimants would work in a partnership business, that the net profits would be split equally between M and J and that the business would subsequently be incorporated. A company was purchased for that purpose, but no shares were issued to M. J did sign, however, a blank transfer of half of the shares and gave it to M. Relationships broke down and M sought a declaration that they were entitled to beneficial ownership of half of the shares. J denied the existence of an agreement and counterclaimed. M was joined as a third party. C's solicitors sent to J what they described as a Part 36 offer, setting out terms on which they were prepared to settle, including a term that C and J were to each bear their own costs, including those in the third party proceedings, and that they would each bear half of M's costs. It also stated that the business be sold and a fixed sum paid to C, and that J's counterclaim be dismissed. The offer was not accepted and the matter proceeded to trial where it was held that C's claim succeeded in principle and the parties were left to draw up an order. The order contained a declaration that C were entitled to half of the shares in the company and a dismissal of the counterclaim. C argued that this was more advantageous than the terms of their offer and that they should be awarded costs on an indemnity basis. J did not dispute costs liability, but argued they should be on a standard basis. The trial judge held that it was a marginal case of whether the Part 36 offer had been beaten and declined to order indemnity costs. It was unclear whether the order, which declared that C held half the shares, placed C in a better position than they would have been in had the Part 36 offer been accepted, in which case J would have retained all the shares and paid a fixed sum to C. On appeal, C accepted that it was impossible to establish whether the shares to which they were entitled were of greater value than the fixed sum in the Part 36 offer, but contended that after taking the costs order into account they were better off than had the Part 36 offer been accepted and that they should therefore receive indemnity costs. J argued that the offer of settlement did not comply with the requirements of Part 36 and so was not an effective Part 36 offer and that the costs provisions in it should have been disregarded in considering whether the offer had been beaten and the judge had wrongly exercised his discretion in that respect. The issues for the Court of Appeal were: (i) whether the offer was a Part 36 offer; (ii) if so, whether the order was more advantageous to C than their offer; and (iii) if so, whether the court should interfere with the trial judge's discretion.

HELD: (1) The offer did not comply with CPR 36.5(6)(b) in that it failed to state that after the 21 days during which the offer was open J may only accept it if costs liability were agreed or if the court gave permission. (2) Had that been the only defect in the offer, the court would have exercised its discretion to waive it as being a mere technical defect, but the offer also contained a concession as to costs. (3) The question of whether a judgment was more advantageous than a Part 36 offer was intended to refer to the substantive issues in the judgment rather than the ancillary issue of costs. (4) The draftsman of Part 36 had not intended terms as to costs to be included in a Part 36 offer. (5) A term as to costs was not within the scope of a Part 36 offer. Although an offer may contain terms as to costs, to which the court would have regard in exercising its discretion at the end of the trial, such terms could not be used to obtain an order for indemnity costs. (6) In view of these findings the two remaining issues did not arise.

Appeal dismissed.

Peter Brunner instructed by Cleaver Thompson (Alfreton) for M. Neil Mendoza instructed by Ward Hardaway (Newcastle-upon-Tyne) for J.

ILR 18/7/2002