P & O Nedlloyd BV v Utaniko Ltd

A claimant’s Part 36 offer made for the trial at first instance does not automatically govern the costs of a subsequent appeal. To obtain the costs protection provided by Part 36 in appellate proceedings, the claimant must make a further offer relating to the appeal.

In the absence of an appellate offer, unusual conduct or another circumstance taking the case outside the norm, the successful respondent should ordinarily receive appeal costs on the standard basis. The court should not use its general costs discretion merely to reproduce the indemnity-cost consequences that would have followed from an effective Part 36 offer.

The appellants unsuccessfully appealed against judgments obtained by the respondents in two related commercial actions. At trial, the respondents had received indemnity costs and enhanced interest because the appellants failed to beat Part 36 offers under which the respondents would have accepted 75% of their claims.

After judgment on the appeals was handed down on 12 February 2003, the Court of Appeal reserved one substantive costs question. The respondents sought their appeal costs on the indemnity basis, although they had made no offer relating specifically to the appellate proceedings. The issue was whether the original offers attracted the consequences of Rule 36.21 on appeal or justified indemnity costs under Rule 44.3.

1. The respondents were awarded their costs of the appeals on the standard basis. Lord Justice Brooke delivered the judgment of the court. A Part 36 offer made in respect of the trial did not also attract the prescribed costs consequences in subsequent appellate proceedings.

2. The natural meaning of Rule 36.21 was that an offer made before trial protected the claimant against the subsequent costs of the first-instance proceedings. Where an offer was made during appeal proceedings, the expression “at trial” could be read as referring to the appeal hearing. The rule did not, however, contemplate a single portmanteau offer protecting the claimant both at trial and on appeal.

3. A claimant seeking Part 36 protection for appeal costs must make a further offer in the appellate proceedings. This construction provided certainty and avoided giving Rule 36.21 a convoluted meaning.

4. The court declined to award indemnity costs under Rule 44.3 by analogy with Part 36. The respondents had made no admissible appellate offer, and the appellants’ conduct did not take the appeal outside the norm. In the absence of a renewed offer, the respondents were to be treated as having withdrawn their willingness to accept 75% of their claims.

5. An offer or appropriately crafted costs letter concerning the appeal would have been relevant to the costs discretion. None had been sent. The appeals raised points of law considered fit for argument when permission was granted, so the appellants’ failure did not displace the usual standard-basis order.

6. Subject to further written submissions, the respondents were to pay the appellants’ standard-basis costs of the hearing on 12 February, with those costs set off against the respondents’ appeal costs.

• Court of Appeal (Civil Division): The appellants unsuccessfully pursued the appeals. By this ancillary judgment, [2003] EWCA Civ 174, the respondents received their appeal costs on the standard basis rather than the indemnity basis.

• Commercial Court: Thomas J entered judgment for the respondents. Following the appellants’ failure to beat the respondents’ Part 36 offers, the respondents received indemnity costs and enhanced interest from 7 July 2001. No citation for the first-instance judgment is stated.