Ali Reza-Delta Transport Co. Ltd. v United Arab Shipping Co. Sag

For the purposes of rule 36.21, a claimant’s concession confined to uplift interest is not part of the offer against which the judgment is compared. This applies even though ordinary interest forms part of the defendant’s liability.

Such an offer may remain relevant under the general costs discretion in rule 44.3. Indemnity costs require conduct unreasonable to a high degree. A refusal to accept a settlement offer will attract indemnity rather than standard costs only in a rare case. Resistance to an appeal is insufficient where it was neither unreasonable nor improper.

The appellants had succeeded on the substantive appeal, with the Court of Appeal increasing the award from US$115,800 to US$227,400. The only outstanding issue was the basis on which the respondents should pay the costs of the appeal.

The appellants had offered to accept US$227,400, together with trial costs on the indemnity basis, while waiving any uplift interest. They sought indemnity costs under rule 36.21 or, alternatively, under rule 44.3. The central questions were whether the interest concession meant that they had obtained a judgment more advantageous than their offer, and whether the respondents’ conduct justified indemnity costs.

Disposition. The Court of Appeal, in the judgment of Peter Gibson LJ with which Tuckey LJ and Nelson J agreed, ordered the respondents to pay the appellants’ appeal costs on the standard basis. The appellants were also to pay the costs of the skeleton argument dated 12 May 2003 on the standard basis if not agreed.

1. Rule 36.21(1) compares the defendant’s substantive liability or the judgment with the proposals contained in the claimant’s Part 36 offer. The court accepted that interest generally forms part of the defendant’s liability. The relevant concession here, however, concerned only uplift interest, namely interest above the ordinary rate. The availability of uplift interest depended on rule 36.21(1) being satisfied. It therefore could not itself form part of the offer used to determine whether the rule applied. The reasoning in Mitchell v James [2002] EWCA Civ 997, concerning the exclusion of costs terms from the comparison, was applied by analogy.
2. The court then considered its wide discretion under rule 44.3. It had to take account of all the circumstances, including the parties’ conduct and any admissible offer to settle. The offer to accept the amount ultimately awarded was an important factor, but it had been made on the appeal after the lower court had awarded a lesser sum. The respondents had not acted unreasonably or improperly in resisting the appeal.
3. Following the approach stated in Kiam v MGN Ltd (No. 2) [2002] 1 WLR 2810, conduct justifying indemnity costs must be unreasonable to a high degree. Being merely wrong or misguided in hindsight is insufficient. A refusal of a settlement offer will rarely justify indemnity costs. This was not such a rare case.

1. Court of Appeal (Civil Division): The substantive appeal had increased the award to US$227,400. In this judgment, the court determined the outstanding costs issue and ordered payment on the standard basis.
2. Central London Civil Justice Centre (Mercantile List): His Honour Judge Brian Knight QC had awarded US$115,800.