Codent Ltd v Lyson Ltd

A non-Part 36 Calderbank offer to settle a money claim has no automatic Part 36 costs consequences. Nevertheless, under the Civil Procedure Rules, the court must consider it as an admissible offer when exercising its costs discretion. An offer will usually receive the effect of a payment into court where it is clear, open for at least 21 days, genuine, and made when the defendant can pay. Failure to satisfy a condition reduces the offer’s weight; it does not require an all-or-nothing outcome. The court should assess the reality of the litigation, including the reason for rejection and the scope for negotiation. An appellate court may re-exercise the discretion where an all-or-nothing approach is an error of principle producing manifest injustice.

Lyson appealed from a costs order made by HHJ Raynor QC in the Technology and Construction Court after Codent succeeded on its claim concerning defective ink, although the damages recovered were modest and Lyson succeeded on its counterclaim. The judge ordered Lyson to pay 70 per cent of Codent’s costs to 22 December 2003, made no order for costs for an intervening period, and ordered Codent to pay Lyson’s costs thereafter.

The appeal concerned two Calderbank offers made before the liability trial. The offers were not compliant Part 36 payments. The central issues were whether they should nevertheless affect costs and whether the judge was entitled to treat their effect as an all-or-nothing question.

The Court of Appeal unanimously allowed the appeal. Lord Justice May gave the leading judgment, with Lady Justice Arden and Sir Peter Gibson agreeing and adding observations.

1. Applicable discretion. Rule 36.3(1) of the Civil Procedure Rules prevents a non-Part 36 offer from automatically attracting the costs consequences in Part 36. Rules 36.1(2) and 44.3(4)(c), however, give the court discretion to take an admissible offer into account. The court must consider all the circumstances, including the parties’ conduct and any payment into court or admissible offer.
2. Weight of a non-compliant offer. Applying the guidance in The Trustees of Stokes Pension Fund v Western Power Distribution (South West) Plc [2005] EWCA Civ 854, an offer will usually have the effect of a payment into court where it is clear, open for at least 21 days and substantially Calderbank-compliant, genuine, and made when the defendant is good for the money. Failure to satisfy a condition reduces the offer’s weight. It does not require the court to give the offer either full effect or no effect. The approach in Butcher v Wolfe and Wolfe [1999] 1 F.L.R. 334 also required attention to the reality of the litigation, the reason for rejecting the offer, and whether the parties should have negotiated.
3. Application. Lyson’s 17 October 2002 offer was clear, genuine, and backed by adequate insurance. The defendants were good for the money, and Codent had not raised inability to pay as a reason for rejection. The offer was made only 12 days before trial and remained open for effectively three working days, so it deserved reduced weight. That short period was not, however, the real reason for rejection; the offer was rejected because it was considered too low. The absence of an earlier payment into court or an explanation for not making one did not justify giving the offer no effect. Sir Peter Gibson emphasised that substance and effect mattered more than the reason for not paying in.
4. Re-exercise and order. The judge had adopted an erroneous all-or-nothing approach and had produced a manifestly unjust result. May LJ therefore re-exercised the discretion. Codent was awarded 70 per cent of its costs up to and including 29 October 2002, the first day of the liability trial, and Lyson was awarded its costs thereafter. Arden LJ added that Calderbank offers promote settlement and financial discipline, supporting proportionate costs; she also considered the hypothetical Part 36 position under rule 36.11(2)(b)(ii).

Lyson received its appeal costs, assessed at £27,000, and an interim payment of £200,000 was ordered within 28 days.

• Court of Appeal (Civil Division): In [2005] EWCA Civ 1835, the court allowed Lyson’s appeal and re-exercised the costs discretion.
• High Court of Justice, Queen’s Bench Division, Technology and Construction Court: HHJ Raynor QC made the original costs order on 6 May 2005, requiring Lyson to pay 70 per cent of Codent’s costs to 22 December 2003 and Codent to pay Lyson’s costs from 14 February 2004.