Rio Properties Inc & Anor v Gibson Dunn & Crutcher & Anor

An undertaking to pay costs attaches to the order, or class of compliance, which it covers. When an interim receivership ends on appointment of a trustee in bankruptcy, a later disclosure order made on the trustee’s application may be a fresh, self-standing order. Costs incurred under that later order then fall outside an earlier undertaking, even if the order is expressed as a variation. Civil Procedure Rules 1998 (CPR 36) imposes automatic indemnity-costs and interest consequences only for offers within its requirements. An offer outside CPR 36 is a matter for judicial discretion. The judge should consider the public interest in encouraging settlement, but may decline to mark non-acceptance where the offer is difficult to evaluate in light of unresolved proceedings and uncertain costs assessment.

Rio Properties Inc and David Julian Buchler appealed from an order of HHJ Maddocks dated 16 December 2004. It required Rio to pay Gibson Dunn & Crutcher and Anthony Bonanno costs incurred in complying with disclosure orders made during the interim receivership, under an undertaking given in the July 2002 order. It also declined to give costs consequences to Rio’s offer of 7 August 2003. An earlier appeal in the same proceedings, reported at [2004] 1 WLR 2702, had addressed the status of the 9 August order. The issues were whether the undertaking covered compliance costs under that order and whether the later offer should receive CPR 36-type treatment.

Appeal allowed in part. Lady Justice Arden gave the leading judgment, with Lord Justice Parker agreeing.

1. The receivership determined when Mr Buchler was appointed trustee in bankruptcy on 7 August 2002. The disclosure order made on 9 August was therefore made on the trustee’s application, not by the former receiver. Although expressed as a variation of the 2 August order and using that order as a template, it was in substance a fresh, self-standing order. The costs incurred by Gibson Dunn and Mr Bonanno in complying with it did not fall within Rio’s earlier undertaking to pay costs resulting from, or incurred in compliance with, the July 2002 order. The judge therefore erred in ordering payment of those costs, and paragraph 1 of his order was set aside.
2. Civil Procedure Rules 1998 CPR 36 applies only to offers falling within its requirements. As explained by McPhilemy v Times Newspapers [2002] 1 WLR 934, the automatic indemnity-costs consequences applicable to a qualifying offer do not govern an offer outside the rule. The effect of such an offer is a matter for judicial discretion. The public interest in encouraging parties to consider and evaluate settlement offers is relevant whether the offer concerns costs, damages or other relief.
3. The judge was entitled to conclude that the offer was difficult to evaluate. The relevant costs depended on unresolved applications, the early stage of the related appeal and later costs assessment. The respondents had also sought clarification concerning the undertaking. The judge’s decision not to mark non-acceptance fell within the reasonable exercise of discretion and involved no wrong principle. The appeal was dismissed on that issue. There was no order as to costs.

• Court of Appeal (Civil Division): On 22 April 2005, the appeal was allowed in part. Paragraph 1 of the High Court order was set aside, and there was no order as to costs.
• Court of Appeal (Civil Division): In the earlier appeal in the same proceedings, reported at [2004] 1 WLR 2702, the court rejected the challenge to the appointment of a person other than the Official Receiver as interim receiver and manager and treated the 9 August 2002 disclosure order as a separate regime.
• High Court, Chancery Division: HHJ Maddocks’ order dated 16 December 2004 required Rio to pay costs incurred in complying with the relevant orders and declined to impose costs consequences for the 7 August 2003 offer.