EQ Projects v Alavi

In determining costs, the court must identify the successful party by assessing the litigation as a whole, while considering partial success, conduct, admissible settlement offers and payments into court. A claimant who fails to beat a valid pre-action offer or payment into court may be ordered to pay the defendant’s costs, even where the claimant recovered part of its claim. The validity of a pre-action offer depends on its substance, seriousness and the defendant’s ability to pay; silence about the acceptance period does not prevent the offer from being open for at least 21 days. Indemnity costs require conduct unreasonable to a high degree. The court may impose them from the point when continued pursuit of the case became clearly unjustified, but not for an earlier period affected by unresolved pleadings or issues.

The claimant succeeded on part of its contractual claim, but the defendant obtained judgment on the principal disputed issues and succeeded on part of its counterclaim. Before proceedings, the defendant had offered to pay the sum due under the original contract, abandon the additional-work dispute and carry out remedial works. The claimant rejected that offer and later failed to beat two payments into court.

The court had already determined the substantive claim and counterclaim. This judgment addressed liability for costs and the basis on which the defendant’s costs should be assessed. The central issues were whether the defendant was the successful party, what weight should be given to the pre-action offer and payments into court, and whether the claimant’s conduct justified indemnity costs.

1. Liability for costs. The defendant was the successful party. The claimant had failed to beat the valid April 2004 offer, failed to beat either payment into court, and lost on the principal issues: the amount due under the original contract, the additional-work or quantum meruit claim, and the counterclaim. The defendant’s loss on the alleged compromise did not alter that conclusion because acceptance of the offer would have left the claimant better off.
2. Pre-action offer. The offer was properly taken into account under CPR 36.10 and CPR 44.4(c). Applying Trustees of Stokes Pension Fund v Western Power Distribution (South West plc) [2005] EWCA Civ 854, the offer was sufficiently clear and serious. Its silence as to the acceptance period did not prevent it from being open for at least 21 days. There was no evidence that the defendant could not pay. The claimant’s contemporaneous reason for rejection was that the offer was too low, not that it was incapable of being honoured.
3. Discretion and conduct. The claimant was ordered to pay the defendant’s costs under CPR 44.3. The court considered the parties’ conduct, the claimant’s failure on the principal issues and the absence of any offer concerning the counterclaim. The costs of and occasioned by the defendant’s amendments were payable by the defendant, but the defendant was not required to bear the costs of the cross-claim itself because it succeeded on the alternative breach-of-contract basis despite failure on fraud.
4. Indemnity basis. Applying Reid Minty v Taylor and Kiam v MGN Limited (2) [2002] 1 W.L.R. 2810, indemnity costs required conduct unreasonable to a high degree, rather than conduct merely wrong or misguided in hindsight. That threshold was not met before 28 November 2005, when the late amendment and developing evidence remained relevant. From that date, the claimant should have recognised that it would not beat the offer or payments into court. Its continued pursuit of the case was unreasonable to a high degree.
5. The defendant’s costs were therefore payable by the claimant, with costs incurred from 28 November 2005 onwards assessed on the indemnity basis. Earlier costs were assessed on the ordinary basis.