Sahota & Anor v Singh

In a partnership dissolution action, costs attributable to the ordinary winding-up and accounting may appropriately be left to lie where they fall, while genuinely contentious issues remain subject to the court’s general costs discretion.

The court should assess the issues and the parties’ conduct, but ordinarily make one overall costs order rather than an issue-based order where that would be impracticable. A non-Part 36 settlement offer does not automatically determine costs. The relevant question is whether the offeree clearly ought to have accepted it. The court may reduce a costs award substantially where a party unreasonably refuses meaningful negotiation and allows costs to become disproportionate.

The proceedings arose from the dissolution of a property investment partnership between the Sahota interest and Mr Sohi. Substantive issues concerning the partnership’s assets, accounting and competing allegations had been determined at an earlier trial, followed by a negotiated resolution of the substantive balance.

The parties remained unable to agree responsibility for costs. The court therefore had to determine whether either party should pay the other’s costs, and, if so, the appropriate proportion. The central issues were the application of the principle in Hamer v Giles, the parties’ relative success, the effect of unaccepted settlement offers, and their conduct in the litigation.

1. Costs arising from dissolution. The principle in Hamer v Giles ((1879) 11 Ch D 942) applied by analogy. Costs relating to matters which would have required resolution in an ordinary partnership winding-up, whether or not the parties were hostile, should generally be borne by each side or treated as requiring no order as to costs. The court assessed that proportion at 40 per cent of each party’s costs.
2. Overall costs order. The court should consider the individual issues in evaluating overall success, but should make a single order for the whole or a specified proportion of the assessed costs where an issue-based order would create practical difficulties. The Sahota interest was the more successful party overall, but only to the extent of 40 per cent of the genuinely contentious costs.
3. Settlement offers. Under rule 44.3(4)(c) of the Civil Procedure Rules 1998, a non-Part 36 offer is a circumstance to which the court must have regard. The usual consequence does not follow automatically merely because the successful party failed to beat the offer. The question is whether the offer was one which the offeree clearly ought to have accepted. Stokes Pension Fund Trustees v Western Power Distribution (South West) Ltd ([2005] EWCA Civ 854; [2005] 1 WLR 3595) confirmed that a non-Part 36 offer may be relevant. The approach was consistent with Locksley Brown v Mcasso Productions ([2005] EWCA Civ 1546).
4. None of Mr Sohi’s offers clearly ought to have been accepted. They were complicated, their comparative value was uncertain, and they made inadequate provision for costs already incurred.
5. Conduct and final order. The Sahota interest had been justified in commencing proceedings, but its later unwillingness to negotiate or make counteroffers materially contributed to disproportionate costs. The provisional award of 24 per cent of the Sahota interest’s costs was reduced by 50 per cent for that conduct, then increased to 15 per cent on an overall review. Mr Sohi was ordered to pay 15 per cent of the Sahota interest’s costs, subject to detailed assessment on the standard basis.

The judgment describes an earlier trial before the same judge in May 2002, followed by directions and later negotiations concerning the substantive partnership accounting. The present hearing concerned only the unresolved costs issue. No appellate decision is stated.