Straker v Tudor Rose (A Firm)

Where a claimant obtains a money judgment exceeding a defendant’s Part 36 payment, the claimant is ordinarily the successful party and should receive costs under the general rule in CPR r 44.3. The court may depart from that rule after considering all the circumstances, including conduct, partial success and settlement offers.

A costs court must not speculate about hypothetical negotiations or assume that a defendant would have offered more. A failed issue may justify a proportionate reduction, but a punitive costs consequence requires clear findings of unreasonable, dishonest or exaggerated conduct. Failure to comply with a pre-action protocol may justify a further reduction, but will not ordinarily justify depriving a successful claimant of all action costs.

The claimant instructed the defendant solicitors in connection with the proposed purchase of two properties. The solicitors admitted breach of duty. The dispute at trial concerned whether the claimant could have completed the purchases and the resulting loss.

HHJ Stewart QC, sitting in Liverpool County Court, held that the claimant could have purchased one property but not two. He awarded damages and interest exceeding the defendant’s £9,000 Part 36 payment into court. Despite that result, he awarded only limited pre-action costs and no costs of the action, principally because the claimant had pursued the two-property case and had not engaged in negotiations on a one-property basis.

The claimant appealed the costs order. The central issue was whether the judge had correctly applied CPR r 44.3 and the costs consequences of the Part 36 payment.

1. Appeal allowed. The claimant was the successful party because he obtained a money judgment exceeding the payment into court. Under Civil Procedure Rules 1998, r 44.3(2), that was the required starting point: the unsuccessful party ordinarily pays the successful party’s costs.

2. Part 36 did not make the claimant’s recovery of costs automatic. Rule 44.3 required the court to consider all circumstances, including conduct, partial success and the payment into court. But the court could not speculate that, had the claimant negotiated more reasonably, the defendant would have increased its offer. A defendant could protect itself by paying into court the maximum sum it was prepared to pay.

3. The trial judge was entitled to reflect the claimant’s failure on the two-property issue in costs. His own assessment that this justified a reduction of between one quarter and one third was therefore relevant. However, there was no clear finding that the claimant had acted unreasonably, dishonestly or by exaggerating his case. The judge erred by effectively using the same failed issue again to reduce the claimant’s action costs to nil.

4. Failure to engage in accordance with the pre-action protocol could properly attract a further costs reduction. It did not, on these facts, justify depriving a claimant who had beaten the Part 36 payment of all action costs. That result was outside the generous ambit within which reasonable disagreement was possible.

5. The Court of Appeal exercised the discretion afresh. It left undisturbed the order for the period before the Part 36 offer, and ordered that the claimant recover 60% of his costs from the date of that offer.

• Court of Appeal (Civil Division): Allowed the claimant’s appeal in [2007] EWCA Civ 368 and varied the costs order.

• Liverpool County Court: HHJ Stewart QC awarded damages exceeding the defendant’s Part 36 payment, but awarded only limited pre-action costs and no action costs.