Maersk Oil UK Ltd v Dresser-Rand (UK) Ltd

In assessing costs, the court must identify the successful party by substance and reality. Costs generally follow the event, but the court retains a discretion to make an issue-based order where the overall result or the parties’ conduct warrants it.

A claimant who beats a Part 36 offer is ordinarily entitled to the prescribed enhanced consequences, unless that would be unjust. The circumstances relevant to that assessment are non-exclusive. A late, hopeless and costly head of claim may justify reducing enhanced interest or costs, even where it occupied little hearing time.

Maersk Oil UK Ltd, formerly Kerr-McGee Oil, succeeded in its contractual claim against Dresser-Rand concerning a compressor package warranted fit for purpose for use in the North Sea Janice oil field. The claimant proved damages of £1,760,555, with an accepted judgment figure including interest of at least £2.1 million.

The judgment concerned the consequences for costs and interest. The claimant had made Part 36 offers, including an offer of £2 million excluding costs, which it had comfortably beaten. The defendant sought an issue-based costs order, relying particularly on the claimant’s late and unsuccessful marine diesel fuel claim.

1. Outcome. The claimant was the successful party in substance and reality. The court declined to make an issue-based costs order, but reflected the late marine diesel claim in the enhanced costs and interest awarded.
2. The underlying discretion on costs remained governed by CPR 44.3. Costs generally follow the event, but the court may examine the substance of the result, the success or failure on particular issues, the parties’ conduct, exaggeration, and their willingness to negotiate. A defendant’s failure to beat a payment or offer is important but is not invariably decisive.
3. The claimant’s Part 36 offer was withdrawn and therefore had no consequences under CPR 36.5(8). Its later offer was beaten. Under CPR 36.21, the court could award enhanced interest and indemnity costs unless it considered that result unjust.
4. The circumstances relevant to injustice under CPR 36.21(5) are non-exclusive. The court considered the terms and timing of the offers, the information available, and the parties’ conduct. The claimant had supplied sufficient information to allow the defendant to assess the claim and make informed settlement decisions.
5. The late marine diesel claim was hopeless, caused additional expenditure, and was not properly apportionable. Although it occupied no more than about three per cent of the court’s time, it was a material circumstance. The court therefore reduced the enhanced interest consequences. For the period after the first offer and before the second, it ordered indemnity costs with interest on damages at 7.5 per cent above base rate and interest on indemnity costs at 5 per cent above base rate. From the second offer onwards, it ordered indemnity costs with interest at 5 per cent above base rate and interest on damages at 7.5 per cent above base rate.