F & C Alternative Investments (Holdings) Ltd & Ors v Barthelemy & Anor

A settlement offer outside CPR Part 36 may be considered under CPR Part 44.3, but it cannot attract the automatic or analogous sanctions prescribed by Part 36. Part 36 is a self-contained code. A party seeking its special costs and interest consequences must comply with its requirements.

Outside Part 36, indemnity costs are exceptional. The rejection of a reasonable settlement offer warrants them only where that refusal was unreasonable to a high degree when assessed at the time, not merely shown to have been mistaken with hindsight. Interest before judgment must be fair, reasonable and proportionate to both parties. It should not become a penalty or automatically reimburse a particular litigant’s expensive borrowing.

The appellants did not challenge Sales J’s substantive judgment in favour of the respondents. They appealed consequential orders made after a lengthy dispute concerning a limited liability partnership. The judge had awarded the respondents 70% of their costs, indemnity costs from 16 January 2010, enhanced interest on the judgment debt, and high interest on costs reflecting their litigation-funding loans.

The judge treated a respondents’ settlement offer of 24 December 2009 as strongly analogous to a Part 36 offer, although it expressly stated that it was outside Part 36. The respondents cross-appealed, seeking more of their costs and higher interest. The central questions were the permissible effect of a non-Part 36 offer under CPR Part 44.3, and the proper basis for indemnity costs and pre-judgment interest.

1. Appeal allowed; cross-appeal dismissed. The order for indemnity costs from 16 January 2010 was set aside. Standard-basis costs were substituted. Interest on the judgment debt and costs for all relevant periods was fixed at 3% per annum above base rate.
2. The 24 December 2009 offer was expressly not a Part 36 offer and did not comply with Part 36 in other respects. CPR Part 36 is a self-contained code. Its prescribed consequences cannot be imported indirectly, or by analogy, through CPR Part 44.3 merely because the offer was reasonable or because the rules did not accommodate the parties’ procedural position.
3. CPR Part 44.3(4)(c) nevertheless entitled the judge to consider the offer when exercising the ordinary costs discretion. It did not permit an award of indemnity costs on the footing that the Part 36 consequences would have followed had the offer complied with Part 36.
4. Outside Part 36, indemnity costs require conduct sufficiently unreasonable to justify that exceptional departure from the norm. A rejected offer must be assessed from the recipient’s position when made. The appellants’ ultimately incorrect assessment of their prospects, participation in settlement processes, and failure to accept offers did not establish high-degree unreasonableness or obduracy.
5. The same erroneous Part 36 analogy vitiated the enhanced interest awards. Pre-judgment interest is compensatory, but must be assessed fairly and proportionately by reference to the relevant class of recipient as well as the paying party. The respondents’ particular high-cost borrowing could not justify a penal or automatic reimbursement-based rate, especially where the appellants had no prior notice of it.
6. The judge was entitled to award the respondents 70% of their costs throughout. CPR Part 44.3 imposed no freestanding requirement of exceptionality before an overall successful party could bear both its own costs and an element of its opponent’s costs on discrete issues it lost.

Tomlinson LJ added that conventional interest uplifts are practical rules of thumb, not inflexible rules. They may require reappraisal on adequate evidence as economic conditions change. Arden LJ agreed.

• Court of Appeal (Civil Division): Allowed the appellants’ appeal against the consequential costs and interest order, and dismissed the respondents’ cross-appeal: [2012] EWCA Civ 843.
• High Court of Justice (Chancery Division): Sales J made the consequential costs and interest order appealed from: [2011] EWHC 2807 (Ch).