Phaestos Ltd v Ho & Ors

Civil Procedure Rules 1998 Part 36 is a self-contained procedural code. An accepted offer normally determines entitlement to costs incurred before acceptance, ordinarily on the standard basis. Acceptance after the relevant period does not remove the court’s power to make a costs order. Under rule 36.11(5), the court may deal with reserved costs issues and carry out a summary assessment, provided its order is consistent with and gives effect to the accepted offer. Where the judge has closely managed the relevant hearings, summary assessment by that judge may be fair, efficient and appropriate.

The claimants brought substantial contractual and confidentiality claims against computer experts formerly involved in operating systems for a hedge fund. The defendants counterclaimed for bonuses or profit shares. After extensive interlocutory litigation, the defendants made a Part 36 offer covering the consolidated proceedings. The claimants accepted it after the relevant period.

The judge had reserved costs issues arising from earlier disclosure and sanctions hearings and had prepared a costs judgment, including a proposed summary assessment. The claimants argued that acceptance of the Part 36 offer left no issue for the judge to determine. The central question was whether the court retained jurisdiction to deal with reserved costs issues and assess the costs after the proceedings had been stayed following acceptance.

1. Part 36 consequences. The offer complied with Civil Procedure Rules 1998 rule 36.2 and covered the claim, counterclaim and costs. Part 36 is a self-contained code, to be read according to its terms without importing technical contractual rules. Acceptance entitled the defendants to their costs up to acceptance, on the standard basis unless otherwise agreed.
2. Continuing jurisdiction. Acceptance after the relevant period meant that the court had to make an order as to costs under rule 36.10(4). The stay arising under rule 36.11 did not remove the power preserved by rule 36.11(5) to deal with costs relating to the proceedings. That power could be exercised to resolve costs issues previously reserved by the court.
3. Consistency with the offer. The court could not make an order inconsistent with the accepted offer. An order for indemnity costs, or an order requiring the defendants to pay costs of part of the earlier hearings, would contradict the agreed standard-basis consequences. The proposed standard-basis order was consistent with, and in effect enforced, the offer.
4. Summary assessment. The judge was particularly well placed to assess the costs because he had closely managed the litigation and conducted the relevant hearings. The assessment was therefore properly undertaken by him. The claimants were ordered to pay £86,000 within 14 days, representing 80 per cent of the defendants’ costs.
5. Settlement notification. The judge emphasised that parties and their advisers should promptly inform the court when a case settles while judgment is reserved, including where the settlement’s effect on costs remains disputed. This enables judicial resources to be deployed efficiently.