Hammersmatch Properties (Welwyn) Ltd v Saint-Gobain Ceramics and Plastics Ltd & Anor

Where a monetary Part 36 offer falls short of the judgment by any amount, it does not attract the automatic costs consequences of Part 36. The court should not use the general costs discretion to recreate those consequences through a special “near miss” rule. Nor should it speculate about offers that were not made or whether they would have been accepted. An unreasonable refusal to negotiate remains relevant as conduct under the ordinary costs discretion. The court must assess all relevant circumstances, including conduct, partial success and admissible settlement offers.

The claimant succeeded in a dilapidations claim arising from the termination of a commercial lease. In an earlier judgment, damages were limited by section 18(1) of the Landlord and Tenant Act 1927, and the claimant was awarded £900,000, together with agreed schedule costs and interest.

This judgment determined the parties’ costs. The defendants’ Part 36 offer of £1,000,000 was exceeded by the judgment by £3,637.90, but the offer was otherwise close to the sum awarded. The central issues were the effect of that offer under the Civil Procedure Rules, the parties’ conduct, their relative success on disputed issues and the appropriate order for costs.

1. The defendants’ Part 36 offer did not have automatic costs consequences. Under CPR 36.14(1A), a money judgment is more advantageous than an offer if it is better in financial terms by any amount, however small. The judgment therefore exceeded the offer, so CPR 36.14 did not apply automatically.

2. The court should not use CPR 44.2(4)(c) to give an inadequate Part 36 offer consequences equivalent to a successful Part 36 offer. The principle identified in Carver v BAA Plc [2008] EWCA Civ 412, and reflected in the “near miss” principle in Multiplex Construction (UK) v Cleveland Bridge UK [2008] EWHC 2280 (TCC), should not be applied as a special Part 36 rule.

3. The court should resist speculation about settlement offers which were not made and whether they would have been accepted. The reasoning in Johnsey Estates (1990) Ltd v Secretary of State for the Environment, Transport and the Regions [2001] EWCA Civ 535 applied. An unreasonable refusal to negotiate could still be considered under CPR 44.2(4), particularly the conduct factor in CPR 44.2(4)(a), but no such refusal was established here.

4. The general rule under CPR 44.2(2)(a) was therefore not displaced by the near-miss offer. The defendants’ late failure to articulate their case on dilapidations and diminution in value reinforced the claimant’s position. The claimant had, however, incurred significant costs on its unsuccessful assertion that it intended to carry out remedial works, and the defendants were substantially successful on some issues.

5. Taking all the circumstances into account, the defendants were ordered to pay 80% of the claimant’s costs, to be assessed on the standard basis if not agreed. The parties were asked to agree an order, including provision for payment on account of costs.