Sugar Hut Group Ltd & Ors v AJ Insurance

Costs are governed by the court’s broad discretion under CPR 44.2. The general rule that costs follow the event carries substantial weight, but it does not prevent a reduction where a successful party failed on substantial, discrete issues or pursued an exaggerated claim unreasonably. A Part 36 offer inclusive of interest may fail to attract automatic Part 36 consequences where the claimant beats the offer. It may nevertheless be relevant to the wider costs discretion, including the reasonableness of continuing to pursue a significantly higher valuation. The court must consider all the circumstances, including conduct, disclosure, and the scale of the evidence.

The judgment concerned costs following an earlier judgment upholding the claimants’ business-interruption claim. Liability had previously been agreed at 65% of the claimants’ losses. The claimants succeeded overall on quantum but failed entirely on several discrete heads of loss and on a substantial valuation methodology.

The defendant had made a Part 36 offer of £250,000 inclusive of interest. The claimants recovered more than that sum but continued to pursue a materially higher claim. The central issues were whether the claimants’ overall success justified costs in full and whether the offer and subsequent conduct should affect the costs order.

1. Disposition. Although the claimants were successful overall, their recoverable costs were reduced by 30% to reflect their complete failure on substantial and discrete claims. They were denied costs from 14 June 2014, and the defendant was awarded its standard-basis costs from that date, subject to the costs of assessing interest.
2. The general rule under CPR 44.2(2)(a) is that the unsuccessful party pays the successful party’s costs. The court may make a different order under CPR 44.2(2)(b), while giving real weight to overall success. There is no automatic reduction merely because the successful party loses on some issues.
3. CPR 44.2(4)(b) permitted account to be taken of the claimants’ failure on substantial, discrete heads of loss and on the P2 valuation exercise. Those matters involved significant sums, disclosure, factual evidence and expert evidence, justifying a broad-brush 30% reduction.
4. The defendant’s £250,000 offer, being inclusive of interest, did not attract automatic Part 36 consequences because the claimants beat it. The reference to £600,000 gross business-interruption losses was not itself an admissible offer to settle under CPR 44.2(4)(c).
5. The offer nevertheless formed part of the circumstances under CPR 44.2(4)(a). The court could consider whether the claimants reasonably pursued the issue, whether they exaggerated their claim, and whether their disclosure conduct caused difficulty. Their insistence on pursuing £862,024 was unreasonable. This was not a near-miss analysis because the court had full information about the negotiations and the claimants’ conduct.
6. The claimants remained entitled to costs relating to interest because the offer used a lower interest figure than the amount ultimately awarded. Those costs were to be assessed unless agreed.