Ted Baker Plc & Anor v AXA Insurance UK Plc & Ors

Where a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer, the ordinary costs consequences should follow unless that would be unjust. The burden of establishing injustice is formidable, although the court may consider all the circumstances and is not confined to the matters listed in Part 36.14. Success on particular issues does not automatically displace those consequences. Equally, a defendant’s offer does not provide carte blanche to pursue disproportionate or unnecessary defences. The court may therefore make a substantial reduction to costs attributable to issues pursued unreasonably, while applying the ordinary Part 36 consequences to other issues.

This was a first-instance costs judgment following three earlier judgments in insurance proceedings. The claimants had succeeded on preliminary liability issues concerning construction of the policies, but ultimately obtained no monetary judgment. The defendants had made several settlement offers, including offers under CPR Part 36.

The court had to determine the costs consequences of the offers, whether the claimants had shown injustice sufficient to displace the Part 36 regime, whether particular costs should be assessed on the indemnity basis, and whether an interim payment should be made on account.

1. Part 36 consequences. The claimants had failed to obtain a money judgment more advantageous than the defendants’ offers. Under CPR 36.14, the ordinary order was therefore that the defendants should receive their costs and interest from expiry of the relevant period, unless that result would be unjust. The court adopted the guidance in Smith v Trafford Housing Trust [2012] EWHC 3320: the question was not whether refusal of the offer was reasonable; the burden of showing injustice was formidable; and the court retained a broad, but not unfettered, discretion.
2. The fact that the defendants lost particular issues did not itself make it unjust to apply Part 36. However, an offer did not give a defendant carte blanche to pursue every possible defence and thereby obtain automatic protection on issues on which it lost.
3. Part 1. It would be unjust to require the claimants to pay all the costs of the preliminary issues. The central construction issue should have required a short trial, but the defendants pursued extensive and disproportionate factual, expert, estoppel, rectification and non-disclosure issues. The defendants were accordingly awarded 25% of their Part 1 costs, assessed on the standard basis, with interest from 29 July 2010.
4. Part 2. The claimants’ success on some issues did not justify displacing Part 36. They had lost on the three main issues necessary to obtain a monetary judgment, and the evidence overlapped substantially. The defendants were awarded all costs following the second judgment in respect of Part 2, on the standard basis, with interest.
5. The parties agreed that the co-insurance costs should be assessed on the indemnity basis. No further special costs order was made concerning disclosure and related matters. The claimants were ordered to make an interim payment of £1 million on account of the defendants’ costs.

First-instance costs judgment. The judgment records earlier decisions in the same proceedings at [2012] EWHC 1406 (Comm), [2012] EWHC 1779 (Comm) and [2014] EWHC 3548 (Comm). Permission to appeal from the first judgment was refused by the Court of Appeal: [2014] EWCA Civ 134.