Sellers v Buyer

Where proceedings determine liability or declaratory issues but a related financial outcome remains to be established, the court may reserve costs if there is a real possibility that the eventual outcome will affect the costs decision. A Part 36 offer may be relevant to that assessment, even where the court does not resolve whether Civil Procedure Rules 1998, Part 36 governs the final comparison. The court should distinguish issues decided by the court from matters left to an independent expert, while considering the litigation as a whole and any damages claim that may return for determination.

The Sellers sold shares to the Buyer under a sale and purchase agreement containing an earn-out mechanism. The Buyer served a notice stating the earn-out at £25,000. The court held in an earlier judgment that the notice was invalid, so the earn-out was to be determined by an independent accountant. The court also determined the scope of the accountant’s task, while the Sellers’ damages claim remained stayed.

The Buyer had made a Part 36 offer covering the earn-out and damages claims. The Sellers sought their costs of the issues decided in their favour. The Buyer argued that costs should be reserved until the earn-out, any damages and the final comparison with the offer were known.

1. The court reserved the costs of the issues decided to date.

2. The Buyer’s offer was accepted as a valid Part 36 offer. The court considered it unnecessary to decide whether Civil Procedure Rules 1998, rule 36.14 applied directly to the present proceedings. The Sellers accepted that the offer could, in principle, be a relevant circumstance under rule 44.2(4).

3. The court distinguished between the issues already decided and the eventual financial outcome. The court had decided the validity of the notice and the scope of the accountant’s determination, but the amount of the earn-out remained to be established by the independent accountant. The Sellers’ damages claim might also require later determination by the court.

4. There was a real possibility that comparison between the Sellers’ eventual recovery, including any damages, and the Part 36 offer would affect the appropriate costs order. The fact that the earn-out amount would be determined outside the court proceedings did not remove that possibility.

5. The judge observed that a court would hesitate before reserving costs after all issues in the court proceedings had otherwise been determined, merely until an independent expert decided a future sum. That difficulty did not arise here because the damages claim remained capable of returning to court.

Not stated in the judgment.