Van Oord UK Ltd & Anor v Allseas UK Ltd

A Part 36 offer made by a defendant with a counterclaim is classified by construing the offer as a whole. The existence of a counterclaim does not automatically make it a claimant’s offer. The offer should state its nature and the consequences of non-acceptance clearly and unambiguously.

Indemnity costs require conduct unreasonable to a high degree. Pursuing a hopeless and widely drawn claim, which the claimant knew or should have known was hopeless, may justify indemnity costs. Costs incurred by claims consultants may be excluded where their involvement in formal litigation work is not shown to be appropriate. An interim payment on account should be a reasonable estimate of likely recovery, with an appropriate margin for error.

The judgment concerned interest and costs following the substantive decision in [2015] EWHC 3074 (TCC), under which the claimant joint venture was liable to repay £2,768,405.17 to Allseas UK Ltd.

The court determined whether Allseas’ offer dated 13 January 2014 was a claimant’s or defendant’s Part 36 offer; whether the claimant’s conduct justified indemnity costs; whether £1.3 million paid to Knowles Ltd should fall within that order; and the appropriate interim payment on account of costs.

1. The offer was a valid Part 36 offer, but it was a defendant’s offer. The classification depended on construction of the offer as a whole. The letter offered to pay the claimant a balance in settlement, allowed the claimant to retain sums already paid, offered the claimant’s costs for a limited period, and expressly referred to recovery of the defendant’s costs after the relevant period. It did not describe itself as a claimant’s offer or claim the enhancements under CPR r.36.17(4). The consequences under CPR r.36.17(3), rather than r.36.17(4), therefore applied.

2. The court nevertheless considered that an interest rate above 2.5% would have been unjust even if the offer had been a claimant’s offer. The claimant had already been heavily penalised, the defendant had not clearly warned of the possible enhanced consequences, and the defendant had previously paid the sums later recovered.

3. Applying the principles summarised in Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd, indemnity costs were justified. The claim was widely drawn and hopeless. Its deficiencies should have been apparent from the outset. The claim’s weakness was not merely a matter of hindsight or an arguable case failing at trial.

4. The indemnity costs order excluded the £1.3 million paid to Knowles Ltd. The court distinguished NAP Anglia Ltd v Sun-Landed Development Co Ltd (No. 2), because that case concerned claims consultants who had handled an underlying adjudication. The recoverability, proportionality and reasonableness of the Knowles fees were left to detailed assessment.

5. The court ordered an interim payment of £1.3 million on account of costs. Following Mars UK Ltd v TeKnowledge and Excalibur Ventures LLC v Texas Keystone Inc, the proper approach was to identify a reasonable estimate of likely recovery, allowing an appropriate margin for error.

This was a first-instance costs judgment following the substantive judgment in [2015] EWHC 3074 (TCC) .