Sugar Hut Group Ltd & Ors v A J Insurance Service (A Partnership)

A costs order under Civil Procedure Rules r 44.2 must give real weight to the claimant’s overall success. A successful claimant does not act unreasonably merely by pursuing a claim at a figure higher than its opponent’s valuation. Something more is required, such as a properly founded finding of exaggeration or other unreasonable conduct.

An admissible settlement offer must be assessed by its actual terms. The court cannot treat one component of a composite offer as a separate, acceptible offer where it was not capable of acceptance independently. It is wrong to impose further costs consequences by treating pursuit of a higher figure as misconduct on that artificial basis, particularly where the claimant has already received an issues-based costs reduction.

The claimants’ nightclub was seriously damaged by fire. Their insurers avoided the policy, and the claimants then sued their insurance broker for negligent placement of cover. Liability was compromised at 65%, leaving quantum, interest and costs to be determined.

Eder J assessed the recoverable losses and made a costs order under which the defendant paid 70% of the claimants’ quantum costs up to 13 June 2014. Thereafter, apart from interest costs, the claimants received no costs and were ordered to pay the defendant’s costs. The judge considered that the claimants had unreasonably pursued business-interruption losses above £600,000 after the defendant’s letter of 23 May 2014.

The claimants appealed from the costs order in [2014] EWHC 3775 (Comm). The central issue was whether the letter could justify the post-13 June costs consequences.

1. Appeal allowed. The costs order after 13 June 2014 was set aside. The claimants were the successful parties for the purposes of Civil Procedure Rules r 44.2. Their failure on particular issues could justify an issues-based reduction, but their overall success had to receive real weight.
2. The defendant’s letter of 23 May 2014 made a single offer of a further £250,000 inclusive of interest. The claimants beat that offer, so it had no automatic Part 36 consequences. Its reference to £600,000 as the basis for business-interruption losses was not a free-standing offer capable of acceptance. Although such an offer could have been made under the procedural rules, it was not made.
3. The judge therefore erred in treating the letter as if it contained separate offers for business-interruption loss and interest. That approach wrongly converted an indicative valuation into an offer which the claimants could and should have accepted. It also wrongly treated the claimants’ continued pursuit of a higher business-interruption claim as misconduct.
4. A claim exceeding an opponent’s valuation is not thereby unreasonable or exaggerated. The rejected parts of the claim, including the potentially relevant P2 exercise, did not establish that the claim exceeded permissible optimism. The same failures had already justified the 30% reduction in the claimants’ pre-13 June costs. Using them again to impose the later adverse order amounted to a double penalty.
5. The disclosure history did not support the order. By May 2014 the defendant had sufficient disclosure to value the claim and make a well-judged offer. The Court re-exercised the discretion and amended the order so that the defendant must pay 70% of the claimants’ costs of the assessment of damages on the standard basis, without the 13 June cut-off.

• Court of Appeal (Civil Division): allowed the appeal, set aside the post-13 June 2014 costs provisions, and substituted an order that the defendant pay 70% of the claimants’ assessment costs on the standard basis.
• High Court (Commercial Court, Eder J): in [2014] EWHC 3775 (Comm), assessed damages and made a split costs order which limited the claimants’ recovery after 13 June 2014 and required them to pay most of the defendant’s later costs.