Knight & Anor v Knight & Ors (Costs)

A Part 36 offer must comply with the requirements of CPR Part 36. An offer which includes a term dealing with costs is not compliant, even where the term reduces the burden on the offeree. The formal status of the parties may be used to classify an offer, including where it was made before proceedings began. A declaration that an intangible asset is beneficially owned is not a monetary award for the purposes of the additional amount under CPR rule 36.17(4). Refusal of a reasonable settlement offer does not ordinarily justify indemnity costs. The conduct must be unreasonable to a high degree and take the case out of the norm.

The claimants, administrators of an estate, succeeded at trial in establishing that the proceeds of sale of property were held beneficially for them rather than for the first and second defendants. The parties agreed that the defendants should pay the claimants’ costs and make a payment on account. The remaining issues concerned whether a pre-action letter headed as a Part 36 offer was compliant, what consequences would follow under CPR rule 36.17, and whether indemnity costs were justified on another basis.

The court also considered whether the beneficial ownership decision amounted to a monetary award and whether applying the Part 36 consequences would be unjust.

1. The offer was not a Part 36 offer. The Court of Appeal decisions in Mitchell v James [2004] 1 WLR 158 and French v Groupama Insurance Co Ltd [2011] 4 Costs LO 547; [2012] CP Rep 2 establish that a Part 36 offer must not include terms as to costs. The present offer stated that the proposed payment was inclusive of the defendants’ costs. It was materially indistinguishable from the offer in French. The court therefore could not follow the more permissive approach in Proctor & Gamble Co v Svenska Celluslosa AB SCA [2013] 1 WLR 1464.
2. The alternative argument based on party classification failed. The offer was of the kind a claimant might make, and the offerors in fact became the claimants. There was no reason to disregard their formal status. The court accepted the approach in Proctor & Gamble that the description in the record is conclusive for Part 36 purposes.
3. Had Part 36 applied, the judgment would have been more advantageous than the offer. However, the beneficial ownership of an intangible credit was not a monetary award. CPR rule 36.17(4)(a) would not apply, and any additional amount under rule 36.17(4)(d) would have been calculated by reference to the costs awarded.
4. The court would not have considered it unjust to apply the rule. Both sides claimed beneficial ownership, there was no role reversal, and the factors in rule 36.17(5) largely favoured the claimants.
5. A non-Part 36 offer did not justify indemnity costs. The defendants had substantial reasons to accept the offer, but refusal of a reasonable offer alone was insufficient. Following Kiam v MGN Ltd (No 2) [2002] 1 WLR 2810, conduct must be unreasonable to a high degree. Nothing took the case out of the norm.
6. The defendants were ordered to pay the claimants’ costs on the standard basis and to pay £72,321.98 on account by 4 pm on 9 July 2019.

This was a first-instance costs judgment following the substantive judgment in the same proceedings.

• High Court (Chancery Division): the substantive claim succeeded in [2019] EWHC 915 (Ch). The present judgment determined the consequential costs issues.