John McKeown v Diana Langer

An undisclosed Calderbank offer is not equivalent to a CPR Part 36 offer. Its mere existence does not require a court to defer costs following the liability stage of a split trial. Under Rule 44.2 of the Civil Procedure Rules 1998, the court retains a broad discretion and must consider all relevant circumstances.

Costs may ordinarily be determined issue by issue and when the relevant issue is lost. The court may consider success, conduct, equality of arms and informational asymmetry. It need not speculate about the content or effect of an offer which the parties have withheld. Part 36 is a distinct, self-contained regime and its rules do not govern or restrict the wider discretion under Rule 44.2.

The respondent brought an unfair-prejudice petition as a minority shareholder. The proceedings were divided into liability and valuation stages. Following the liability trial, the High Court found comprehensively for the respondent and made a share purchase order: [2020] EWHC 3485 (Ch).

In a subsequent costs judgment, [2021] EWHC 451 (Ch), the judge ordered the appellant to pay the respondent’s costs of the liability stage, partly on the indemnity basis, with £450,000 on account. The judge knew that a global Calderbank offer existed but did not know its maker, date or terms. He declined to speculate about it or treat it as a Part 36 offer.

The appeal concerned whether the existence of that undisclosed offer required the costs decision to be deferred until completion of the valuation stage.

1. Appeal dismissed. Rule 44.2 of the Civil Procedure Rules 1998 conferred a broad discretion concerning whether, when and in what amount costs should be ordered. If an immediate order was contemplated, the court had to consider all the circumstances. An admissible non-Part 36 settlement offer was only one relevant consideration. The existence of an undisclosed Calderbank offer did not displace the remaining circumstances or compel deferral.

2. The judge was entitled to regard the offer as presently inadmissible or devoid of probative value because its date and terms were withheld. Taking account merely of its existence would have required speculation. The appellant could not withhold the offer yet require the court to accord it decisive effect. Nor could a Calderbank offer be treated as if it attracted the distinct consequences of Part 36. Part 36 was a self-contained regime which neither governed nor limited the Rule 44.2 discretion.

3. The costs regime favoured determining discrete costs issues when they were lost. That approach discouraged unmeritorious points and promoted professional litigation conduct. The judge properly considered the appellant’s comprehensive failure on liability, unreasonable conduct, disclosure defaults and the resulting expense and delay.

4. Equality of arms and informational asymmetry could also inform the discretion. A minority shareholder lacking access to internal financial information might be poorly placed to assess a settlement offer. A later finding that an offer was reasonable might therefore carry less weight where inadequate disclosure had impeded assessment.

5. Part 36 authorities did not compel a different conclusion. Even under Part 36, exceptional circumstances could permit an immediate issue-based costs order. Further, Part 36 did not preclude an order for costs incurred before a Part 36 offer, and a court should not fetter its discretion by refusing to consider such an order.

6. A judge should not be required to speculate whether a Part 36 offer exists when the parties know the position. Legal representatives’ duty to the court requires them to prevent the judge proceeding on a premise which they know to be false.

Green LJ delivered the judgment. Nugee and Lewison LJJ agreed.

1. Court of Appeal (Civil Division): The appeal against the costs judgment was dismissed: [2021] EWCA Civ 1792.
2. High Court, Insolvency and Companies List: The judge ordered the appellant to pay the respondent’s costs of the liability stage, partly on the indemnity basis, and £450,000 on account: [2021] EWHC 451 (Ch).
3. High Court, liability trial: The respondent’s unfair-prejudice petition succeeded and a share purchase order was made: [2020] EWHC 3485 (Ch). Permission to appeal that judgment was subsequently refused.