QB-2021-004022 - [2025] EWHC 1701 (KB)

The next issue for me to consider is whether that award of costs should be made on an indemnity basis. The Claimant’s argument for making such an order is two-fold. First it is said that the First Defendant refused to mediate the claim when mediation was first proposed in June 2022. Secondly, the First Defendant is said not to have done better than the offer of settlement contained in the Claimant’s Part 36 letter dated June 2023.

Dealing with those matters in reverse order, it is right that a Part 36 letter was indeed sent to the Defendants on 5 June 2023. In the letter, no attempt was made to distinguish between the three Defendants and it was stated in terms that the offer was that the Defendants should pay the Claimant the sum of £178,491.51 and also that the Defendants would be liable to pay his costs on a standard basis up to the date of any acceptance of the offer.

In response to that suggestion, Mr Innes relies on the judgment of ICC Judge Barber in Re: IT Protect Limited [2020] EWHC 3001 (Ch). In that case, a Part 36 offer had been made to two Respondents of whom only one was ultimately liable in damages following a trial of the action. The offer made no distinction between the Respondents (who were husband and wife and both alleged to be directors and both said to be liable for misfeasance). At the trial, the Applicants achieved a better result than that which had been set out in their Part 36 offer but succeeded only against one Respondent. The Judge was invited to consider whether the consequences of CPR 36.17 should apply with the effect that interest should run at 10% above base rate from the date on which the offer expired and costs should be paid on an indemnity basis. The court is obliged to proceed on this basis unless it considers it unjust to do so.

In considering this issue, the court is required to look at all the circumstances which, according to ICC Barber, would include the reasonableness of the refusal of the Part 36 offer that had been made. I agree with the judge that that is the correct approach. He was also prepared to proceed on the basis that CPR 36.17(4) was engaged even in circumstances in which a relevant offer is made jointly (but not severally) to two Respondents which is beaten in respect of one but not the other. In the same paragraph (paragraph 23) he then said this:

“The offer was made jointly to the first and second respondents and it is clear that the first respondent could not accept it without the second respondent accepting it as well. The consequence of the second respondent accepting it would be to render the second respondent liable to make payment in damages and for costs for which she was not liable. In addition, a consequence of the first respondent accepting it would be to render the first respondent liable for all of the applicant’s costs of the proceedings, including those relating to its unsuccessful claims against the second respondent up to the point of acceptance.”

Those features in my view apply equally to the present case, not least in the light of my ruling set out above that the Claimant is restricted to recovering 75% of his costs of the action which he brought against all three Defendants. In addition, the fact that acceptance of the offer would have left the Second and Third Defendants liable to pay damages and costs, is it seems to me a significant factor in circumstances in which, as this case has demonstrated, there were significant doubts as to the solvency of the First Defendant. This would have meant that the Second and Third Defendants would potentially have found themselves in the firing line as far as enforcement was concerned. I therefore take the view that in the particular circumstances of this case, it would be unjust for the First Defendant to be subject to the uplifts contained in CPR 36.17.

As to the issue of mediation, Ms Grossman makes the assertion that mediation was first proposed in June 2022 and the Defendants refused to engage. Mr Innes’ response is to suggest that in their letter of 8 August 2022, the Defendants did not refuse point blank to mediate but stated that this could only happen once their application to set aside default judgment had been deals with. Furthermore, in their letter of 21 September 2023, Freeths (on behalf of the Defendants) made the point in terms that the Claimant might succeed against the First Defendant but not against the Second or Third and put forward an offer of settlement from the First Defendant alone, with discontinuance against the Second and Third. This did not lead the Claimant to take a different view of whether to proceed against all three Defendants. All of this perhaps supports the suggestion made by Mr Innes that, in any event, this was never a case that was likely to settle as a result of mediation given the significant gap between the parties both as to the amount of any award and against whom it might be recovered.