Exaggerated Claims, Part 36 Offers And The Court's Discretion As To Costs

In the case of Brit Inns Ltd & Anr v BDW Trading Ltd (No.2), [2012] EWHC 2489 (TCC), Mr Justice Coulson had to consider an exaggerated claim in relation to which the defendant failed to adequately protect its position on costs with an effective Part 36 offer.

The Facts

Following extensive works to a flood damaged restaurant business, a subrogated action was brought by the insurers of Brit Inns Ltd ("Brit Inns") in the sum of around £660,000 in relation to defective restorative fit-out works by BDW Trading Ltd ("BDW Trading"). A further claim was brought by Brit Inns against BDW Trading in relation to their uninsured losses which included a claim for an additional £522,000 in respect of loss of rent and loss of profit. Liability was admitted in each case and only quantum was in issue.

Ultimately, £157,467 was recovered at trial in relation to the insured losses and £16,403 in relation to the uninsured losses: the result cost Brit Inns £157,311 in legal costs.

In the course of the without prejudice negotiations leading up to the trial, BDW Trading had taken a much more realistic view of the quantum claimed than Brit Inns and this was reflected in the offers made by BDW Trading. In May 2012, a month before trial, BDW Trading made a 'without prejudice save as to costs' offer of around £267,000 plus costs which was said to be open for acceptance for 14 days and was due to expire on 30 May 2012.

The offer was not however made under Part 36 of the Civil Procedure Rules ("Part 36") and did not attract the costs protection which accompanies effective Part 36 offers. Under Part 36.14 of the Civil Procedure Rules, where the defendant's Part 36 offer beats the award of damages that the claimant recovers at trial, unless it considers it unjust to do so, the court will award the defendant its costs from the last date on which the defendant's Part 36 offer could have been accepted.

In circumstances where any without prejudice offer is not an effective Part 36 offer, the without prejudice offer is only one factor to which the court will have regard in exercising its wide discretion on costs under Part 44.3 of the Civil Procedure Rules ("Part 44.3").

The Issues

What is the proper approach to costs in a case where, throughout, the defendant took a much more realistic view of the value of the claim than the claimant and quantum was assessed by reference to the defendant's expert evidence rather than any evidence adduced by the claimant? What is the proper...