Part 36: A Defendant may invoke the provisions of Part 36 as a Claimant if the offer is clear and there is a genuine counterclaim
The Huntsworth Wine Company Limited v London City Bond Limited  EWHC 97 (Comm)
The Huntsworth Wine Company Limited (HWC) brought a claim against London City Bond Limited (LCB) for damages in respect of wine that it had stored within LCB’s warehouse. 140 cases of wine had been stolen during a 6 hour burglary on 9 February 2019. The value of the wine was pleaded to be circa £125k. LCB brought a counterclaim for repayment of duty on the wine, totalling £3,662.34, which only became payable by HWC at the point that it was removed from the bonded warehouse. The case was issued in the London Central Commercial Court on 5 September 2019 and proceeded to trial under the Shorter Trials Scheme in July 2021. Judgement was handed down on 22 October 2021. The Court concluded that, whilst LCB may have been liable to HWC for the losses incurred, the liability was limited to £1,000 by term 3.3 of the contract. LCB succeed in full with regards to its counterclaim for duty.
Under para 2.59(a) of Practice Direction 57AB, HHJ Pearce was required to summarily assess the costs. He therefore provided directions for the parties to file and serve statements of costs in addition to written submissions. The matter came before HHJ Pearce again to summarily assess the costs. LCB were deemed to be the Claimant for the purposes of a Part 36 offer which it had put forward prior to issue of proceedings. HWC were not entitled to an issues based costs order, as sought, and were ordered to pay LCB’s costs in line with Part 36.
The parties costs submissions
HWC sought an issue based costs order on the basis that it had succeeded on a number of issues at trial. It was submitted that the costs related to those issues represented 55% of the claim. It was also submitted that no valid Part 36 offer had been made by LCB and it was alleged that LCB’s approach to mediation was unreasonable.
LCB submitted that, as HWC was ultimately the loser in the matter, it should not have the benefit of an issue based costs order, particularly given that the small sum recovered was exceeded by the counterclaim in any event. LCB also raised the issue of proportionality given HWC’s conduct in pursuing such a trivial sum. LCB had also sought application of Part 36 provisions on the basis that it had achieved a result at trial that was more advantageous than the offer.
Part 36 Offer
On 20 August 2019 LCB put forward an offer to accept £2,000 in full and final settlement of all claims, prior to issue of proceedings. LCB had detailed itself as the Claimant in the N242A and noted the relevant Court as the Aldershot County Court. HWC alleged that, as LCB were the Defendant in proceedings, it was not entitled to make an offer as a Claimant and this rendered the offer invalid. This is of course significant due to the fact that the costs consequences under Part 36 differ depending on which party makes the offer. It was also submitted that the proceedings in the Aldershot County Court were fictional given that these proceedings never came to fruition and, under CPR 36.4(1), could not have effect on this different set of proceedings.
HHJ Pearce considered the provisions of Part 36 along with the circumstances in which one party becomes the Claimant in a dispute where both parties have a claim against the other. He noted that it would be unfair if the party that is entitled to the enhanced consequences as a Claimant under Part 36 was simply dependant on who issued proceedings first or who made the first offer.
The Court referred to the case of AF v BG  EWCA Civ 757, where the Court considered the consequences of an offer put forward by a Defendant who had not, at that point, brought a counterclaim. The offer outlined the basis of the counterclaim and made it clear that the offer was intended to have the consequences of a Claimant’s Part 36 offer. The Court of Appeal held that the offer could indeed carry the costs consequences of a Claimant’s Part 36; this was due to the construction of the offer and the fact that the wording of the offer was clear as to its intensions on costs.
In light of these points HHJ Pearce concluded that the Part 36 offer put forward by LCB on 20 August 2019 was a valid Claimant’s offer and, as such, LCB were entitled to the relevant provisions.
LCB further attempted to submit that, as CPR 36 is a self-contained code, this would bar the Court from making an issues based costs order for any costs incurred after 13 September 2019, being the expiry of the relevant period. However the Court did not agree and referred to Webb v Liverpool Women’s NHS Foundation Trust  EWCA Civ 365, which concerned similar issues. He concluded that the question should be whether it would be unjust to make the orders specified by CPR 36.17. However he concluded that the issues in which HWC entirely or partially succeeded were irrelevant; LCB put forward an offer which was ultimately reflective of the outcome and therefore HWC should have accepted it. Consequently it would not be unjust for the usual Part 36 provisions to apply.
Factors under CPR 44
For the costs incurred prior to the relevant period, it was necessary to determine who was the successful party. Given that LCB had defeated a claim for circa £125k and succeeded on its counterclaim, LCB was deemed to clearly be successful.
The conduct of the parties was also considered. HWC submitted that two factors relating to conduct should be given weight when considering costs; LCB’s refusal to mediate and the fact that LCB took issues to trial that were unsuccessful. HHJ Pearce considered the conduct of both parties. It was noted that, whilst LCB were initially reluctant to mediate, a mediation did take place and this was unsuccessful. Additionally, HWC amended its pleadings shortly prior to mediation; it would be perverse to reward HWC given that the issues to be litigated were amended when mediation was imminent. HWC’s conduct was also considered. LCB alleged that it had failed to engage in the pre action protocol by failing to clearly state its case prior to issue. HHJ Pearce also noted the pre action correspondence was generally not constructive. Based on these factors, it was not considered to be appropriate to make an issues based costs order and the Part 36 provisions alone applied.
Quantification of Costs
HHJ Pearce initially considered the hourly rates claimed by both parties. He noted that LCB’s solicitors, based in a national 2 area, claimed varying rates for Grade A ranging between £210-£350, with an average rate of £304ph. HWC’s solicitors, based in London, had charged Grade A work in the range £250 - £495ph, with an average hourly rate of £328. LCB’s solicitors had claimed that the rates were appropriate due to its specialism in warehouse litigation. It was concluded that a rate of around £300ph was not excessive for this type of litigation and the Court proceeded to assess the costs on the basis of this hourly rate.
As LCB had produced a costs statement in the form of a Precedent H, HHJ Pearce proceeded to consider the costs on a phase-by-phase basis. He awarded £7,800 on the standard basis for the period up until the expiry of the relevant period and £128,202.50 on the indemnity basis thereafter. This was a total of £136,002.50 out of the £215,185.00 claimed. HWC were awarded also awarded a further £8,255 however this was in relation to separate application only.
It is useful to have clarity that a Part 20 Claimant can invoke the provisions of Part 36 as a Claimant however it is clearly essentially that the intention to do so should be made clear within the wording of offer. This will of course have a significant effect on a Part 20 Claimant’s costs due to the differing provisions between making an offer as a Claimant or a Defendant.