England and Wales High Court (Admiralty Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMIRALTY COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		30/06/2011

Mr. Justice Teare :

1. Following my judgment on liability in this action the Owners of SAMCO EUROPE sought an order that there be cross-liabilities for costs incurred before 1 October 2009 in the same proportions as liability in the action but that the Owners of MSC PRESTIGE should pay the costs of the Owners of SAMCO EUROPE incurred after 1 October 2009 and that the Owners of MSC PRESTIGE were not entitled to recover any of their own costs incurred after that date. This order was sought because on 9 September 2009 the Owners of SAMCO EUROPE offered to agree that liability be apportioned 60:40 in their favour which was the same apportionment which I judged to be appropriate in my judgment on liability. The Owners of MSC PRESTIGE objected to that order because the offer made on 9 September 2009 was withdrawn on 4 February 2011 when the Owners of SAMCO EUROPE offered to agree that liability be apportioned two-thirds/one-third in their favour which was of course more favourable to them than my judgment on liability. The Owners of MSC PRESTIGE submitted that there should be cross-liabilities on costs in the same proportion as liability in the action.
2. The disagreement between the parties has arisen, at least in part, because the case of the Owners of MSC PRESTIGE is supported by the decision of the Court of Appeal in The Toni [1974] 1 Lloyd's Reports 489 whilst the case of the Owners of SAMCO EUROPE is supported by a later line of authority commencing with the decision of the Court of Appeal in Bristol and West Building Society v Evans Bullock dated 5 February 1996 (unreported) in which no reference was made to the decision in The Toni. Mr. Jacobs QC, counsel for the Owners of SAMCO EUROPE has urged me to follow the reasoning in the line of authority stemming from Bristol and West Building Society v Evans Bullock and Mr. Russell QC, counsel for the Owners of MSC PRESTIGE has urged me to follow the reasoning in the earlier decision of The Toni.

The facts

3. The collision between the vessels occurred on 8 December 2007.
4. On 17 June 2009 Thomas Coopers, the solicitors acting on behalf of the Owners of MSC PRESTIGE made an offer to settle liability 60:40 in favour of MSC PRESTIGE. That offer was described as a "Part 61 and/or Part 36 offer".
5. On 9 September 2009 Ince and Co., the solicitors acting on behalf of the Owners of SAMCO EUROPE, made an offer to settle liability 60:40 in favour of SAMCO EUROPE. That offer was described as having been made "in accordance with CPR Part 61.4(10-(12) and/or Part 36."
6. In December 2009 Collision Statements of Case were exchanged. In March 2010 an order for directions was made. Disclosure and exchange of witness statements took place in about August 2010. Both parties employed nautical experts to assist them in interpreting the data obtained from each vessel's VDR (see paragraph 2 of my judgment on liability). On 3 and 4 February 2011 a mediation took place.
7. By letters dated 4 February 2011 Ince and Co. withdrew their offer dated 9 September 2009 and offered to settle liability two-thirds:one-third in favour of SAMCO EUROPE. That offer was also described as having been made "in accordance with CPR Part 61.4(10)-(12) and/or Part 36".
8. The trial took place on 11-13 April 2011 and judgment was given on 23 June 2011, [2011] EWHC 1580 (Admlty). Liability for the collision was apportioned 60:40 in favour of SAMCO EUROPE.

The relevant rules

9. CPR Part 36 deals with offers to settle and provides for offers made in accordance with Part 36 to have certain costs consequences. Part 36.14(6) provides that the costs consequences set out in that rule do not apply to an offer that has been withdrawn. However, CPR Part 44.3 provides that in deciding what order to make about costs the court must have regard to an admissible offer which is not an offer to which costs consequences under Part 36 apply.
10. CPR Part 61 applies to Admiralty claims and Part 61.4 contains special provisions relating to collision claims. Offers to settle collision claims are dealt with in Part 61.4 (10)-(12). It is necessary to set those paragraphs out in full:

"(10) The consequences set out in paragraph (11) apply where a party to a claim to establish liability for a collision claim (other than a claim for loss of life or personal injury)-

(a) makes an offer to settle in the form set out in paragraph (12) not less than 21 days before the start of the trial;

(b) that offer is not accepted; and

(c) the maker of the offer obtains at trial an apportionment equal to or more favourable than his offer.

(11) Where paragraph (10) applies the parties will, unless the court considers it unjust, be entitled to the following costs-

(a) the maker of the offer will be entitled to-

(i) all his costs from 21 days after the offer was made; and

(ii) his costs before then in the percentage to which he would have been entitled had the offer been accepted; and

(b) all other parties to whom the offer was made-

(i) will be entitled to their costs up to 21 days after the offer was made in the percentage to which they would have been entitled had the offer been accepted; but

(ii) will not be entitled to their costs thereafter.

(12) An offer under paragraph (10) must be in writing and must contain-

(a) an offer to settle liability at stated percentages;

(b) an offer to pay costs in accordance with the same percentages;

(c) a term that the offer remain open for 21 days after the date it is made; and

(d) a term that, unless the court orders otherwise, on expiry of that period the offer remains open on the same terms except that the offeree should pay all the costs from that date until acceptance."

11. There is no dispute that the offer made by Ince and Co. on 9 September 2009 complied with Part 61.4(12). There is also no dispute that the events set out in Part 61.4(10) have occurred. Accordingly the Owners of SAMCO EUROPE are, unless the court considers it unjust, entitled to all their costs from 21 days after that offer was made.
12. It is to be noted that no reference is made in Part 61.4 to offers which are withdrawn unlike Part 36.14(6).
13. It seems to me, however, that where, as here, the offer has been withdrawn that circumstance must be carefully considered when deciding whether it would be unjust to award the offeror all his costs from 21 days after the offer was made.
14. Mr. Russell submits that it would be unjust to award the Owners of SAMCO EUROPE all their costs from 21 days after the offer was made essentially for the reasons given by Megaw LJ in The Toni, namely, that a litigant should only get the benefit of an offer to settle if he has maintained that offer up to the commencement of the trial. Megaw LJ said that it would "not be justice or good sense" for a party who had made an offer but had then withdrawn it, thinking that it was over-generous, to get the benefit of it when it turned out not to be over-generous. Mr. Jacobs submits that it would not be unjust to award the Owners of SAMCO EUROPE all their costs from 21 days after the offer was made essentially for the reasons given by Neill and Ward LJJ in Bristol and West Building Society v Evans, namely, that the offer ought to have been accepted by the Owners of MSC PRESTIGE and that had it been accepted no further costs would have been incurred thereafter.

The authorities

15. Ultimately, the question as to what is the just order to make must depend upon the circumstances of this particular case. However, since both parties' submissions as to what is the just order to make reflect the approaches taken in past cases it is necessary to consider those cases notwithstanding that both The Toni and Bristol and West Building Society v Evans Bullock were decided before the CPR were enacted.
16. The Toni was an Admiralty collision case, like the present case. The collision had occurred on 14 February 1969. On 14 February 1972 the plaintiffs offered to settle liability on the basis that each vessel was equally to blame. On 29 February 1972 evidence was taken from the chief officer of one of the vessels. On 29 March 1972 the plaintiffs withdrew their offer. The trial took place on 30 and 31 October 1972. On 1 November 1972 Brandon J. determined that each vessel was equally to blame for the collision. On 14 May 1973 Brandon J. dealt with costs. He ordered that each party was to pay one-half of the other party's costs. It appears (from what was argued and said in the Court of Appeal) that Brandon J. disregarded the offer, having contrasted the facts before him with payments into court under RSC Ord.22 and an offer of contribution under RSC Ord.16 r.10 where the position was preserved until trial. Both the decision on liability and the decision on costs were appealed. Both appeals failed. On the question of costs Edmund Davies and Cairns LJJ. asked themselves whether the exercise by Brandon J. of his discretion as to costs could be challenged. Edmund Davies LJ. (at [1974] 1 Lloyd's Reports 494-5) considered that Brandon J. was entitled to disregard the offer because it had been withdrawn. Cairns LJ. (at p.498) held that there was no ground for saying that the discretion had been wrongly exercised. He also said that no rigid rule could be laid down as to how a judge's discretion as to costs should be exercised when an offer has been made and later withdrawn.
17. Megaw LJ dealt with the matter at greater length and, it appears, as a matter of principle. He said, at pp.496-7:

"It is no doubt convenient, in Admiralty actions as in arbitrations, that a party should be able to encourage the other party to settle by making an open offer. It is no doubt right that, normally, where such an offer has been made and maintained, but not accepted by the other party, and the party who has made the offer obtains a result in the litigation not less favourable to him than the terms of the offer, the Judge should have a discretion to make a special order as to costs in his favour. The normal exercise of the discretion would be to give the offeror his costs from the date of the offer. But it seems to me that, normally at least, the discretion would not properly be exercised in favour of the offeror unless he had maintained the offer up to the commencement of the trial of the action. I do not see why it should be thought that the offeror should acquire some kind of moral or discretionary right to the whole of the costs thereafter incurred merely because he has, for a period of time ending before the start of the hearing, held out an offer which has not been accepted during that period. If he is to get the benefit of a subsequent order as to costs, it ought normally to be on the basis that his offer has been a continuing offer up to the start of the trial. It may be that there are exceptional cases. But I do not think that the mere fact of no response being made for six weeks is such as to bring this case within the range of such possibly exceptional cases.

It would, in my view, be unfortunate if the law were otherwise, and if there were any general principle that an open offer, made and then withdrawn, gives a right, or a claim which would normally be allowed as a matter of discretion, to a special order as to costs. For that would mean that a party who had once made an open offer, and thereafter wrongly thought it was over-generous, could protect himself against the consequences of his supposed over-generosity by withdrawing the offer, and yet would still be entitled to get the benefit of it, by a special order as to costs, when it had turned out that the original offer had not been over-generous. That would not be justice or good sense."

18. I do not regard the approach of Megaw LJ to the question of a withdrawn offer as part of the ratio decidendi of the decision of the Court of Appeal. The ratio decidendi is to be found in the judgments of Edmund Davies and Cairns LJJ. who held that the manner in which Brandon J. had exercised his discretion as to costs (which appears to have been based at least in part on a consideration of the then current RSC) was one which was open to him. Neither associated himself expressly with the reasoning of Megaw LJ. and Cairns LJ., as already noted, said that no rigid rule should be laid down. In any event caution should be exercised in drawing conclusions from The Toni because the rules of court relating to costs are now different from what they were in 1974. In particular RSC Ord.75 (which dealt with Admiralty actions) had no equivalent of CPR Part 61.4(10-(12). Nevertheless, the approach of Megaw LJ must retain some persuasive authority as to where justice lies in circumstances where an offer has been withdrawn.
19. Bristol and West Building Society v Evans Bullock was decided by the Court of Appeal on 5 February 1996. The case involved a claim against a firm of solicitors. Judgment under RSC Ord.14 was sought and the defendants offered to submit to judgment on a claim for breach of contract but not on the claim for breach of trust and to pay into court the sum of £250,000. The offer was not accepted. At first instance the district judge gave judgment on the breach of trust claim and ordered that £192,000 be paid into court. That decision was appealed and the offer was withdrawn. On appeal the judge gave judgment on the claim for breach for contract but not on the claim for the breach of trust of claim and ordered that £170,000 be paid into court. He said that the defendants should have had their costs of the hearing before the district judge but he made no order as to the costs of appeal because the offer had been withdrawn before the appeal. The decision as to the costs of the appeal was appealed to the Court of Appeal. Neill and Ward LJJ. allowed the appeal.
20. Neill LJ said:

"What then is the effect of a Calderbank offer which subsequently is withdrawn? On the facts of this case—it is not necessary to go further than the facts of this case—it seems to me that, although the offer was no longer available for acceptance, unless the matter had been renegotiated between the parties, the effect of the offer letter remained. Once the letter had been sent, and it was a letter which the learned Judge decided should have been accepted, the District Judge could have taken account of the Calderbank offer. It seems to me that, if the offer in that letter should have been accepted, then Mrs Rosen Peacocke is right in her argument that any subsequent proceedings flowed from the refusal of the offer. There would have been no hearing before Judge Jack in October 1995 had that offer been accepted. For my part, I think it was a misinterpretation of a Calderbank letter of this kind, to treat it as though it was no longer operative. It was not operative in the sense it was open for acceptance, but the effect of it remained."

21. Ward LJ said:

"…..the principle error in my judgment, was not to distinguish between the question whether the Calderbank letter was still on the negotiating table and the question whether its terms materially related to the result of the appeal. That it had lapsed, whether by rejection, non-acceptance within a reasonable time, or its withdrawal, matters not. It remained material as a fact in the history of litigation. Had it been accepted within a reasonable time after it was made, and the learned Judge correctly found that it should have been because the Plaintiff eventually did less well than they had been offered, then there would have been no need for the appeal at all. An appeal became necessary because, without it, the wrong order would have stood uncorrected."

22. The approach adopted in Bristol and West Building Society v Evans Bullock has been followed in subsequent cases. Thus in Trustees of Stokes Pension Fund v Western Power Distribution [2005] 1 WLR 3595 an offer to settle a claim was made and remained open for acceptance for 21 days in accordance with CPR Part 36.10. Thereafter it lapsed. Subsequently the claimants recovered damages but in a lesser sum than the offer. The trial judge ordered that the defendants pay a proportion of the claimants' costs. The defendants appealed. The Court of Appeal allowed the appeal and held that the defendants were entitled to their costs from the date on which their offer ought to have been accepted. Dyson LJ. (with whom Auld LJ. agreed) referred to Bristol and West Building Society v Evans Bullock and said:

"41. ……..If a claimant should have accepted an offer within 21 days, then, on the face of it, the consequence should be that he is entitled to his costs up to the date when the offer should ordinarily have been accepted, and the defendant is entitled to his costs thereafter. Usually the mere fact that an offer is withdrawn after the date when it should have been accepted should not lead to a different result………..

43. There may be circumstances where the court holds that the claimant acted reasonably in not accepting the offer within the 21 day period and where the offer was withdrawn before the time when the claimant should have accepted it. In that situation, the withdrawal of the offer may have a very real effect on the order that should be made in respect of costs. But that is very different from the present case."

23. In Farag v Commissioner of Police of the Metropolis [2005] EWCA Civ 1814 Longmore LJ. stated at paragraph 24 that Trustees of Stokes Pension Fund v Western Power Distribution had decided that the fact that an offer had been withdrawn did not deprive it of effect. In Pankhurst v White [2010] EWHC 311 (QB) Macduff J., having also referred to Trustees of Stokes Pension Fund v Western Power Distribution, said that that case demonstrated that an offer which is no longer available for acceptance may, nevertheless, retain its "costs potency". In none of these cases was reference made to The Toni. However, in Pankhurst v White Macduff J. noted an argument by the defendant "that there would be injustice in allowing an offer, which is no longer available for acceptance, to sit in the background operating against him." That argument is not dissimilar to the reasoning of Megaw LJ. in The Toni. Macduff J. said that there was a superficial attraction to that argument. "How can it be fair to require him to pay enhanced costs and interest over a period when he could not accept the offer, as it was no longer available for acceptance ?" However, he said that the answer to the argument was that the defendant should have accepted the offer when it was available and having failed to do so should have appreciated his costs risk and taken protective steps by making a realistic part 36 offer himself.
24. The effect of the line of authorities from Bristol and West Building Society v Evans Bullock is that the mere fact that an offer has been withdrawn does not necessarily deprive the offer of effect on the question of costs. However, depending upon the circumstances of the case the withdrawal of an offer may have a real effect on the appropriate order as to costs. This is stated most clearly in Trustees of Stokes Pension Fund v Western Power Distribution which is a post CPR case.
25. The actual decision in The Toni is of limited assistance today given the reliance placed by Brandon J. on the then current RSC. For the reasons already given I do not consider that the approach of Megaw LJ. in The Toni is binding upon me. Although his reasoning is of persuasive authority it can be seen with the benefit of hindsight, and with respect to Megaw LJ, that he concentrated on the position of the offeror in concluding that there was neither justice nor good sense in allowing the offeror to take the benefit of an offer which he was unwilling to maintain until trial. But in considering where justice and good sense lie the court must also consider the conduct of the offeree and the need to encourage parties to settle their disputes. That wider approach is evident in the line of cases from Bristol and West Building Society v Evans Bullock. It is not evident in the approach of Megaw LJ. He did not take into account that where a "successful" offer is made and then unreasonably not accepted the cause of the costs incurred thereafter is, or may be, that unreasonable non-acceptance. In such circumstances it will usually be appropriate to order that such costs be paid by the offeree, notwithstanding that the offer was later withdrawn. In those cases where the offeree wishes to settle on terms which have been withdrawn the offeree can protect himself against future costs by himself making on offer in those terms.
26. I therefore consider that I should follow the approach in the line of authorities from Bristol and West Building Society v Evans Bullock and in particular the approach of Dyson LJ in Trustees of Stokes Pension Fund v Western Power Distribution. The key to that approach is to enquire what has caused the costs incurred after the expiry of 21 days from the offer to be incurred. If it is the unreasonable conduct of the offeree in failing to accept an offer which ought to have been accepted then the offeree will usually have to pay those costs. In those cases where an offeree wishes at a later stage to settle on terms which have been withdrawn by the offeror the offeree can protect himself against future costs by making an offer in those terms himself.
27. In order to complete this review of the authorities it should be noted that the decision in The Toni was considered by a London arbitration panel in the context of a "successful" offer which had been made and then lapsed after 21 days in accordance with its terms. The decision is reported in the Lloyd's Maritime Law Newsletter dated 4 October 1994. It appears to be the only occasion when The Toni has been considered. The tribunal did not consider that it was bound by The Toni to disregard the offer which had been made. Part of the tribunal's reasoning anticipated the approach later to be followed in Bristol and West Building Society v Evans Bullock and subsequent cases:

"If a party chose to pursue a claim once an offer had been made, he effectively took his chance of recovering more and, if he failed, should be a risk as to costs. Once a proper and reasonable offer was made, the dice were thrown and, for better or worse, the parties should live by the result. The policy of the law was to encourage settlements. "

The appropriate order in this case

28. In the present case, and applying CPR Part 61.4(11), the question must be whether it would be unjust to award the Owners of SAMCO EUROPE all their costs from 1 October 2009.
29. There are several reasons why it would be just to make such an order. The Owners of MSC PRESTIGE had assessed the likely apportionment by 17 June 2009 when they made their own offer to settle. They were thus in a position to assess whether the offer made by the Owners of SAMCO EUROPE on 9 September 2009 ought to have been accepted. It ought to have been accepted within the period of 21 days after it had been made. There was no suggestion that the Owners of MSC PRESTIGE could not reasonably been expected to accept it during that period. Had it been accepted within the period of 21 days no further costs would have been incurred. The reason why the Owners of SAMCO EUROPE incurred costs thereafter was because their offer had not been accepted. This reasoning, which depends upon the notion that an offer, although no longer available for acceptance, retains its costs potency is supported by the line of authorities from Bristol and West Building Society v Evans Bullock.
30. The only reason for doubting whether it would be unjust to award the Owners of SAMCO EUROPE all their costs from 1 October 2009 is that their offer was withdrawn on 4 February 2011, some 2 months before the trial. Whether the withdrawal of an offer will make the order contemplated by CPR Part 61.4(11) unjust will depend upon the circumstances of the particular case. Thus in Trustees of Stokes Pension Fund v Western Power Distribution Dyson LJ. recognised that there might be circumstances where the withdrawal of an offer will have a very real effect on the order that should be made. One such circumstance might be where the offer was withdrawn before the time when the offeree should have accepted it. No such suggestion was made in the present case. Another circumstance might be where one party, A, offered to settle the case on the same terms which had previously been offered by another party, B, but had since been withdrawn. In such a case, if A's offer is not accepted, the costs incurred after B's refusal of A's offer would have been caused by B's unreasonable refusal to accept A's offer and it would not be just to award them to B. Thus Mr. Russell postulated in argument a case where the Owners of MSC PRESTIGE had responded to the withdrawal of the offer on 4 February 2011 by making an offer of 60:40 in favour of the Owners of SAMCO EURPOPE. He submitted that in such a case it could not possibly be correct to allow the Owners of SAMCO EUROPE all their costs since 1 October 2009. I agree. The Owners of MSC PRESTIGE would be entitled to their costs from 21 days after the date of their offer. But those are not the circumstances before the court. The Owners of MSC PRESTIGE were at no stage willing to accept or propose a settlement of 60:40 in favour of SAMCO EUROPE. Such a settlement was on offer for over 16 months and was not accepted. During that period the Owners of MSC PRESTIGE had the opportunity to study SAMCO EUROPE's case and evidence as much as their own. There is no evidence that the Owners of MSC PRESTIGE would ever have been willing to accept 60:40 in favour of SAMCO EUROPE. After the mediation in February 2011 and the withdrawal of the offer the Owners of MSC PRESTIGE made no improvement on their offer of 60:40 in their favour.
31. I have therefore concluded that the fact that the offer of 9 September 2009 was withdrawn does not in the circumstances of this case make it unjust to order that the Owners of SAMCO EUROPE should get all their costs from 1 October 2009. Those costs were caused by the unreasonable failure of the Owners of the MSC PRESTIGE to accept the offer made by the Owners of the SAMCO EUROPE.

Conclusion

32. I will therefore order as follows:

i) With regard to costs incurred before 1 October 2009 the Owners of MSC PRESTIGE shall pay 60% of the costs of the Owners of SAMCO EUROPE and the Owners of SAMCO EUROPE shall pay 40% of the costs of the Owners of MSC PRESTIGE.

ii) With regard to the costs incurred after 1 October 2009 the Owners of MSC PRESTIGE shall pay the costs of the Owners of SAMCO EUROPE.