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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> AB v CD & Ors [2011] EWHC 602 (Ch) (07 March 2011)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2011/602.html
Cite as: [2011] EWHC 602 (Ch)
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
| AB |
Claimant |
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| - and - |
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| CD and others |
Defendants |
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Crown Copyright ©
- The position on costs in this case is complicated by the fact that each side has made an offer pursuant to CPR Part 36 ("a Part 36 offer") which it says that it either has already beaten, or may beat in the future, thereby leading to the favourable costs consequences set out in the relevant part of CPR rule 36.14, while arguing that the other side's offer is ineffective for Part 36 purposes and is at best just one among a number of relevant factors for the court to take into account in the exercise of the general discretion on costs conferred upon it by CPR rule 44.3. It soon became apparent in the course of argument that these contentions involved some potentially important and far-reaching questions, on which there is no authority directly in point. I therefore said that I would take time to consider my ruling on the Part 36 issues, and after the argument on them had concluded it was agreed that further consideration of all other outstanding matters should also be deferred until I had given this judgment.
- In view of the fact that this is a split trial, and I have determined only the issues relating to liability, it was agreed that appropriate practical steps must be taken to ensure that the existence and terms of the offers are kept concealed from any future trial judge until the quantum issues have been decided. Similar steps will also be needed if there is an appeal to the Court of Appeal on liability issues. The public version of this judgment has thus been anonymised by agreement.
- CPR Part 36 in its present form came into effect on 6 April 2007. In its original form Part 36 drew a distinction between Part 36 payments into court and Part 36 offers to settle. As the Court of Appeal explained in Carver v BAA Plc [2008] EWCA Civ 412, [2009] 1 WLR 113, at [2] an offer to settle a money claim would not have the consequences set out in the Part unless it was made by way of a Part 36 payment, and the costs consequences then set out in rule 36.20 used different language depending on whether the claimant failed to better a Part 36 payment or whether he failed to obtain a judgment which was more advantageous than a defendant's Part 36 offer. Under the rules in their modern form, payment into court no longer has any role to play in Part 36 and the concept of failing to better a Part 36 payment has disappeared. Instead, the crucial criterion in what is now rule 36.14 is whether a claimant fails to obtain a judgment which is "more advantageous than a defendant's Part 36 offer", or whether judgment against the defendant is "at least as advantageous to the claimant" as the proposals contained in a claimant's Part 36 offer. In the present case it is the modern version of Part 36 with which I am concerned, because the relevant Part 36 offers were made in June and July 2010. For convenience, I will cite the provisions of Part 36 without the further changes to them, immaterial for present purposes, which have been made by the Civil Procedure (Amendment) Rules 2010 (SI 2010/621) consequential upon the introduction of the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents.
- The most important provisions of Part 36 for the purposes of the present case are as follows:
- The provisions of CPR rule 44.3 on the court's discretion as to costs, and the circumstances to be taken into account when exercising that discretion, are very familiar, and I will confine myself to citing the following extracts from it:
- In the recent case of Gibbon v Manchester City Council [2010] EWCA Civ 726, [2010] 1 WLR 2081, the Court of Appeal has stressed that Part 36 contains a carefully structured and self-contained code of rules, and that it is "to be read and understood according to its terms without importing other rules derived from the general law, save where that was clearly intended". That quotation comes at the end of some valuable general observations in the leading judgment which was given by Moore-Bick LJ. The other two members of the Court, Sir Anthony May P and Carnwath LJ, agreed with the judgment of Moore-Bick LJ, so the general observations which I will now cite clearly carry the authority of the Court and are binding upon me:
- On 14 June 2010 the defendants' solicitors wrote to the claimant's solicitors in the following terms:
- On 5 July 2010 the claimant's solicitors responded with their own Part 36 offer which was expressed to be made in respect of the whole of the claim and the counterclaim. The terms of the claimant's Part 36 offer were as follows:
- The letter added that, in making this offer, the claimant had addressed certain aspects of the defendants' offer of 14 June, and made the following comments:
- On 29 July the defendants' solicitors replied:
- On 11 August 2010 the claimant's solicitors replied in a further letter headed "without prejudice save as to costs". The letter maintained that the claimant had made an offer to settle the case in its entirety on terms that were perfectly clear, and criticised the defendants' reliance on Part 36 as "simplistic and misguided". The letter continued:
- It only remains to record that neither side's Part 36 offer was accepted, and the defendants declined to provide any of the information requested in the letters of 5 July and 11 August.
- Where there is a split trial (which I understand to be the usual practice in intellectual property cases where infringement is alleged) the question arises whether disclosure of (a) the existence, and (b) the terms, of any Part 36 offer should be made to the court after it has ruled on liability in favour of the claimant, with the consequence that a further trial on quantum will take place (unless, of course, the parties are able to settle the issue of quantum in the meantime, which I believe to be in practice the most usual outcome).
- A literal reading of CPR rule 36.13(2) would suggest that even the existence of a Part 36 offer must not be communicated to the trial judge until the second stage of the case has been decided, subject only to the three exceptions contained in paragraph (3), of which the only material one for present purposes is "where the offeror and the offeree agree in writing that it should not apply". That this is indeed the correct construction of the rule appears to be confirmed by contrasting it with the previous version of the rule, which dealt expressly with the case of a split trial and permitted disclosure of the fact (but not the terms) of a Part 36 offer where the issue of liability had been determined on a split trial and where the existence of the offer might be relevant to the costs of that issue. So far as material, the old rule 36.19 read as follows:
- In HSS Group Plc v BMB Limited [2005] EWCA Civ 626, [2005] 1 WLR 3158, the Court of Appeal considered the meaning of rule 36.19 and its relationship with rule 44.3(4)(c). The leading judgment was given by Waller LJ, with whom Mance LJ and Sir William Aldous agreed. In paragraph [35] Waller LJ concluded as follows:
- It is also relevant to note that the prohibition on disclosure in rule 36.19(2) was directory, not compulsory, with the result that upon breach the court had a discretion whether to continue to hear the case: see Garratt v Saxby [2004] EWCA Civ 341, [2004] 1 WLR 2152, at paragraphs [15] to [20]. I have no doubt that the same principles would apply to a breach of the prohibition now contained in rule 36.13(2).
- It is easy to understand why the old rule 36.19(2) and (3) had to be recast when the 2007 amendments to Part 36 were introduced, because those paragraphs applied only to Part 36 payments which were abolished. Thereafter the single concept of a Part 36 offer included monetary as well as non-monetary offers to settle. However, it is less easy to understand why the express provision relating to split trials was removed, and no explanation is offered by the editors of the White Book in the notes to the 2010 edition at paragraph 36.13.1 (volume I, page 1047). The notes merely say this:
- It seems to me that there is a real problem here. If the existence of a Part 36 offer cannot be disclosed, except where the parties agree, until the conclusion of the second stage of a split trial, such agreement is unlikely to be forthcoming in any case where the disclosure might prejudice the position on costs of either the offeror or the offeree at the conclusion of the liability stage. It would seem to follow that in nearly all split trial cases where a Part 36 offer has been made all questions of costs would have to be reserved to the conclusion of the second stage, because it will be in the interests of at least one party to refuse consent to its disclosure at the liability stage. But it will often be desirable in principle, and in the wider interests of justice, for the costs of the liability hearing to be dealt with at its conclusion. Very substantial costs may well have been incurred, it will probably be clear that one party has succeeded, and the general philosophy of the CPR is to encourage the determination and payment of costs on a "pay as you go" basis. Furthermore, the Part 36 offer may relate only to the costs of the liability stage; and even if it does not, it is relatively uncommon for trials on quantum to proceed to a hearing. Why, then, should the court be compelled to deal with the costs of the liability hearing in ignorance of the fact that a Part 36 offer has been made, and in ignorance of the terms of the offer, unless the relevant parties all agree? Further, if the court is asked to reserve the costs, it will almost inevitably conclude that the reason for the request is the existence of a relevant Part 36 offer, thereby undermining the apparent policy of rule 36.13(2).
- In the present case I fortunately do not have to resolve these questions, because each side wishes me to look at its own Part 36 offer at this stage. They have therefore agreed that I should do so, and that if the case progresses to a trial on quantum the trial judge should be someone other than me.
- Since it is unnecessary for me to resolve the problems to which I have drawn attention, and since I have not heard full argument on them, I think it would be unwise for me to say much more about them. I will merely hazard the suggestion (perhaps foreshadowed in the notes in the White Book) that a possible solution might be to focus on the words "until the case has been decided" in rule 36.13(2), which are much less specific than the wording of the old rule 36.19(2) ("until all questions of liability and the amount of money to be awarded have been decided"). It may be that in appropriate circumstances the new wording should be construed as referring to the conclusion of the first part of a split trial. But even then the difficulty would remain that the court may only be told about the existence of the Part 36 offer, so the question of costs would in practice still have to be reserved for the reasons given by the Court of Appeal in the HSS Group case.
- The claimant's Part 36 offer, or purported Part 36 offer, is contained in the letter of 5 July 2010. Subject to one point, I consider that it complies with the requirements of form and content in rule 36.2. However, there is an issue whether it is a genuine offer at all, or merely a lightly disguised request for total capitulation. If it is a proper Part 36 offer, the question then arises whether the judgment which the claimant has now obtained against the defendants is "at least as advantageous" to the claimant as the proposals contained in the letter, within the meaning of rule 36.14(1)(b).
- The concept of an "offer to settle" is nowhere defined in Part 36. I think it clear, however, that a request to a defendant to submit to judgment for the entirety of the relief sought by the claimant cannot be an "offer to settle" within the meaning of Part 36. If it were otherwise, any claimant could obtain the favourable consequences of a successful Part 36 offer, including the award of indemnity costs, by the simple expedient of making an "offer" which required total capitulation by the defendant. In my judgment the offer must contain some genuine element of concession on the part of the claimant, to which a significant value can be attached in the context of the litigation. The basic policy of Part 36 is to encourage the sensible settlement of claims before trial, or even before the issue of proceedings (see rule 36.3(2)(a) which provides that a Part 36 offer may be made at any time, including before the commencement of proceedings). The concept of a settlement must, by its very nature, involve an element of give and take. A so-called "settlement" which was all take and no give would in my view be a contradiction in terms.
- In the usual way, the concession offered by the claimant will be something that it is in the claimant's power to give up at the time when the offer is made. However, I do not think that this is an invariable requirement. I see no reason in principle why the concession offered may not also relate to an advantage or form of relief which the claimant would only be able to obtain at or after trial, provided that obtaining it would be of significant value to the claimant, and the agreement to forego the opportunity to obtain it is not merely an empty gesture. Furthermore, it is necessary to have regard to the principles stated by Moore-Bick LJ in Gibbon v Manchester City Council at paragraph [40], where he said that "a party faced with a Part 36 offer ought to be entitled to evaluate it by reference to a rational assessment of his own case (including the risk of incurring unrecoverable costs if he presses on). He should not have to make a significant allowance for the court's view of factors that are inherently difficult to value " Those principles were stated in the context of explaining, and confining the scope of, the previous decision of the Court of Appeal in Carver v BAA Plc, but in my judgment they are of general application.
- The claimant says that it has matched or improved upon its Part 36 offer in at least the following respects:
- In answer to these submissions, the defendants submit that in substance and reality the claimant's so-called offer was for the defendants to give up and submit to judgment for an unquantified sum. All issues of quantum were left to be determined by an inquiry or account of profits, at the claimant's election. The undertakings required were for all practical purposes equivalent to the injunctions obtained at trial. The defendants would have to give up their entire counterclaim, and would also have to pay all of the claimant's costs of the proceedings, to be the subject of detailed assessment if not agreed. Furthermore, there is no substance in the other ways in which the claimant says it has improved on its offer. The order for delivery up adds nothing of value to the undertakings sought, given the re-branding exercise which has taken place. The publication order achieves nothing that the claimant could not have achieved for itself by publicising a consent order incorporating the undertakings, and weight cannot be attached to publication of the judgment because the policy of Part 36 is to encourage settlement of cases before trial, and therefore before any judgment has been given. The confidentiality provisions in the offer are illusory, in view of the exceptions which permit publication of the order containing the undertakings and envisage a public trial of the quantum issues, added to the fact that the claimant had already given extensive publicity to the re-branding of the defendants' business. Finally, the certificate of contested validity is not something that the court can take into account, because such a certificate can only be given by the court after trial, and the policy of Part 36 is (again) to foster the resolution of disputes before trial.
- Both sides also referred me, for guidance by way of analogy rather than directly in point, to observations made by the Court of Appeal in Roache v News Group Newspapers Limited [1998] E.M.L.R. 161. Although not reported until 1998, the case was decided in 1992. The plaintiff (an actor who had played the part of Ken Barlow in Coronation Street for 30 years) sued the defendant publishers of the Sun for libel. Three weeks before trial the defendants paid Ł25,000 into court, which when added to an earlier payment made a total of Ł50,000. At trial the jury awarded the plaintiff precisely that sum. The trial judge also granted an injunction against repetition of the libel, although there was no evidence of any real likelihood of repetition. The defendants asked for their costs from the date of the payment in, on the basis that the plaintiff had failed to beat it. However, the judge refused the application and awarded the plaintiff his costs of the action, on the ground that he had to pursue the matter to judgment in order to obtain an injunction.
- The Court of Appeal (Sir Thomas Bingham MR, Stuart-Smith LJ and Simon Brown LJ) unanimously reversed the judge's decision on costs, holding that the defendants had been the substantial winners at trial, and that the injunction added nothing of real value from the plaintiff's point of view because the defendants had no intention to republish the libel, and an undertaking would have been his for the asking had he accepted the money in court.
- Sir Thomas Bingham MR began his discussion of the matter at 166 by referring to the general principle that costs follow the event, and said:
- The Master of the Rolls distinguished the split trial procedure that was familiar then, as it is now, in intellectual property cases, and referred to the decision of Falconer J in Colgate Palmolive Limited v Markwell Finance Limited [1990] R.P.C. 197 which had strongly influenced the trial judge in favour of granting an injunction:
- Stuart-Smith LJ agreed, and at 174 cited the following explanation of the procedure in the Chancery Division given by Falconer J in Colgate Palmolive:
- Simon Brown LJ also agreed, and summarised his own approach in a number of propositions at 178-9, from which I cite the following extracts:
- In evaluating these submissions, I begin with the point that the claimant's offer cannot in my view be regarded as a valid Part 36 offer in relation to the quantum stage of the proceedings. The offer does not state any specific sum that the claimant would be prepared to accept in satisfaction of its monetary claims, and paragraph (2) merely replicates the standard order that would anyway be made for the second stage of a split trial in any intellectual property case once liability had been established. There is also a potential ambiguity about the scope of paragraph (2). It is not stated expressly whether the inquiry or account is to be confined to damages or profits which flow from infringement of the trade mark X by the two impugned signs specified in paragraph (1), or whether it was meant to extend to damages or profits flowing from the infringement of all three of the claimant's registered trade marks by all six of the impugned signs. In the context of the offer as a whole, a reasonable offeree would in my judgment interpret paragraph (2) in the former sense, and counsel for the claimant submitted that this is indeed the correct construction. So on paper at least paragraph (2) does appear to offer a concession about the scope of the second stage of the trial. But that still does not turn it into a valid Part 36 offer about the financial outcome of the second stage: it just reflects the concession apparently offered in paragraph (1) about the outcome of the first (liability) stage, and says that the scope of the second stage will then be limited accordingly.
- Thus the critical question, in my judgment, is whether the offer was a valid Part 36 offer in relation to the liability stage of the trial which has now concluded. If it was, then it can hardly be doubted that the judgment obtained against the defendants is "at least as advantageous" to the claimant as the offer. It is important to note in this connection that the judgment needs only to match the offer: it does not have to improve on it in any significant respect. Plainly the combined effect of the points set out in paragraph [24] above must be such that this test is satisfied.
- But did the offer make any real concession of significant value, bearing in mind that the policy of Part 36 is to encourage the settlement of claims before trial and before any judgment has been given? In my view it did not, for the following reasons.
- I take first the limitation on the scope of paragraphs (1) and (2). If the defendants were to give an undertaking to the court (and therefore equivalent in its effect to an injunction) not to infringe the trade mark X, they would then in practice be equally unable to infringe the trade mark Y without also breaching the undertaking. There has been no suggestion of which I am aware at any stage of the proceedings that a distinction can sensibly be drawn between the two Community marks in terms of validity, infringement or consequential relief. For all practical purposes, they stand or fall together. As to trade mark Z, it is true that its validity raises a number of distinct questions, but I again find it hard to see how the defendants could in practice seek to use it in the context of the defendants' type of business without also infringing, or running the risk of infringing, the trade mark X. Nor is there any evidence that the defendants would wish to do any such thing, if they could not at the same time use the other impugned signs.
- The restriction of the undertaking to two of the impugned signs is in my view equally devoid of practical significance. No substantial distinctions between the signs have been drawn in the pleadings, the evidence or legal argument. Everyone has in practice proceeded on the footing that they too stand or fall together. Thus the undertakings sought in paragraph (1) would in practice prevent use of any of the signs in the context of this type of business.
- All in all, I cannot avoid the impression that the limitations on the scope of paragraphs (1) and (2) were deliberately designed to lay the foundations for an argument that success at trial on liability would inevitably mean that the claimant had matched or beaten its Part 36 offer, and that in framing the offer in this way the claimant was not in fact intending to give up anything of real value. I am reinforced in this conclusion by the fact that counsel for the claimant submitted, in relation to the scope of paragraph (2), that it would make no practical difference whether an inquiry as to damages or an account of profits related only to the paragraph (1) undertakings, or whether it extended to infringement of both the Community marks by all of the impugned signs. I am inclined to agree, but to my mind the point does not assist the claimant because it demonstrates the illusory nature of the limitation.
- I now turn to the other factors relied upon by the claimant. The order for delivery up of infringing items is in my view of negligible significance, given the re-branding exercise which has taken place. I would not be surprised if there were no material at all to be delivered up, and I find it difficult to imagine what it would consist of. Such allegations of continuing infringement as there are relate to the continued use of some of the impugned signs as Google adwords, or other forms of electronic infringement. There is no serious suggestion, so far as I am aware, that the defendants are currently using any infringing physical items in the course of their trade. With regard to publicity, it is true that the publication order requires the defendants to take certain steps at their own expense, but, that apart, the publication order achieves nothing of substance that the claimant could not have done for itself had its offer been accepted, except of course for publication of the judgment itself. In particular, the claimant would have been free to publicise the undertakings given by the defendants; it had already given extensive publicity to the re-branding of the defendants' business; and any subsequent trial of quantum issues would be heard in public in the usual way. I accept the submission for the defendants that obtaining a reasoned judgment from the court following a trial cannot in itself be regarded as an improvement upon a Part 36 offer, because the policy of Part 36 is to promote the settlement of cases before trial. Further, in the light of the scope for publicity retained by the claimant, the confidentiality offered to the defendants was in my judgment also of no real value. Finally, the opportunity to obtain a certificate of contested validity in relation to the UK mark seems to me to take matters no further, because the advantage that it gives to the claimant is not an advantage in relation to the defendants (who would anyway be bound by the judgment, or in terms of the offer by the discontinuance of their counterclaim), but in relation to future proceedings by third parties. For the purposes of Part 36, it must in my view be regarded as a purely incidental advantage of proceeding to trial, and forgoing it was not a genuine concession offered by the claimant to the defendants.
- For all these reasons I conclude that the claimant's offer was not an offer of settlement within the meaning of Part 36. It follows that the claimant is not entitled to the favourable treatment afforded by rule 36.14, although the offer remains a relevant consideration for the court to take into account in the exercise of its general discretion on costs.
- The defendants' amended Part 36 offer is contained in their solicitors' letter of 29 July 2010. It was explicitly an offer to settle the whole of the claim and the counterclaim (see the first paragraph of their earlier letter of 14 June), and it therefore offered not only undertakings relating to the infringement of all three of the claimant's registered trade marks and the use of two of the impugned signs, but also a monetary payment of Łx in settlement of the claimant's claim for damages or an account of profits.
- If this offer was a valid Part 36 offer, I can see no alternative to reserving the costs which have been incurred since the expiry of the 21 day period for its acceptance on 19 August 2010, including the costs of the trial on liability, until the conclusion of the trial on quantum. It would be premature to deal with the costs of the trial on liability in isolation, even though in one respect it is already clear that the claimant has failed to obtain a judgment more advantageous than the defendants' offer. I have dismissed the claimant's claim for infringement of the UK mark, whereas the non-infringement undertaking included the UK mark. The answer to this point, however, is that the Part 36 offer was an offer to settle the whole of the proceedings and, as such, was indivisible. Until the conclusion of the quantum stage it will be impossible to say with certainty where the ultimate balance of advantage lies in relation to the terms of the offer viewed as a whole. So, for example, if the claimant were to recover less than Łx, it would then be clear beyond argument that the claimant had failed to better the offer. If, on the other hand, the claimant were to recover substantially more than Łx, it would then be necessary to assess where the overall balance of advantage lay, bearing in mind that the claimant had failed to establish infringement of the UK mark but had nevertheless obtained more than the Łx on offer.
- I now turn to the prior question whether the defendants' offer was indeed a valid Part 36 offer. The claimant submits that it was not, because of the defendants' failure to supply the necessary financial data to enable the claimant to make an informed assessment of the value of the Łx monetary compensation on offer. Counsel for the claimant submits that, if the policy of Part 36 is not to be defeated, a defendant which wishes to make a monetary offer to a claimant in the present type of case must supply the claimant with the same sort of financial information about the allegedly infringing business as the court would order by way of Island v Tring disclosure so as to enable the claimant to elect between an inquiry as to damages and an account of profits. It is only with the benefit of such information that the claimant can make an informed decision whether or not to accept the offer. In the present case, the claimant through its solicitors made reasonable requests for the necessary information, and said that it would be willing to receive it on a confidential basis and without prejudice save as to costs: see the letters of 5 July and 11 August 2010 quoted above. However, the requests were refused, and no good reason was given for the refusal. In particular, the assertion in the defendants' solicitors' letter of 29 July 2010 that "[The claimant] is certainly able to assess the defendants' offer" misses the point and is unsupported by any evidence.
- In support of these submissions counsel for the claimant relies on the duty of the parties to help the court to further the overriding objective, and to co-operate in the conduct of the proceedings: see CPR 1.3 and 1.4(2)(a). He also relies on the provisions of Part 36 itself, including in particular rule 36.8 (dealing with clarification of a Part 36 offer) and rule 36.14(4)(d) (in considering whether it is unjust to grant a successful Part 36 offeror or offeree the favourable orders referred to in paragraphs (2) or (3), the court will take into account all the circumstances of the case, including "(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated").
- In addition, counsel for the claimant cited the decision of the Court of Appeal in a personal injuries case, Ford v G. K. R. Construction Ltd [1999] EWCA Civ 3030, [2000] 1 WLR 1397. This was a pre-CPR case where liability was admitted for injury sustained by the claimant in a road traffic accident, and after a hearing to assess damages she failed by a substantial margin to beat the payment into court made by the defendants. The trial judge nevertheless ordered the defendants to pay the claimant's costs of the action. The appeal to the Court of Appeal was concerned only with the order for costs. For present purposes nothing turns on the detailed facts, and the interest of the case lies in certain observations made by Judge LJ (as he then was), who gave the leading judgment, and by Lord Woolf MR.
- Judge LJ said this at 1400H:
- Lord Woolf MR agreed, and added this at 1403 C-G:
- Relying on these principles, counsel for the claimant submits that the defendants' offer as a whole cannot be regarded as a valid Part 36 offer, or alternatively that the monetary offer of Łx should be disregarded. He accepts that no existing authority has yet gone this far, but points out that the principles of civil procedure are apt to develop in an incremental fashion, and some advances which are now taken for granted (such as Island v Tring disclosure, or orders for the interim payment of costs) were once unprecedented.
- These submissions were persuasively advanced by counsel for the claimant, but I am unable to accept them. I readily agree that it is good practice, and in accordance with the spirit of the CPR in general and Part 36 in particular, for a party who makes a Part 36 offer to provide the offeree with enough information to make an informed decision whether or not to accept it. Nothing that I say in this judgment is intended to detract in any way from that salutary principle. But the provisions of Part 36 itself seem to me to show that the result of a failure to comply with this obligation is not to invalidate the offer, provided of course that the other requirements of a valid Part 36 offer are satisfied. There would be no need for the clarification provisions in rule 36.8 if the result of a failure to provide enough information were automatically to disqualify the offer from being a Part 36 offer at all; and the provisions of rule 36.14(4)(d) show that a refusal to give information for the purposes of enabling the offer to be evaluated comes into play at the later stage of deciding whether or not it would be unjust to grant the successful party the favourable consequential orders which normally follow from equalling or beating the offer (as the case may be).
- Furthermore, it would in my view be productive of much uncertainty if the validity, as opposed to the costs and interest consequences, of a Part 36 offer were to depend on something as difficult to ascertain as the adequacy of the information supplied by the offeror to the offeree. In many cases it may well be reasonable for the offeror to supply no, or only limited, information when the offer is made, and to leave it to the offeree to come back with a request for further information. Any such request should then be dealt with in a spirit of co-operation, and (if it is not) the offeree is free to apply to the court for an order under rule 36.8. Alternatively, the offeree can decide whether or not to accept the offer as it stands, and if he decides to refuse it, but later fails to match or improve on it, he can argue that the usual adverse consequences should not follow, or should at least be mitigated, in reliance on rule 36.14(4)(d). This is in my judgment a coherent and workable scheme, which respects the "demands of clarity and certainty in the operation of Part 36" to which Moore-Bick LJ referred in Gibbon v Manchester City Council at [18].
- To return to the present case, it is in my judgment far from self-evident that the claimant lacked sufficient information to make an informed decision whether or not to accept the defendants' amended offer. The claimant and the defendants were in the same line of business, and the claimant may have had enough information from its own experience and business models to make an educated decision, particularly as the alleged infringing use had lasted for barely seven months and had ceased (or at least substantially ceased) with the re-branding of the defendants' business. The claimant had the option of applying to the court for an order under rule 36.8, but for whatever reason chose not to do so. The truth may be that the claimant never had any serious intention of examining the merits of the offer, given its apparent belief (referred to in the its solicitors' letter of 11 August 2010) that the defendants "made a profit of the order of Ły million from the business operating under the [defendants' business name] sign solely in the eight month period up to August 2009". I am of course in no position to make findings of fact on these points at this stage, but the mere fact that such questions may arise is enough to show how dangerous it would be to rule that the defendants' failure to provide information automatically invalidated their Part 36 offer.
- For these reasons I conclude that the defendants' amended offer was a valid Part 36 offer, with the result that the costs since 20 August 2010 cannot be dealt with at this stage and must be reserved until the conclusion of the trial on quantum.
- There remains the question whether the costs up to 19 August 2010 should also be reserved. The claimant submits that they should not, and that I should make an immediate award of costs in its favour on the basis that it has (thus far) been the successful party overall. Furthermore, the counterclaim challenging the validity of the three registered trade marks has been dismissed, and subject to any appeal that dismissal has finally disposed of the counterclaim: it is only in relation to the claim that the question of quantum remains outstanding. The claimant also asks the court to award its costs on the indemnity basis, relying on various allegations of unreasonable behaviour on the part of the defendants and my criticisms of certain witness evidence in the judgment.
- The defendants disagree, and submit that all of the costs of the action and counterclaim should now be reserved. They argue that only at the conclusion of the trial on quantum will the court be in a position to review the conduct of the parties from the beginning, and to form a view on the question whether the claimant has in substance beaten the defendants' Part 36 offer. Further, the outcome of the trial on quantum may be a relevant factor for the court to take into account when considering whether the claimant should recover any of its costs at an earlier stage on the indemnity basis. There is a danger that, if the court were now to award the claimant all or part of its costs up to 19 August 2010 on the indemnity basis, the award might subsequently appear to have been too generous in the context of the ultimate outcome of the litigation. Conversely, I would add, if it subsequently transpires that the claimant has beaten the defendants' Part 36 offer by a substantial margin, that might be an additional factor which would weigh with the court in deciding to make an award of indemnity costs in the claimant's favour.
- In my judgment the defendants are correct, and since it is anyway necessary to reserve the costs incurred since 20 August 2010 it is on balance preferable also to reserve the costs incurred before that date, including the costs of the counterclaim, so that the court can review the whole question of costs with a free hand at the conclusion of the litigation.
Mr Justice Henderson:
Introduction
Relevant provisions of the CPR
"36.1 Scope of this Part
(1) This Part contains rules about
(a) offers to settle; and
(b) the consequences where an offer to settle is made in accordance with this Part.
(2) Nothing in this Part prevents a party making an offer to settle in whatever way he chooses, but if the offer is not made in accordance with rule 36.2, it will not have the consequences specified in rule[s] 36.14
36.2 Form and content of a Part 36 offer
(1) An offer to settle which is made in accordance with this rule is called a Part 36 offer.
(2) A Part 36 offer must
(a) be in writing;
(b) state on its face that it is intended to have the consequences of Part 36;
(c) specify a period of not less than 21 days within which the defendant will be liable for the claimant's costs in accordance with rule 36.10 if the offer is accepted;
(d) state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue; and
(e) state whether it takes into account any counterclaim
(4) In appropriate cases, a Part 36 offer must contain such further information as is required by rule 36.5 (Personal injury claims for future pecuniary loss), rule 36.6 (Offer to settle a claim for provisional damages), and rule 36.15 (Deduction of benefits).
(5) An offeror may make a Part 36 offer solely in relation to liability.
36.4 Part 36 offers defendants' offers
(1) Subject to rule 36.5(3) and rule 36.6(1), a Part 36 offer by a defendant to pay a sum of money in settlement of a claim must be an offer to pay a single sum of money
36.8 Clarification of a Part 36 offer
(1) The offeree may, within 7 days of a Part 36 offer being made, request the offeror to clarify the offer.
(2) If the offeror does not give the clarification requested under paragraph (1) within 7 days of receiving the request, the offeree may, unless the trial has started, apply for an order that he does so
(3) If the court makes an order under paragraph (2), it must specify the date when the Part 36 offer is to be treated as having been made.
36.13 Restriction on disclosure of a Part 36 offer
(1) A Part 36 offer will be treated as "without prejudice except as to costs".
(2) The fact that a Part 36 offer has been made must not be communicated to the trial judge until the case has been decided.
(3) Paragraph (2) does not apply
(c) where the offeror and the offeree agree in writing that it should not apply.
36.14 Costs consequences following judgment
(1) This Rule applies where upon judgment being entered
(a) a claimant fails to obtain a judgment more advantageous than a defendant's Part 36 offer; or
(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant's Part 36 offer.
(2) Subject to paragraph (6), where rule 36.14 (1)(a) applies, the court will, unless it considers it unjust to do so, order that the defendant is entitled to
(a) his costs from the date on which the relevant period expired; and
(b) interest on those costs.
(3) Subject to paragraph (6), where rule 36.14(1)(b) applies, the court will, unless it considers it unjust to do so, order that the claimant is entitled to
(a) interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;
(b) his costs on the indemnity basis from the date on which the relevant period expired; and
(c) interest on those costs at a rate not exceeding 10% above base rate.
(4) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3) above, the court will take into account all the circumstances of the case including
(a) the terms of any Part 36 offer;
(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;
(c) the information available to the parties at the time when the Part 36 offer was made; and
(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated "
"(1) The court has discretion as to
(a) whether costs are payable by one party to another;
(b) the amount of those costs; and
(c) when they are to be paid.
(2) If the court decides to make an order about costs
(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but
(b) the court may make a different order.
(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and
(c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention, and which is not an offer to which costs consequences under Part 36 apply."
"2. Part 36 replaced the provisions of the Rules of the Supreme Court relating to payment into court by way of a formal offer of satisfaction of the claim. It also provided for the first time a means by which a claimant could offer to accept a sum of money less than the amount of his claim with protection in relation to costs comparable to that which had previously been available only to defendants. Its purpose is to encourage settlement and to enable those who make sensible offers to protect themselves against liability for the costs incurred in the continuation of proceedings to no ultimate advantage.
4. It can be seen from Part 36 as a whole, as well as from the extracts cited above, that it contains a carefully structured and highly prescriptive set of rules dealing with formal offers to settle proceedings which have specific consequences in relation to costs in those cases where the offer is not accepted and the offeree fails to do better after a trial. In cases where there has been no Part 36 offer or a Part 36 offer has been bettered the judge has a broad discretion in dealing with costs within the framework provided by Part 44. Rule 44.3(4) provides that when exercising its discretion as to costs the court will have regard to the general rule that the unsuccessful party should pay the costs of the successful party, but will also have regard to the conduct of the parties and any payment into court or admissible offer to settle made by one or other party which falls outside the terms of Part 36. In seeking to settle the proceedings, therefore, parties are not bound to make use of the mechanism provided by Part 36, but if they wish to take advantage of the particular consequences for costs and other matters that flow from making a Part 36 offer, in relation to which the court's discretion is much more confined, they must follow its requirements.
5. Part 36 is drafted as a self-contained code. It prescribes in some detail the manner in which an offer may be made and the consequences that flow from accepting or failing to accept it. In some respects those consequences reflect broadly the approach the court might be expected to take in relation to costs; in others they do not
6. Basic concepts of offer and acceptance clearly underpin Part 36, but that is inevitable given that it contains a voluntary procedure under which either party may take the initiative to bring about a consensual resolution of the dispute. Such concepts are part of the landscape in which everyone conducts their daily life. It does not follow, however, that Part 36 should be understood as incorporating all the rules of law governing the formation of contracts, some of which are quite technical in nature. Indeed, it is not desirable that it should do so. Certainty is as much to be commended in procedural as in substantive law, especially, perhaps, in a procedural code which must be understood and followed by ordinary citizens who wish to conduct their own litigation. In my view, Part 36 was drafted with these considerations in mind and is to be read and understood according to its terms without importing other rules derived from the general law, save where that was clearly intended."
The Part 36 offers
"This letter is written under CPR Part 36 and is intended to have the consequences of that part. It is an offer on the terms below to settle the claimant's whole claim and the defendants' counterclaim. It is open for acceptance within 21 days. If it is accepted then the defendants will be liable for the claimant's costs under CPR 36.10, such costs to be assessed if not agreed.
The terms of the offer are that:
1. the defendants undertake (i) not to infringe, while they are valid, [trade marks X and Y] and [the UK Registered Trade Mark Z] or any of them and (ii) while the said marks are valid, not to use anywhere in the Community in the course of trade [two out of six of the impugned signs] ;
2. the defendants will pay to the claimant the sum of [Łx];
3. the defendants will pay the claimant's costs, such costs to be assessed if not agreed;
4. the defendants will discontinue their counterclaim; and
5. the parties' agreement is confidential and the parties will consent to an order by which the claim and the counterclaim are discontinued with no order as to costs."
"1. The Defendants will undertake to the Court not to (i) infringe [trade mark X] (ii) use anywhere in the European Union in the course of trade [the same two impugned signs as set out in the defendants' letter];
(2) The Defendants will pay to the Claimant an amount in respect of damages or an account of profits, to be assessed by an inquiry as to damages or an account of profits (at the Claimant's election) if not agreed;
(3) The Defendants will pay the Claimant's costs of the proceedings, to be assessed by detailed assessment if not agreed;
(4) The Defendants will discontinue their counterclaim;
(5) Save that the undertakings in paragraph (1) above will be recorded in a recital to an Order and that nothing shall affect the nature of any inquiry, account or assessment in paragraphs (2) and (3) above, and subject to legal obligations of disclosure on either party, the parties' agreement shall be confidential."
"Our client is not in a position to evaluate your clients' offer to pay [Łx]. Furthermore, our client would not ordinarily be in such a position by the end of any trial on liability. We refer to paragraph 40 of [Gibbon v Manchester City Council] which notes that "a party faced with a Part 36 offer ought to be entitled to evaluate it by reference to a rational assessment of his own case". In the absence of any basis for the [Łx] figure, specifically information relating to the extent of infringement and/or profit to your client arising from the use of the [defendants' business name] mark, our client considers that this aspect of your client's offer can give your clients no protection against costs. Paragraph (2) above addresses this issue.
With regard to paragraph 5 of your clients' offer dated 14 June 2010, a confidentiality provision and the proposed order dealing with costs is inconsistent with the determination of costs by assessment if not agreed. In order for a detailed assessment to take place, there must be an order of the Court. As such, your clients' offer is incapable of acceptance in the terms proposed.
We would also add that the public nature of the material outcome of these proceedings is of commercial significance to our client. However, our client is willing to maintain any monetary amounts in confidence (subject to the normal limitations arising from legal obligations of disclosure and the public nature of any inquiry, account of profits or costs assessment).
If your client does not accept this Part 36 Offer, and our client obtains a judgment which is equal to or more advantageous than this Part 36 Offer, our client intends to rely on CPR 36.14."
"Thank you for your letter of 5 July 2010
Claimant's offer: You say that the only way the matter can be advanced is by the defendants conceding liability before an inquiry into relief. The claimants will then consider the defendants' financial information. This is an invitation to the defendants to concede liability and not an offer to settle the proceedings.
Defendants' offer: We take your letter as a refusal of the defendants' offer. You suggest that a confidentiality provision in the proposed order is inconsistent with an assessment of costs, because a detailed assessment would require a court order. This is not a refusal based on the value of the offer but on the mechanism of executing it.
You also say that until [the claimant] have seen the defendants' relevant financial data, they are not in a position to accept any sum of money offered. Settlement will thus only be possible after liability has been decided and the defendants have made further disclosure. You seek support for that approach from the recent decision in Gibbon v Manchester City Council. The case does not, however, support [the claimant's] position. It says that when assessing whether a judgment is more advantageous to a claimant than a Part 36 offer, the court should look primarily at the financial values of the offer and the judgment and give less weight to factors that are inherently difficult to value. [The claimant] is certainly able to assess the defendants' offer; it has refused to settle on any terms at this stage. Part 36 is properly triggered and [the claimant] bear[s] the usual risk on costs.
In order to resolve [the claimant's] problem with the mechanics of the offer, the defendants amend the terms of their Part 36 offer so that it is as follows:
[Paragraphs 1 to 4 are unchanged]
5. the parties will consent to an order by which the claim and the counterclaim are discontinued. If costs are not agreed they will be assessed; and
6. the parties' agreement shall be confidential save for (i) an order ending the claim and counterclaim and (ii) only to the extent necessary any order addressing costs."
"We have already outlined the value to our client of a public finding of infringement, and that remains a difference between the parties. Our client will undoubtedly achieve that at trial if it is successful in respect of any of the marks alleged to be infringed.
The parties also appear to be in agreement in relation to costs of the proceedings.
In relation to monetary compensation, your clients appear to concede that a payment by way of damages or an account of profits is appropriate. However, the difference between the parties on this issue appears to be only one of quantum. Our client's offer was intended to provide a means by which the quantum can be assessed whilst avoiding the costs of a trial on liability. Our client does not believe the figure of [Łx] bears any resemblance to the scale of operations undertaken by your clients and/or the damage caused to our client as a result
[With regard to CPR 36.14(4)], we consider that your clients are duty bound to co-operate in providing the information requested.
To reiterate, our client is not in a position to evaluate your clients' offer to pay [Łx] by reference to a rational assessment of our client's case for damages or account of profits in the absence of any relevant information from your clients. Our client has indicated repeatedly that in order to do so it requires information relating to the scale of your clients' activities under the [defendants' business name], not least on [various specified dates]. However, your client has consistently refused to provide any such information.
We consider that the most appropriate course towards avoiding the significant costs of a trial on liability would be for the parties to seek to agree a monetary sum. The only rational basis upon which that can be done is if the parties are in possession of the relevant information. We therefore invite your client once again to provide (on a confidential and without prejudice save as to costs basis if necessary) the following information in relation to the operation in the European Economic Area under the [defendants' business name] sign: The [turnover, number of customers and Earnings Before Interest Tax and Amortisation (EBITA)].
Should you wish to provide only part of this information, our client would of course consider its position."
Disclosure to the court of the Part 36 offers
"36.19 Restriction on disclosure of a Part 36 offer or a Part 36 payment
(1) A Part 36 offer will be treated as "without prejudice except as to costs".
(2) The fact that a Part 36 payment has been made shall not be communicated to the trial judge until all questions of liability and the amount of money to be awarded have been decided.
(3) Paragraph (2) does not apply
(c) where
(i) the issue of liability has been determined before any assessment of the money claimed; and
(ii) the fact that there has or has not been a Part 36 payment may be relevant to the question of the costs of the issue of liability."
"35. In my view rule 36.19 does not allow for the disclosure of the amount of a payment in. On its language it allows simply the disclosure of the fact that there has been one or the fact that there has not. The consequences of that being the correct interpretation of rule 36.19 seem to me to be as follows. If the court is told that there has been no payment in, then the court is free to exercise its discretion to award costs in relation to the preliminary issue and there is no difficulty with rule 44.3(4)(c). If however it is told that there has been a payment in, then, in any but perhaps the most exceptional case, I find it very difficult to think that there could be circumstances where if the issue of damages remains to be decided, the judge can do otherwise than to reserve the question of costs until after the determination of that issue."
"The position where there has been a split trial is not specifically addressed as it was under the forerunner of this provision and absent agreement under the present r.36.13(3)(c) a strictly literal interpretation of the phrase "until the case has been decided" would result in an embargo which might well result in the court being denied information material to deciding what order as to costs if any was appropriate at the split trial stage."
The claimant's Part 36 offer
(a) it has obtained permanent injunctions restraining infringement of trade marks X and Y, whereas the undertaking to the court in paragraph (1) of the offer was confined to the mark X;
(b) the injunctions restrain use of all six of the impugned signs whereas the undertaking in the offer was confined to use of only two of the impugned signs;
(c) the claimant has obtained an order for delivery up of any infringing items, whereas there is no such provision in the offer;
(d) the claimant is free to publicise the judgment itself, and has also obtained a publication order at the defendants' expense, whereas paragraph (5) of the offer provided that the parties' agreement would be confidential (subject to the exceptions therein mentioned); and
(e) the claimant also has the benefit of a certificate of contested validity in respect of trade mark Z. The advantage of this appears from section 73(2) of the Trade Marks Act 1994, which provides as follows:
"(2) If the court gives such a certificate and in subsequent proceedings
(a) the validity of the registration is again questioned, and
(b) the proprietor obtains a final order or judgment in his favour,
he is entitled to his costs as between solicitor and client unless the court directs otherwise."
"In a simple case this rule raises no problem, but more complex cases may arise in which it is necessary to investigate with some care who is really the winner and who is really the loser or, as it is sometimes put, to identify the event which costs are to follow."
He then referred to the general rule that a plaintiff who failed at trial to beat a payment in would be ordered to pay the defendant's costs from the date of the payment, and after reviewing a number of authorities continued as follows at 168:
"The upshot of these cases is in my judgment clear. The judge must look closely at the facts of the particular case before him and ask: who, as a matter of substance and reality, has won? Has the plaintiff won anything of value which he could not have won without fighting the action through to a finish? Has the defendant substantially denied the plaintiff the prize which the plaintiff fought the action to win?"
"That authority concerned two actions, one for passing off and one for infringement of trade marks. In accordance with the established practice in intellectual property cases of that kind, a two-stage procedure was adopted. At the first stage the plaintiff sought to establish his right to relief. If he succeeded, an injunction would be granted and an inquiry as to damages would be ordered (unless damages were accepted as nominal). The second stage, if the plaintiff succeeded at the first and claimed more than nominal damages, would be the inquiry into the quantum of damages. The issue in the case as reported arose because the defendant, unsuccessful at the first stage, resisted an application by the plaintiff for the costs thus far: the defendant argued that, as there was a payment into court of undisclosed amount, and as it could not be known until after the inquiry whether the plaintiff had recovered more or less than the sum paid in, costs should be reserved until the outcome of the inquiry was known. The judge rejected that argument and awarded the plaintiff its costs of the first stage. He did so because of the established practice in such cases, because a plaintiff was entitled to come to court to establish his right and his claim to an injunction irrespective of any payment into court and because a separate hearing for the assessment of damages was throughout contemplated.
I do not doubt the correctness of this decision on its facts. But procedurally it was far from the present case, in which there was no question of the plaintiff's right to relief being determined in one proceeding and his claim to damages in another. Although the damages were a matter for the jury and the injunction (if the jury found for the plaintiff) was a matter for the judge, both matters were to be determined at the end of a single trial. This procedure in intellectual property cases has never applied in defamation cases. In my judgment the learned judge in this case paid much more attention than he should have done to the reasoning of Falconer J in a case which was by no means analogous."
"The usual procedure in [the] Chancery Division in such a case is, of course, for the plaintiff to establish his right and his entitlement to an injunction against the defendant who has infringed that right in the trial of the action, leaving any claim as to damages to be dealt with in an inquiry as to damages the costs of the action being dealt with in the order made upon judgment in the action and the costs of the inquiry being reserved to the inquiry so that the plaintiff prosecutes the inquiry at his own risk "
"(3) The high point of the plaintiff's argument on costs was, and remains, that in obtaining the injunction he had obtained more than what was expressly offered to him in the proceedings. There had been no equivalent of a Calderbank letter [i.e. a letter written without prejudice save as to costs]. Accordingly he should be regarded as the victor and held entitled to recover his costs.
(4) In my judgment, however, that is to take an altogether too simplistic view of success in this litigation. For the plaintiff to be entitled to recover his costs in this or any other litigation he must show at least that he has obtained at the hearing something of value which he could not otherwise have expected to get. Only that justifies his proceeding with the action to trial. That I conclude is the test to be applied.
(6) It is, I think, necessary to be a little wary about how precisely one determines which party in proceedings is successful. In the first place it is important to adopt an approach which does not dilute the important certainties inherent in the payment-in machinery Secondly, it seems to me important to recognise that on occasion it will be impossible to regard either party as the substantial winner
(7) [The plaintiff] got nothing from the hearing that was not in any event obviously available to him. Not only, therefore, should he not have been awarded his costs; he had no answer to the defendants' application for their costs since the date of payment in."
The defendants' Part 36 offer
"Civil litigation is now developing into a system designed to enable the parties involved to know where they stand in reality at the earliest possible stage, and at the lowest practicable cost, so that they may make informed decisions about their prospects and the sensible conduct of their cases. Among other factors the judge exercising his discretion about costs should consider is whether one side or the other has, or has not, conducted litigation with those principles in mind."
"The principle to which Judge LJ referred as to the parties conducting their litigation making full and proper disclosure is even more important now that [the CPR] have come into force. Under the CPR it is possible for the parties to make offers to settle before litigation commences. As to the disclosure required in relation to that procedure, protocols in specific areas of litigation make express provision. Even where there is no express provision contained in a relevant protocol which applies to the particular litigation, the approach reflected in the protocols should be adopted by parties generally in the conduct of their litigation.
If the process of making Part 36 offers before the commencement of litigation is to work in the way which the CPR intend, the parties must be provided with the information which they require in order to assess whether to make an offer or whether to accept that offer. Where offers are not accepted, the CPR make provision as to what are to be the cost consequences Both those rules deal with the usual consequences of not accepting an offer which, when judged in the light of the litigation, should have been accepted.
I also draw attention to the fact that the rules refer to the power of the court to make other orders and make it clear that the normal consequence does not apply when it is unjust that it should do so. If a party has not enabled another party to properly assess whether or not to make an offer, or whether or not to accept an offer which is made, because of non-disclosure to the other party of material matters, or if a party comes to a decision which is different from that which would have been reached if there had been proper disclosure, that is a material matter for a court to take into account in considering what orders it should make. This is of particular significance so far as defendants are concerned because of the power of the court to order addition interest in situations where an offer by a claimant is not accepted by a defendant. We have to move away from the situation where litigation is conducted in a manner which means that another party cannot take those precautions to protect his or her position which the rules intend them to have."
The costs up to 19 August 2010