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Cite as: [2014] 4 Costs LO 592, [2014] EWCA Civ 556

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Neutral Citation Number: [2014] EWCA Civ 556
Case No: B2/2013/1428

His Honour Judge Harris QC
Claim No: 9MK03135

Royal Courts of Justice
Strand, London, WC2A 2LL

B e f o r e :



- and -



Mr Joshua Munro (instructed under the Direct Access Scheme) for the Appellant
Mr Piers Hill (instructed by Geoffrey Leaver Solicitors LLP) for the Respondent
Hearing date: 22 January 2014



Crown Copyright ©

    Lord Justice Rimer :


  1. This appeal, brought with the permission of Kitchin LJ, is by the claimant, Pasha Saigol, against paragraph 4 of the order made by His Honour Judge Harris QC in Oxford County Court on 1 February 2013 following the trial of Mr Saigol's claim for damages against the defendant/respondent Thorney Limited (t/a Thorney Motorsport) ('Thorney').
  2. By paragraph 1 of his order, the judge entered judgment (i) for Mr Saigol against Thorney for 745 on his claim; and (ii) for Thorney against Mr Saigol for 375 on its counterclaim. By paragraph 2, he recorded that Thorney was entitled to set the 375 off against the 745 and ordered Thorney to pay Mr Saigol the balance of 370. By paragraph 3, he ordered Thorney to pay Mr Saigol's costs of some injunction proceedings. By paragraph 4 (that under challenge), he ordered Mr Saigol to pay Thorney's costs of the claim from 1 April 2012, to be assessed on the standard basis. Paragraph 5 provided that otherwise there was to be no order as to costs.
  3. The ground of challenge to paragraph 4 is that the judge is said to have wrongly treated a settlement offer made by Thorney on 8 March 2012 as a CPR Part 36 offer that had remained open for 21 days, whereas it was not such an offer, it was open only for just over 22 hours and Mr Saigol had had no time to consider it before it lapsed. It is said that the judge failed to take these considerations into account when making his order as to costs with the consequence that his exercise of discretion in relation to costs was flawed.
  4. Thorney's response is that the appeal is mistaken. It asserts that the judge knew it was not a Part 36 offer and that it was he who proposed and ordered that Thorney should be entitled to its costs from 1 April 2012 (which was 23 days from the offer). He is said to have made a proper and informed exercise of discretion.
  5. The background

  6. There is no need to detail the substantive issues that led to the trial, but in outline the story was as follows.
  7. In 2008, Mr Saigol bought a 20-year old BMW saloon that he intended to race. Thorney specialises in tuning BMW and Vauxhall cars and prepares them for races. Mr Saigol took his BMW to Thorney to have it converted into a car fit for racing. He had a meeting in August 2008 with Mr Thorne (of Thorney) at which they discussed what was to be done, following which Thorney commenced the work. Upon its completion, however, Thorney refused to return the car to Mr Saigol unless he paid him a sum above that which Mr Saigol claimed was agreed. Mr Saigol did not pay it. Thorney then advertised the car for sale.
  8. That led to Mr Saigol, then acting in person, issuing a claim form on 30 October 2009 asking for the return of his car and claiming 'expenses' of 2,230. On 3 November 2009, he obtained an interim injunction restraining Thorney from selling the car. Thorney defended the proceedings, originally acting by Mr Thorne in person. By autumn 2011, Mr Saigol was represented by solicitors, Taylor Walton, who prepared amended particulars of claim, and Thorney retained Geoffrey Leaver Solicitors LLP ('Geoffrey Leaver'), who served an amended defence and counterclaim. In addition to claiming the return of the car, Mr Saigol claimed damages for breach of contract; and Thorney counterclaimed for payment of the sum it said was still due.
  9. On 7 March 2012, there was an unsuccessful mediation. It was attended on Mr Saigol's behalf by Taylor Walton and his mother. Thorney was represented by Geoffrey Leaver. A case management conference ('CMC') was due to be held at 3 pm on the following day, 8 March.
  10. At 1.48 pm on 8 March, Thorney's solicitors, Geoffrey Leaver, emailed to Mr Saigol's solicitors, Taylor Walton, an open, four-page offer letter. It referred to the CMC listed for 3.00 pm that afternoon. It referred to the unsuccessful mediation held the previous day. It asserted Thorney's confidence in its case and said that, if the offer it made was not accepted, Thorney would proceed with its claim. It said the offer was made out of commercial considerations.
  11. The offer was as follows:
  12. '1. The Car is to be released to your client free from all and any liens and claims by our client upon our client acknowledging receipt of the sealed consent order recording these terms;
    2. Our client will pay to your client, without any admission of liability or wrongdoing, the sum of 2,000 within 14 days from the date of a sealed consent order recording these terms;
    3. These terms are in full and final settlement of all disputes that either party has against the other; and
    4. Each party is to pay their own costs.
    We are instructed that this offer shall remain open to be accepted until 12 noon on Friday 9 March 2012, following which it will lapse without further notice. This is to reflect the commercial reality that our client will at this stage need to incur further expense in these proceedings.'
  13. The letter continued by identifying the issues in the litigation and raising proposals as to how questions relating to the adducing of expert evidence were to be resolved.
  14. The CMC took place, attended by Taylor Walton for Mr Saigol and Geoffrey Leaver for Thorney.
  15. Thorney's offer was not accepted and lapsed. The trial took place over 17 and 18 January 2013. Judgment was reserved and delivered orally on 1 February 2013. The judge held Thorney liable to pay Mr Saigol damages of 745 for the cost of racing days he had been unable to attend and for the wear and tear to the car consequential upon Thorney allowing it to be raced. He found Mr Saigol liable to pay Thorney 15,750 by way of the price for the work done, of which he had already paid 14,200, leaving a balance of 1,550 still due. As to that, the judge deducted 1,175 for poor workmanship and so awarded Thorney only 375. He applied the set off referred to in [2] above, resulting in the order for the payment by Thorney to Mr Saigol of damages of 370.
  16. At the conclusion of his judgment, and before hearing argument on costs, the judge said this:
  17. '27. I will hear the parties on costs, but at present I am not disposed to make any order save that [Mr Saigol] should have his costs of the original injunction hearing. Thereafter his claim was largely misconceived. As to [Mr Thorne], he was wrongly asking [Mr Saigol] for sums to which I have found that he was not entitled, and holding on to his car because he would not pay them. Had he asked for a few hundred pounds extra rather than 5,000 or more, no doubt [Mr Saigol] would have paid.'

    The argument before the judge as to costs

  18. Mr Saigol did not attend the hearing on 1 February: he was represented by his mother. Mr Hill represented Thorney, as before us. We have an approved transcript of the judge's judgment, which is followed by a transcript of the argument as to costs. I must summarise the material parts that relate to that argument.
  19. The judge said first that either Mr Saigol or his mother had produced a costs schedule running to 67,000. Mr Hill told the judge that Thorney's costs were 77,000 and indicated his wish to make submissions on costs. He referred to the March 2012 offer as having been a 'without prejudice' offer of 2,000 (in fact it was not a 'without prejudice' offer, it was stated to be an open one), he handed the judge a copy of the letter and told him it was dated 8 March. The judge asked whether Thorney was asking for its costs after that offer. Mr Hill said it was and that they were substantial. He said there was a CMC listed for that or the next day, which is why the offer was only open until the CMC. That too was wrong: the offer was open until 12 noon on 9 March, that is for just over 22 hours.
  20. The judge turned to Mrs Saigol and summarised the significance of the offer. He said the outcome of the litigation was that it was substantially a draw. Although Thorney was going to have to pay Mr Saigol 370, Thorney had offered Mr Saigol 2,000 in March 2012, the offer was not accepted and the outcome was that Mr Saigol had only recovered 370. The judge said that the 'normal consequence' was that Mr Saigol should pay Thorney's reasonable costs from the offer date. He then indicated to Mrs Saigol that he was thinking of making an order that Mr Saigol should pay Thorney's costs 'after March 2012' (my emphasis), although he was disposed to order Thorney to pay the costs of the injunction proceedings.
  21. Mrs Saigol responded that she had offered 2,000 at the mediation on 7 March 2012, which Thorney had rejected. The judge correctly understood her as meaning that she had asked for 2,000. She said Thorney had countered with an offer of 1,000 at about 7pm or 8pm that evening, which it is implicit she rejected. She agreed she had probably seen the offer letter of 8 March. She said that, at the end of the mediation, she said 'How about this: give us the car back, drop the figure gives 2,000,' 'No.'
  22. The judge asked why, if that was Mr Saigol's position at the end of 7 March, he did not accept the offer that Thorney's solicitors made the following day. Her explanation was that on 8 March Mr Saigol was represented by Taylor Walton and counsel at the CMC, at which she was not present. She said the offer letter was produced at court and Taylor Walton rejected the offer. Mrs Saigol appears to have agreed that they had properly rejected it, her reason being 'because we had then increased our costs, and then had to pay a barrister and a solicitor, I think, so it had somewhat changed.' She recognised that, by the offer, Thorney was proposing the same terms of settlement as those it had refused the evening before, but her position was that by the time Thorney made that offer:
  23. ' we'd instructed counsel and solicitors, so the figures had changed. I mean they could have if they had intended to settle, they could have done it at the mediation.'

    I add that I understand that the offer was not rejected by Taylor Walton at the hearing of the CMC; it was simply allowed to lapse.

  24. The discussion before the judge moved on to unrelated matters, after which there was this exchange:
  25. 'His Honour Judge Harris QC : Now, as to costs, [Thorney] will pay [Mr Saigol's] costs of the injunction hearing of and incidental to the injunction hearing, such costs to be taxed if not agreed. [Mr Saigol] will pay [Thorney's] costs from would it be right to say 21 days from 8th March, Mr Hill is it 14 days or 21 days?
    Mr Hill : Usually it's 21 days for a Part 36 offer, although that offer itself
    His Honour Judge Harris QC : Well, shall we say [Thorney's] costs from 1st April 2012, to be taxed if not agreed. Otherwise no order as to costs. Right. Well, this case is really an object lesson in unfortunate litigation, but there we are. Thank you both for your assistance.'

    The judge then had a short exchange with Mrs Saigol, explaining his costs order, which he concluded by saying:

    'His Honour Judge Harris QC : Thereafter, there will be no order for costs, save that you or your son must pay [Thorney's] costs from 1st April 2012, to be taxed if not agreed. That is because you didn't accept the offer of 2,000 and you haven't done better than that. I'll rise now.'

    The appeal

  26. Mr Munro's submissions included the following points. He said the judge failed to recognise, or take into account, that the offer lapsed within 24 hours: that was because he was not shown the part of the letter which explained that, which was on the bottom of the first page. He said Mr Saigol had had no time to consider the letter properly. He was in hospital at the time and did not even read the letter before the offer expired.
  27. He said also that the judge had erred in principle because, in his observations to Mrs Saigol, he said there was a 'normal consequence' of failing to beat the offer of 8 March 2012, namely the costs consequence he explained to her. The inference is that the judge had wrongly understood the offer to have been a Part 36 offer. The same inference was supported by the judge's inquiry of Mr Hill as to whether the time from which the costs should run was 14 or 21 days after the offer: that also suggested that he had in mind that the offer was a Part 36 offer.
  28. Mr Munro reminded us of the Part 36 code. Part 36.14(2) provides that if a Part 36 offer is not beaten, the court will, unless it considers it unjust, order that the defendant is entitled to his costs from the date on which the relevant period has expired and interest on those costs. Part 36 is a self-contained code. The offer in this case was, however, not a Part 36 offer and so the failure to accept it carried no such 'normal consequence' as the judge had explained to Mrs Saigol. Mr Munro accepted that the offer was a matter that the judge would have to take into account when exercising his discretion as to costs. But its effect went no further than that. As to the offer itself, it was emailed to Taylor Walton on 8 March 2012 at 13.48 and so was open for less than 24 hours. The letter was, he said, long and complicated.
  29. Mr Munro referred us to Trustees of Stokes Pension Fund v. Western Power Distribution (South West) plc [2005] 1 WLR 3595. Dyson LJ, at [24], identified four conditions that should be satisfied if an offer was to be treated as having the same effect as a payment into court, which is effectively what the judge had done. One condition was that the offer should be open for acceptance for at least 21 days, whereas Thorney's offer was not. In French v. Groupama Insurance Company Ltd [2011] 4 Costs LR 547, Rix LJ said, at [49], that 'the general requirement [is] that offers should be open for a sufficient period for consideration.' Mr Munro said the offer of 8 March satisfied neither condition. He said it followed that no judge could reasonably have concluded that it afforded Thorney the costs protection that it sought and obtained. In making the paragraph 4 order he did, the judge therefore erred in principle and this court should set his order aside and re-consider the appropriate costs order itself.
  30. Mr Munro accepted that in doing so the court could, and should, take the offer into account. He also explained that Thorney had made two Part 36 offers: on 10 March 2011 (seeking a payment of 9,248 from Mr Saigol), an offer made a year before that of 8 March 2011; and on 8 October 2012 (seeking 4,000), an offer made seven months later. Mr Saigol beat both offers, achieving a net recovery at trial of 370. Although the judge should have been referred to them, he was not and so he had no regard to them when making his costs order.
  31. The order that Mr Munro invited us to make was, in substance, to delete paragraph 4 of the judge's order, so that, apart from the injunction costs, the parties would be left to bear their own costs. That was the order the judge indicated he was disposed to make before he was told about the offer of 8 March. Mr Munro pointed out that Mr Saigol was the successful party at the trial and that the starting point for the judge's consideration as to the appropriate costs order should have been that Mr Saigol should have his costs (see Part 44.2(2)(a)). He added that Thorney's conduct of the proceedings was unsatisfactory and pointed out that it had abandoned large parts of its counterclaim and had given unsatisfactory evidence. He did not, however, suggest that this was a case in which Mr Saigol should have recovered his costs of the claim. He said it was one which should have been settled at or shortly after the mediation. Instead, the parties failed to negotiate on a reasonable basis and the time-limited offer in the letter of 8 March was apparently a tactical ploy.
  32. For Thorney, Mr Hill said the appeal had been presented on a mistaken basis. The judge was clearly told of the limited time for the acceptance of the offer. That is a reference to his explanation to the judge, summarised in [16] above, that the offer was open for acceptance until the CMC which was listed for that day or the next. Whilst that explanation to the judge was inaccurate, it at least indicated that the offer was only open for acceptance for a limited time (in fact, about 22 hours).
  33. Second, he submitted that the judge knew it was not a Part 36 offer. This was made clear to him in the exchange referred to at [20] above. Although the judge cut off Mr Hill's full intended reply, it is plain that Mr Hill was making clear that the offer was not a Part 36 offer and that the usual rule did not apply. The date the judge chose was neither 21 days from the offer letter nor 21 days from the time for its acceptance: it was a date chosen by the judge which was just over 21 days from both dates and so was an essentially arbitrary date. Although the judge had, at the beginning of his discussion with Mrs Saigol, referred to the 'normal consequence' of the non-acceptance of the offer as being that Mr Saigol should pay the costs of the other party from the offer date, he could well have meant no more than that he would normally exercise his discretion by making such an order.
  34. Third, he submitted that a party such as Thorney, which had sought to avoid the build-up of costs by offering a 'walk away' from a case in which neither party was destined to succeed to any material extent can reasonably expect to have its costs paid in the event that the outcome of the litigation is in the nature of a draw.
  35. Fourth, Mr Hill said Thorney could not be criticised for not making the 8 March offer a Part 36 offer. Had it been such an offer, and had Mr Saigol accepted it, Mr Saigol would have been entitled to his costs of the claim down to the date of acceptance, whereas the consequences of the eventual judgment was, as the judge considered, that (injunction proceedings apart) the just order was no order.
  36. Discussion and conclusion

  37. Whilst I make clear that I do not regard Mr Hill as having misled the judge as to the nature of the offer of 8 March 2012, I am satisfied that the judge did in fact misunderstand its nature. It is not apparent from the transcript that the judge read the offer letter in detail, or even to any extent at all. His prompt response on being told of the offer and handed a copy of the letter was to inform Mrs Saigol that the 'normal consequence' of the failure to accept the offer was that Mr Saigol should pay Thorney's costs from the date of the offer, although he then said he was minded to order him to pay such costs 'after March 2012', which literally meant, or can be read as meaning, costs incurred in and after April 2012. Then, at the closing exchange with Mr Hill, he asked him whether the period after which Mr Saigol should pay Thorney's costs was 14 or 21 days. Mr Hill replied that with a Part 36 offer it was 'usually 21 days' whilst going on to say 'although [Thorney's] offer ', whereupon the judge cut him short and suggested that the costs be paid as from 1 April 2012.
  38. In my view, the inference from the combination of the matters to which I have just referred is that the judge did regard the offer as a Part 36 offer. That is the only rational explanation of his statement to Mrs Saigol that the omission to accept or beat the offer carried a 'normal consequence' and of his inquiry of Mr Hill at the conclusion of the exchange as to the period at the end of which Mr Saigol should pay Thorney's costs. If the judge had been aware that the offer was not a Part 36 offer, he would have known that the omission to accept the offer carried no 'normal consequence' and that there was no usual period of days after which costs would fall to be paid by Mr Saigol. In such circumstances, he would have known that the making of the offer, and Mr Saigol's omission to accept it, was merely a factor to take into account in deciding the fair order as to costs. Nothing that the judge said in the course of the relevant exchange indicates that he understood this.
  39. In my view, therefore, when making his costs decision the judge took into account a consideration that he should not have done, namely that the offer of 8 March 2012 was a Part 36 offer. His doing so necessarily resulted in his decision as to costs being materially flawed. I regard it as also difficult to believe that his decision was not additionally influenced by Mrs Saigol's improper reference to the 'without prejudice' negotiations that had taken place at the mediation, from which the judge learnt that she had indicated a willingness to settle the case for a payment by Thorney of 2,000. The judge should not have been told about that, but he was. He should, having been told of it, have put it out of his consideration, but I regard it as likely that it can only have reinforced his view that Mr Saigol's refusal to accept the very same sum that he had, via Mrs Saigol, been proposing on 7 March 2012 was folly that merited being reflected in the adverse costs order that he made.
  40. In my judgment, therefore, the judge's costs order in paragraph 4, by which he ordered Mr Saigol to pay Thorney's costs from 1 April 2012, was made in error and must be set aside. This court is therefore left with the choice of either remitting the case to the judge for him to re-consider the appropriate order, or else to make the decision itself. In my view, to adopt the former course would be to cause a disproportionate level of costs to be incurred. I consider that this court is in a position to make the assessment itself and that it would be in the parties' interests that it should. Neither counsel urged that the question of costs should be remitted to the county court.
  41. As to the right order to make, I consider that Mr Munro was correct that Mr Saigol was the successful party at the trial and that the starting point as regards the appropriate order as to costs was that he should have his costs of the claim, although of course that is not also the finishing point, and the court may make a different order: see Part 44.2(2). In this case, the judge's instinct before he knew anything about any offers was that, save in respect of Mr Saigol's successful injunction proceedings for which he should have his costs, there should be no order. He took that view because he regarded each side as having advanced financial claims of unjustified magnitude. Neither side made submissions to the judge to the effect that in that respect he was wrong. It was, however, relevant for the judge also to have regard to what offers were made to settle the proceedings, that is to say offers to which the judge could properly be referred, which did not include those advanced at the mediation.
  42. Those offers were (i) Thorney's Part 36 offer of 10 March 2011, in which it sought a payment of 9,248, on terms that if the offer was accepted within the relevant period Mr Saigol would pay Thorney's costs; (ii) Thorney's offer of 8 March 2012 to pay Mr Saigol 2,000 in satisfaction of all disputes, on terms that the litigation would then end with no order as to costs, an offer open for about 22 hours; and (iii) Thorney's Part 36 offer of 8 October 2012 that Mr Saigol should pay it 4,000 in full satisfaction of its claims, with the consequence that if the offer was accepted within the relevant period Mr Saigol would be liable for Thorney's costs up to the acceptance.
  43. In the event, none of the offers was accepted. Mr Saigol was, with hindsight, unwise not to accept the March 2012 2,000 offer, although it was open for acceptance for an unusually short period, which gave him very little time in which to consider it, and he did not accept it. Mr Saigol could of course thereafter have sought to negotiate further along the lines of the 2,000 offer, although an offer in like terms might not have continued to be open and there is no reason to believe any such negotiation would have resulted in a settlement. Moreover, by October 2012, Thorney's attitude had hardened substantially and, far from contemplating a payment to Mr Saigol to dispose of the litigation, it was proposing a substantial payment from him to do so. That offer superseded Thorney's offer of 8 March 2012.
  44. As it seems to me, neither side approached the settlement negotiations very sensibly. The curiously short period for acceptance of Thorney's 2,000 offer suggests to me that the offer was made for tactical reasons that are not obviously apparent. It does not appear to have represented Thorney's real assessment of the competing merits in the litigation, inasmuch as it was later superseded by their second Part 36 offer, which turned out, however, like their first Part 36 offer, to have reflected a material mis-assessment of the merits. The fact that the 8 March 2012 offer was open for such a short period also tells against its carrying a decisive weight in the disposition of the issue as to costs.
  45. As it seems to me, neither side deserves any credit for the attempts, or lack of them, to settle the litigation. In my judgment, it would, however, be unfair to hold the making of the unaccepted 22-hour 2,000 March 2012 offer against Mr Saigol and, in consequence, to visit upon him all the subsequent costs of the litigation. Thorney's prior and subsequent Part 36 offers suggest that they had no real interest in settling the litigation on sensible terms. There may, in March 2012, have been a fleeting window in which the case might and could have settled, but those who are really serious about achieving that do not make offers that are open for just 22 hours and should receive no credit for making offer that are so time-limited.
  46. The judge's assessment was that, the injunction costs apart, the right order as to costs was no order. In my judgment that would be the fair order to make, and I am not persuaded that the making of the various offers requires a different order to be made. It should also be noted that the 8 March 2012 letter offered no costs, whereas the judge considered that Mr Saigol was at least entitled to the costs of the injunction proceedings. As he was then acting in person, those costs, plus the 370 he recovered after trial, may still have fallen short of the 2,000 offered on 8 March 2012. But if they did, and by how much, is unknown. Those considerations also, in my view, serve to weaken the weight to be attached to the making of that offer in connection with the disposition of the issue as to the costs of the proceedings.
  47. I would allow Mr Saigol's appeal. I would set aside paragraphs 4 and 5 of the judge's order dated 1 February 2013, and substitute a new paragraph 4 providing 'Save as provided for in paragraph 3 there is no order as to costs'.
  48. Lord Justice McFarlane :

  49. I agree.
  50. Lord Justice Vos :

  51. I also agree.

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