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Costs and Offers to Settle

Jun 7, 2012

Judge Birss QC ruled upon the all important issue of costs in Beechwood House Publishing Ltd (t/a Binleys) v Guardian Products Ltd and another [2012] EWPCC 8 (“Beechwood”). The main action concerned infringement of database right. As a result of seed data in its database, Beechwood discovered that the Defendants were using its data.  

In all cases, parties are encouraged to make offers to settle their dispute in order to avoid costly litigation. The general rule is that if an offer is made and not accepted, and the party who made that offer is later awarded an amount equal to or more than their offer, the party who rejected the offer will be penalised in costs by the presiding Judge.  

Part 36 of the Civil Procedure Rules specifically deals with the consequences if a Defendant does not accept a Claimant's offer to settle and the Claimant later goes on to obtain a judgment that is equal to or more advantageous than its offer. In those circumstances, the court has the discretion to penalise the Defendant with respect to costs by awarding the Defendant to pay the Claimant’s costs on the indemnity basis (effectively meaning nearly all total costs incurred), interest on the whole sum awarded, or alternatively costs on the standard basis with interest on those costs. This principle encourages parties to settle matters to avoid costly litigation and the use of court time.  

In the recent decision in Beechwood, Judge Birss QC was (somewhat strangely) presented with costs being sole issue remaining between the parties. By way of background, the Defendant had been found liable for design right infringement following the liability trial. The parties had then agreed the damages figure and therefore there had not been a judgment by the court in respect of the damages.   J

udge Birss QC was asked to rule upon the effect of a Part 36 offer where the damages agreed were greater than that which the Claimant had offered in the Part 36 offer. The question was whether the Claimant was entitled to the costs consequences under CPR 36.14.  

The Claimant argued that surely they should get some recognition that they had received more damages than they had been willing to accept at the outset. Judge Birss QC agreed with this argument and took into account “all the circumstances”, including that the Claimant had fought a trial on liability and won, and had obtained a settlement that was more advantageous than its Part 36 offer. He therefore ordered the Defendants pay 90% of the Claimant's costs up to the trial on liability, to be assessed on the standard basis. This decision is the first to confirm that, where there is a split trial (as is usually the case in Patent County Court) and the court has decided liability but the parties have settled before the quantum trial, CPR 36.14 will not apply.  

Another interesting aspect of this decision is that the Judge did not go as far as to award indemnity costs to the Claimant. An award of indemnity costs would have meant the Claimant would have recovered all, or nearly all of their outlay in the litigation. The Judge’s justification for not making such an award was that although the Claimant was reasonable in rejecting some of the Defendants' offers to settle, there had been a “fine balance” on at least two occasions. This demonstrates a great importance upon “pitching” an offer to settle to the other side, as it can have great costs consequences later.  

The circumstances in this case were unusual. Although the parties were able to agree to settle the damages, they were not able to agree on costs. They therefore sought the courts guidance on that issue, which is something the courts do not usually encourage.  It should be noted that this case was issued prior to the new Patents County Court regime which caps the costs that can be recovered, and therefore the cap was not considered in this case.