Phaestos Ltd v Ho & Ors

Factual and Procedural Background

This case involved extended litigation lasting nearly four years between the Plaintiff, related to a hedge fund known as the IKOS hedge fund, and two Defendants who were computer experts engaged in constructing and operating computer systems for the hedge fund. The Defendants were summarily dismissed before Christmas 2008, leading to claims by the Plaintiff alleging breaches of contract related to the Defendants' failure to properly construct, maintain, or operate the computer systems and misuse of confidential information post-termination. The Defendants denied these allegations and counterclaimed for unpaid bonuses or profit shares. The claims on both sides involved eight-figure sums. The case was transferred to the Technology and Construction Court (TCC) in late 2011, with a trial initially set for January 2013. The presiding judge took over case management in early 2012, overseeing numerous applications related to security for costs, striking out, and disclosure.

In August 2012, the Plaintiff was found in breach of a court "unless" order concerning disclosure, prompting the Defendants to seek strike out of the claim and judgment on their counterclaim. Hearings took place on 16 and 24 August 2012, with judgment reserved on costs. During this period, the Defendants made a Part 36 settlement offer on 7 September 2012, which was clarified on 18 September 2012. Although the offer was not accepted within the 21-day relevant period, the Plaintiff accepted it on 9 November 2012, effectively settling the entire consolidated proceedings. The judge had been engaged with other matters and had not yet delivered a costs judgment relating to the August hearings. After receipt of submissions on costs and further correspondence, the judge prepared a costs judgment in November 2012.

Legal Issues Presented

1. Whether the court retains jurisdiction to determine costs issues that it had reserved for decision when a Part 36 offer settling the entire proceedings, including costs, has been accepted but not within the relevant period.
2. The proper application and interpretation of CPR Part 36 in relation to costs consequences following acceptance of a Part 36 offer after the relevant period.
3. Whether the court should proceed to summarily assess costs despite the settlement under Part 36.
4. The appropriate basis for costs assessment (standard basis versus indemnity basis) and the quantum of costs payable by the Plaintiff to the Defendants.

Arguments of the Parties

Appellant's Arguments (Plaintiff's Counsel)

• The Part 36 offer, once accepted, covers all costs incurred up to the date of acceptance, including those reserved for decision by the court, leaving no jurisdiction for the court to make further costs rulings.
• The court should not hand down a judgment on costs as the settlement disposes of all costs issues, including those arising from the August hearings.

Appellee's Arguments (Defendants' Counsel)

• The court retains jurisdiction to decide on costs issues it expressly reserved to itself, including summary assessments, even after settlement under Part 36.
• The general rule encouraging settlements under Part 36 does not exclude the court’s power to resolve specific costs questions that were reserved prior to settlement.
• The judge, having case managed the matter closely, is well placed to carry out a fair and expedient summary assessment of costs.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
C v D [2011] EWCA Civ 646	Requirement that Part 36 offers must not contain a time frame for expiry of acceptance.	Referenced by Plaintiff’s solicitors when querying the initial Part 36 offer’s validity.
Thewlis v Groupama Insurance Company Limited [2012] EWHC 3 (TCC)	Clarification on Part 36 offer procedural requirements.	Used to support the challenge to the initial Part 36 offer's expiry terms.
Gibbon v Manchester City Council [2010] 1 WLR 2081	Part 36 is a self-contained code with specific cost consequences and procedural requirements.	Guided the court’s interpretation of Part 36 offers and acceptance, emphasizing certainty and procedural clarity.
Kunaka v Barclays Bank Plc [2010] EWCA Civ 1035	Discretion to depart from strict Part 36 costs consequences in exceptional circumstances.	Discussed in relation to the court’s discretion in costs orders after late acceptance of Part 36 offers.
Lumb v Barry Hampsey [2011] EWHC 2808 (QB)	Test for whether it is unjust for one party to pay costs after expiry of relevant period under Part 36.	Considered in assessing the fairness of costs consequences following the late acceptance of the Part 36 offer.
Gurney Consulting Engineers v Gleeds Health Limited [2006] EWHC 536 (TCC)	Parties’ duty to promptly inform the court of settlements when judgment is reserved.	Used to underline the importance of timely communication to avoid wasting judicial resources.
HFC Bank Plc v HSBC Bank Plc	Duty of parties and legal advisers to inform the court immediately of developments that may make reserved judgment unnecessary.	Referred to support the court’s admonition regarding parties’ conduct in notifying settlement.

Court's Reasoning and Analysis

The court began by recognizing the validity of the Part 36 offer made by the Defendants and accepted by the Plaintiff, noting that although acceptance was outside the 21-day relevant period, the offer complied with CPR Part 36 requirements. The court examined the statutory framework of Part 36, emphasizing its nature as a self-contained code designed to encourage settlement with clear costs consequences.

It was acknowledged that Part 36.10 and 36.11 set out the costs consequences and procedural effects of acceptance, including the stay of proceedings and the court’s retained jurisdiction to enforce the offer’s terms and deal with costs questions. The court held that the jurisdiction to resolve costs reserved before settlement is not ousted by the Part 36 acceptance. This is consistent with the overriding objective and the court’s duty to manage proceedings efficiently.

The court found that the reserved costs issues, including summary assessment of costs incurred in the August hearings, fell within the scope of costs relating to the proceedings and thus remained for determination. The judge, having been closely involved in case management, was well placed to carry out a fair and reasonable summary assessment of costs.

In assessing the costs, the court considered the Defendants’ bills, the reasonableness of time spent, fee grades, and attendance at hearings. A reduction of approximately 20% was justified to reflect what a standard assessment would allow, resulting in a summary assessment of £86,000 payable by the Plaintiff to the Defendants on the standard basis.

The court also emphasized the importance of parties promptly informing the court of settlements when judgments are reserved to avoid wasting judicial resources, citing relevant authority. The failure to do so in this case led to unnecessary expenditure of the court’s time.

Holding and Implications

HOLDING: The court held that it retains jurisdiction to determine costs issues it had expressly reserved prior to settlement under Part 36, even where the Part 36 offer settling the entire proceedings has been accepted outside the relevant period. The court ordered, by way of summary assessment, that the Plaintiff pay the Defendants £86,000 on the standard basis within 14 days.

IMPLICATIONS: This decision confirms that acceptance of a Part 36 offer does not necessarily oust the court’s jurisdiction to decide reserved costs matters, reinforcing the court’s case management powers under CPR Part 36. It underscores the importance of timely communication to the court regarding settlements to conserve judicial resources. The ruling directly affects the parties by resolving outstanding costs disputes without setting new precedent beyond the interpretation and application of existing CPR Part 36 provisions.