Mitchell & Ors v James & Ors

Factual and Procedural Background

This appeal concerns the applicability of CPR Part 36 relating to offers to settle in the context of an action brought by the Claimants for specific performance of an oral agreement. In July 1969, the Claimants, four partners in Company A, entered into an oral agreement with the First and Second Defendants, Mr. and Mrs. Defendant, whereby the Defendants would work in a garage business and share net profits equally with the Claimants. The business was incorporated as Company B, with shares issued solely to the Defendants, who signed blank transfers of shares in favor of the Claimants. The relationship broke down in July 1985, leading to proceedings commenced in March 1986. The Claimants sought a declaration of beneficial ownership of shares and other relief, while the Defendants denied the claim and counterclaimed. Company A was joined as a Third Party.

On 2 March 2000, the Claimants made a Part 36 Offer to Settle to the Defendants, proposing a compromise including payment by Company B to the Claimants, dismissal of the counterclaim, division of assets, and each party bearing their own costs with a 50% split of the Third Party’s costs. The offer was not accepted, and the action proceeded to trial, where the Claimants succeeded in principle. A subsequent order declared the Claimants entitled to 50 shares and dismissed the counterclaim.

At a costs hearing, the Claimants sought indemnity costs on the basis that the judgment was more advantageous than their Part 36 offer. The judge declined to order indemnity costs, directing costs to be assessed on the standard basis, and granted permission to appeal that decision.

Legal Issues Presented

1. Was the offer of 2 March 2000 a valid Part 36 offer?
2. If so, was the judgment more advantageous to the Claimants than their offer?
3. If so, should the court interfere with the exercise of discretion by the trial judge regarding costs?

Arguments of the Parties

Appellant's Arguments

• The Claimants argued that the judgment was more advantageous than their Part 36 offer when the costs order was taken into account, including an interim costs payment.
• They contended the trial judge erred in not considering costs in deciding whether the judgment was more advantageous, and that there was no injustice in awarding indemnity costs and interest under CPR 36.21.
• They requested the appellate court to exercise discretion afresh to order indemnity costs and interest from the date of the offer.

Respondent's Arguments

• The Defendants submitted that the offer did not comply with the formal requirements of CPR 36.5(6) and thus was not an effective Part 36 offer.
• They argued that the offer was inconsistent with the Part 36 scheme because it included a term as to costs, which should not be considered when determining if the judgment is more advantageous.
• They maintained that the Claimants did not beat their offer by the judgment and that the trial judge’s discretion should not be disturbed.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court analysed whether the 2 March 2000 offer constituted a valid Part 36 offer. It identified a technical non-compliance with CPR 36.5(6)(b) regarding the wording about acceptance after 21 days but considered this defect waivable given the Defendants had legal representation and no evidence of misunderstanding.

More substantively, the court examined the inclusion of a costs concession in the offer. It concluded that Part 36 did not contemplate terms as to costs being part of a Part 36 offer for the purpose of obtaining indemnity costs. The court reasoned that CPR 36.14 and related Practice Directions envisage costs consequences arising automatically upon acceptance without the need for such terms, and that the trial judge’s assessment of whether a judgment is more advantageous focuses on substantive outcomes rather than ancillary costs orders.

The court further noted the risk of abuse if costs terms were allowed in Part 36 offers, as claimants could demand full payment plus costs concessions to secure indemnity costs upon winning. The court emphasized the limited discretion under CPR 36.21 and the policy behind encouraging genuine compromise without manipulation of costs consequences.

Consequently, the court held that terms as to costs do not form part of a Part 36 offer and thus the costs term in the offer could not be considered in determining whether the judgment was more advantageous. Since the substantive terms of the offer were not beaten by the judgment, the issues of whether the judgment was more advantageous and whether to interfere with the judge’s discretion on costs did not arise.

Holding and Implications

The court DISMISSED the appeal.

The direct effect is that the Claimants’ Part 36 offer was not fully compliant due to the inclusion of a costs concession, which is not recognized as part of a valid Part 36 offer. The judgment was not more advantageous than the offer on substantive grounds alone, and the trial judge’s decision to award costs on the standard basis was upheld. No new precedent was established beyond clarifying that costs terms cannot be incorporated into Part 36 offers for the purpose of triggering indemnity costs under CPR 36.21.