A case in which £7m in legal costs were racked up over a dispute worth £904,000 is “an appalling state of affairs which brings no credit to modern commercial litigation”, a High Court judge declared yesterday.
Mr Justice Eder’s ruling also highlighted the “formidable obstacle” that a party has to climb to upset the usual consequences of failing to beat a part 36 offer.
He said the costs in Ted Baker Plc & Anor v AXA Insurance UK Plc & Ors  EWHC 4178 (Comm)  had “spiralled both in absolute terms and out of all proportion to the amount which was then in dispute”.
The trial had been in two parts, with part 1 establishing the defendants’ potential liability but part 2 then rejecting the claimants’ case. This ruling dealt mainly with the cost consequences of a series of part 36 offers made by the defendants and whether the fact that the claimants were successful in part 1 and on some elements of part 2 should change the usual order that would be made.
Adopting the observations of Briggs J in Smith v Trafford Housing Trust  EWHC 3320 , Eder J said that “where a claimant fails to beat a defendant’s part 36 offer, the court is, in effect, required to make the order specified with regard to costs and interest unless it considers it unjust to do so; and although there is no limit to the types of circumstances which may, in a particular case, make it unjust that the ordinary consequences set out in part 36.14 should follow, the burden of showing such injustice is a ‘formidable obstacle’”.
He continued: “It follows that the real question, in my view, is whether the claimants can show any relevant ‘injustice’ so as to displace the general rule, bearing fully in mind that the burden of doing so is a ‘formidable obstacle’.
“In this context and without seeking to lay down any hard and fast rules, it seems to me that where a claimant fails to ‘beat’ a part 36 offer made by a defendant, the mere fact that such defendant may fail on certain issues would not necessarily of itself make it ‘unjust’ to displace the general rule under part 36 and to require the claimant to pay the costs from the date on which the relevant period expired and interest on such costs under part 36.14(2).
“However, on the other hand… it seems to me that the fact that a defendant may make a part 36 offer does not give such defendant carte blanche to run any defence whatsoever so as to entitle such defendant necessarily to expect that the CPR part 36 consequences will automatically to apply to those issues on which such defendant lost.”
In this case he decided that it was unjust within the meaning of part 36 to require the claimants to pay the entirety of the costs of part 1. The central issue in part 1 concerned the proper construction of the successive insurance policies which could and should have been dealt with during a short trial of perhaps one or two days.
“Instead, the defendants pursued an approach which… left ‘no stone unturned’ and seemed to ignore all sense of proportionality.” As a result, the trial took an “inordinate” seven days.
Eder J ruled that the defendants should be entitled to only 25% of their costs of part 1. But the claimants did not overcome the “formidable obstacle” to reduce their liability in relation to part 2 of the case.