The effect of a Calderbank offer on an order for costs was considered in the recent appeal in the case of Coward v Phaestos [2014] EWCA Civ 1256 with comparisons being made between this type of offer and those made pursuant to CPR Part 36.  The effect of CPR 44 on offers of settlement was also considered.

The case concerned an order for costs made at the end of litigation relating to intellectual property. The Claimant and his wife had set up a business in 1983 and the Claimant had written and developed the software on which the business was based.  The couple separated in 2009, after which the Claimant set up his own, competing, company and each side alleged that it owned the copyright to the software.

The case ran to a 12 day trial, with the Claimant being unsuccessful and the judge holding that the software and databases used by IKOS were not the subject of any copyright or database rights owned by the Claimant and IKOS was entitled to use, maintain and update the software and databases without the Claimant’s consent. The Defendants were successful in other, but not all, elements of their counterclaim and were therefore adjudged to be largely the successful party.  The Claimant had incurred costs of £6 million and the Defendant £13 million.

The main grounds for the Claimant’s appeal were that, in a Calderbank offer made by him in a without prejudice letter dated 30 July 2012, IKOS was offered substantially all that it achieved at trial and therefore, pursuant to CPR 44.2, it should pay the Claimant’s costs incurred since the date of that offer.  At first instance the judge accepted IKOS’ submissions that the offer was not one which could have been accepted in July 2012 without further clarification and addition.  He therefore found that IKOS had done significantly better at trial and awarded it the majority of the costs of proceedings, with the Claimant being awarded the costs of the parts of the counterclaim which were not pursued by the Defendants, thereby reducing IKOS’ recoverable costs by 15%.

The Claimant, who brought the appeal, submitted that the judge had been wrong not to order IKOS to pay his costs from the date of the Calderbank offer or at least that each party should bear its own costs.  The Defendants, in response, submitted that they did not have to show that they had achieved substantially more at trial, merely that it had achieved something more and that the principles set out in CPR 36.14A should be applied.

In reaching its decision to dismiss the appeal the court first considered the first instance judge’s assessment of each of the points of difference between the Calderbank offer and what the Defendants achieved at trial.  It then looked at the overall result, in each case having regard to the errors in principle to which the Appellant had referred.

Having reached its conclusion, the court went on to consider whether or not Part 36 was relevant. The Appellant had submitted that, where an offer to settle had been made, the approach – whether that offer had been made under Part 36 or in Calderbank terms – should be the same.  The court, however, found that whilst Part 36 was very prescriptive in its terms, the court was allowed a wide discretion under CPR 44.  For example, notwithstanding the fact that the general rule is that the unsuccessful party pays the costs of the successful party, by virtue of CPR 44.2(2), the court may make a different order and indeed must “have regard to all the circumstances” (CPR 44.2(4)).

Mr Justice David Richards then referred to the judgment in Gibbon v Manchester City Council [2010] 1 WLR 2081, [2010] EWCA Civ 726 in which Moore-Bick LJ said (at paragraph 4):

“….In seeking to settle the proceedings….the parties are not bound to make use of the mechanism provided by Part 36, but if they wish to take advantage of the particular consequences for costs and other matters that flow from making a Part 36 offer, in relation to which the court’s discretion is much more confined, they must follow its requirements.”

He also referred to Jackson LJ’s comments in Fox v Foundation Piling Ltd [2011] EWCA Civ 790 that:

“…parties are quite entitled to make Calderbank offers outside the framework of Part 36. Where a party makes such an offer and then achieves a more advantageous result, the court’s discretion is wider.  Nevertheless it may well be appropriate to order the party which has optimistically rejected the Calderbank offer to pay all costs since the date when than offer expired.”

Mr Justice David Richards finished by saying:

“….I am satisfied that it would be contrary to the express terms of Part 44 to read across into it a rigid approach drawn by analogy from CPR 36.14(1A). This conclusion does not, however, affect the outcome of this appeal which is, in my judgment, that it should be dismissed.”

In short, then, rules which apply to Part 36 offers do not necessarily apply to Calderbank offers (or indeed any other types of offer).  In these cases the court has a wider discretion and there is inevitably more uncertainty.  It therefore cannot be taken for granted that, where an offer which falls outside of the Part 36 regime is beaten at trial, the party making that offer will be awarded their costs from the date of expiry.  That said, as Jackson LJ stated above, it may sometimes be appropriate to make such an award when all the circumstances of the case are considered.