Costs - Construction disputes - Mediation - Part 36 offers

Rolf v De Guerin: CA (Civ Div) (Lords Justices Rix, Elias, Tomlinson): 9 February 2011

The appellant (R) appealed against an order that she pay the costs of the respondent (G) from the expiry of the time for accepting R’s Civil Procedure Rules part 36 offer to settle a building dispute.

R had employed G to carry out improvement works to her home.

Before completion of the works the relationship broke down, particularly as a result of the behaviour of R’s husband, and G left the site. R instructed other builders to finish the work, and claimed damages from G for defective work.

G in his defence claimed that the contract was not with him personally, but with his company, and that R had failed to pay contractual instalments.

R wrote two letters suggesting settlement negotiations, followed by a CPR part 36 offer to settle, which included a suggestion for mediation.

Despite last-minute attempts, no settlement was reached. The trial judge rejected G’s defence that the contract was with his company, but accepted that R had repudiated the contract, which G had accepted.

The judge dismissed R’s claim save in respect of one defect, and awarded damages that were far less than she had claimed, and less than her part 36 offer.

The judge considered that G had been right not to accept the part 36 offer. He ordered no order for costs up to the expiry of the period for acceptance of that offer, but ordered that R pay G’s costs thereafter.

Held: (1) The judge had erred fundamentally in his appreciation of the significance of R’s part 36 offer.

There was nothing in the part 36 procedure which stated that an offeror was to be prejudiced as to costs because she had expressed her willingness to accept less than his formal claim.

The requirement in rule 44.3(4)(c) of the CPR, that in deciding what costs order to make the court had to have regard to all the circumstances including an offer to settle which was not a part 36 offer, would make no sense if the offer to settle were to be held against the offeror (see paragraphs 34-35 of judgment).

A willingness to accept less than the formal claim, when the size of that formal claim had already been taken into account for the purposes of a ruling of no order for costs, could hardly be a reason for penalising the offeror thereafter (paragraph36).

(2) Exercising the costs discretion afresh, an order for no order for costs did substantial justice between the parties.

The following factors were relevant: (a) R was the winner, but only just; (b) on an issues-based approach, R had failed on the issue of repudiation and on two out of the three main allegations of defective work, but succeeded on the issue of contracting parties, which took a substantial amount of time at trial;

(c) the issue of repudiation had been unpleaded and it was unlikely that G would have succeeded on his pleaded ground on its own;

(d) G’s rejection of R’s offers to enter into settlement negotiations or mediation were unreasonable and were conduct that ought to be taken into account under rule 44.4 of the CPR, particularly in a small building dispute between a householder and a small builder, which was well recognised as the type of case in which trial should be regarded as a solution of last resort, and for which mediation was particularly appropriate, Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, [2004] 1 WLR 3002 and Burchell v Bullard [2005] EWCA Civ 358, [2005] CP Rep 36 applied (paragraphs 44, 46, 48).

Appeal allowed.

W Pringle (instructed by Bennett Welch) for the appellant; in person for the respondent.