Defendant incurs massive Part 36 costs order after paying nominal damages

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The defendant in a family property dispute has incurred costs of over £200,000 after settling the claim for nominal £10 damages. The case shows that the courts will make a costs order against the losing party if they reject a ‘genuine offer’ to settle under the ‘Part 36’ civil procedure rules.

The case of Shah v Shah involved a long running family dispute about the ownership of an apartment in Goa, India. The claimants initially succeeded in securing a consent order which required the defendants to transfer the ownership of the property to a company nominated by them.

The claimants then sued the defendants in the county court, claiming breach of that contract and seeking £30,000 in damages. Before the trial the claimants made a Part 36 offer to settle for £1, subject to the defendants being liable for both parties’ costs. The offer was rejected and the case went to trial.

In court the claimants were successful but were awarded nominal damages of £10. Under the Part 36 rules the losing party is liable for costs if the wining party beats their original offer to settle at trial. As the claimants had been awarded more than their offer of £1, the judge ordered the defendants to pay the costs.

The defendants appealed the costs order arguing that the claimants offer to settle for £1 had not been a ‘genuine offer’ as required by the Part 36 rules. The High Court judge dismissed the appeal and upheld the costs order.

Writing in litigation notes, Erica Li of Herbert Smith Freehills highlighted the steps the defendant could have taken to defend their position: “given that a claimant is entitled to costs on acceptance of a Part 36 offer, the defendant can find itself in a difficult position where a claimant makes a very low offer after significant costs have been incurred. To obtain their own costs protection, defendants may be well-advised to consider making their own Part 36 offers at an early stage of any proceedings.”

James Burgoyne, Divisional Director – Claims & Technical, Brunel Professions said: “This case underlines the risk of fighting to the bitter end in court when the costs incurred can substantially outweigh any damages. As attractive as “let the judge decide” may seem, professionals should consider that is usually far quicker and cheaper to opt for an Alternative Dispute Resolution approach if they find themselves involved in a dispute.

Reports about the case have been published by Herbert Smith Freehills, Thrings and Thomson Reuters Dispute Resolution Blog.

Brunel provides professional indemnity insurance broking services to professional firms. Visit our website to find out more or call Jonathan Filer on +44 (0)117 325 0752.

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