Building contract – Repudiation — Costs — Parties entering into contract for improvement works to appellant’s home – Dispute arising following repudiation of contract — Trial judge penalising appellant in costs for failing to obtain higher damages from respondent builder than she had offered to accept in Part 36 offer – Whether judge erring in law – Appeal allowed
The appellant entered into a contract with the respondent whereby he agreed to build a garage and carry out improvement works to her home. The relationship between the parties broke down and the respondent left the site. The appellant instructed other builders to finish the work, and claimed damages from the respondent for defective workmanship. In his defence, the respondent claimed that the contract had been made not with him personally but with his company, and that the appellant had failed to pay contractual instalments.
The appellant wrote two letters to the respondent suggesting settlement negotiations, followed by an offer to settle under CPR 36, which included a suggestion for mediation. No settlement was reached. The trial judge rejected the respondent’s defence that the contract had been with his company, but accepted that the appellant had repudiated the contract and that the respondent had accepted that repudiation. The judge dismissed the appellant’s claim, save in respect of one defect, and awarded damages of £2,500, which were substantially less than she had claimed and lower than her Part 36 offer. The judge took the view that the respondent had been right to reject that offer. He did not grant an order for costs up to the expiry of the period for acceptance of that offer, but ordered the appellant to pay the respondent’s costs thereafter.
The appellant appealed against the order that she should pay the respondent’s costs from the expiry of the time for accepting the Part 36 offer.
Held: The appeal was allowed.
(1) The judge had made a fundamental error in his appreciation of the significance of the Part 36 offer. The Part 36 mechanism provided a formal, regulated procedure under which a party could express a willingness to accept something less than the total claimed in litigation. If the offer was not accepted and the offeror received more in the final result than was sought in that offer, it was entitled, unless the court considered that it would be unjust, to costs on an indemnity basis from the expiry of the “relevant period” (that is, three weeks, unless the offer extended it) together with interest at an enhanced rate up to 10% above base rate. Thus, it could be advantageous for a party to propose a realistic offer, but potentially disadvantageous for an offeree to decline it. However, the Part 36 procedure did not state that an offeror was to be prejudiced as to costs because it had expressed a willingness to accept less than its formal claim.
Moreover, the consequences of a Part 36 offer were regulated by CPR 36 itself. The provisions of CPR 44.3(4)(c), which stated that in deciding what order to make the court had to have regard to all the circumstances, including any admissible offer to settle other than an offer to which costs consequences under Part 36 would apply, would be nonsensical if the offer to settle were to be held against the offeror. A willingness to accept less than the formal claim, when the amount of that claim had been taken into account for the purposes of a ruling of no order for costs, could not be a reason for penalising the offeror thereafter.
(2) Exercising the costs discretion afresh, it was just to make no order for costs, bearing in mind that the appellant was the overall winner. On an issues-based approach, the appellant had failed on the issue of repudiation and on two out of the three main allegations of defective work, but had succeeded on the issue of contracting parties, which took a substantial amount of time at trial. The issue of repudiation had been unpleaded and it was unlikely that the respondent would have succeeded solely on his pleaded ground. Moreover, his rejection of the appellant’s offers to negotiate or mediate were unreasonable, amounting to conduct that ought to be taken into account under CPR 44.4. That was particularly so in a building dispute between a householder and a small builder, which was 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] BLR 330 applied.
Watson Pringle (instructed by Bennett Welch Solicitors) appeared for the appellant; the respondent appeared in person.
Eileen O’Grady, barrister
