Case No: HT-11-503
Neutral Citation Number: [2012] EWHC 2489 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 7th September 2012 

Before:

MR JUSTICE COULSON
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Between:

	(1)	Brit Inns Limited (in liquidation)
(2)	Vincent Barber
(3)	Linda Lawless	Claimant	
	- and -		
	BDW Trading Limited
- and -
J Reddington Limited

	Defendant

Third Party/ Part 20 Defendant
	
	- and -		
	(1)	Vincent Barber
(2)	Linda Lawless
(3)	Stephen Katz (Acting as Liquidator of Brit Inns Ltd)

Claimants	
	- and -		
	BDW Trading Limited
- and -
J Reddington Limited

Defendants

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- - - - - - - - - - - - - - - - - - - - -

Mr Thomas Plewman (instructed by Norton Rose) for Brit Inns Ltd
Mr William Evans (instructed by Davenport Lyons) for the Vincent Barber, Linda Lawless and Stephen Katz
Mr Andrew Miller (instructed by Kennedys) for BDW Trading Ltd and J Reddington Ltd

Hearing date: 31ST August 2012

[Judgment No 2: COSTS]
Judgment
Mr Justice Coulson: 
1. INTRODUCTION
1.	On those rare occasions when civil litigation goes wrong, costs become the critical issue. Even before the trial, the parties realise that, in reality, the sums likely to be recovered in the action will be dwarfed by their potential exposure to costs, and they take every point that might conceivably improve their position. This case is a good example of that unhappy process.  
2.	This litigation has gone wrong for everybody. In the main action (a subrogated claim for insured losses where liability was never in issue), against a pleaded claim for £660,000 odd, the claimants recovered £157,467.89 by way of damages, plus such sum as I award for interest. Their recovery is thus about 25% of what they claimed. It has apparently cost them £528,547.02 to achieve that result.  In the separate uninsured claim, against a pleaded claim of £522,000 odd, the claimants recovered just £16,403.24, a percentage recovery of about 3%. That result cost them £157,311.16.  Although I do not have a figure for the costs of the defendant/third party, it seems likely that they too will have spent hundreds of thousands of pounds in circumstances, noted below, where they failed to better their only offer made under CPR Part 36.
3.	In those circumstances, it is perhaps unsurprising that the costs arguments took half a day, with the defendant’s skeleton argument alone running to 41 closely-typed pages and 151 paragraphs, together with appendices.  Every possible point that can arise on costs is in issue: the relevance of offers under Part 36 and Part 44; the proper interpretation of ‘success’ in Part 44.3; the parties’ conduct before and during the litigation; and the problems created by the exaggeration of the claim and the failure on the part of the claimants to provide proper information timeously.  Similarly, the widest possible range of outcomes is urged upon the court.  The claimants in the main action seek their costs in full; the claimants in the uninsured action seek 50% of their costs; whilst the defendant/third party claim that their costs should be paid by the claimants on an indemnity basis.  In addition, all parties recognise that the court has a wide discretion to make any number of other costs orders lying between these opposite ends of the spectrum.  
4.	The principal issue concerns the proper approach to costs in a case where, throughout, the defendant took a much more realistic view of the value of the claim than did the claimants, and where the court assessed quantum by reference to the defendant’s evidence rather than any evidence adduced by the claimants, but where the defendant/third party failed to protect their position on costs by making a Part 36 offer which they subsequently bettered.  I approach this issue, and the other matters which arise, in this way.  Having dealt with interest in Section 2 below, in Section 3 I summarise the outcome of the two actions. In Section 4, I summarise the correspondence between the parties, dealing with their respective offers and the defendant’s complaints about the lack of particulars and supporting material.  In Section 5 I summarise the applicable law.  Then, in Section 6, I address the costs in the main action and, in Section 7, the costs in the uninsured action.  There is a short summary of my conclusions in Section 8.

2. INTEREST
5.	In the main action, in the exercise of my discretion, I award interest on the sum of £157,467.89 at 1% over base rate.  That seems to me to be the appropriate percentage in the particular circumstance of this case.  
6.	I accept that 31 October 2007, the date put forward by the claimants, is the correct date for the purposes of the calculation. Such damages as I have awarded had been suffered or incurred by the claimants by that date. For this purpose, as is conventional in a subrogated claim, I ignore the fact that the insurers had not themselves incurred any costs by then. In addition, although I consider that there was a general failure to supply information to the defendant timeously or at all, I find that that does not justify taking a later date for the start of the interest period. On the claimants’ unchallenged figures, this produces an amount of interest in the sum of £17,749.31.  That is to be added to the sums awarded in the main judgment, to give a total figure of £175,217.20.
7.	In the uninsured action, I also award interest at 1% over base on the sole head of claim which was successful, which concerned wasted staff costs.  Whilst the precise basis of the successful claim was not formulated until Mr Evans’ closing submissions, I accept that this head of claim was included from the outset and was the subject of Mr Barber’s witness statement. It was, on analysis, a relatively straightforward item, and the relevant losses had been incurred by 1 April 2007.  That is therefore the date for the interest calculation in the uninsured claim.  The parties will have to agree the calculation of this sum, which in total is unlikely to be more than £2,000.
3. SUMMARY OF OUTCOME 
8.	In the main action, the claimants advanced two principal claims.  There was a claim for material damage in the sum of £355,070, and a claim for loss of profits in the sum of £240,905.  There were other claims amounting to about £65,000, the largest of which was a claim for the costs of re-marketing the restaurant.  In my Judgment at [2012] EWHC 2143 (TCC), I awarded the claimants £136,688.89 in relation to the material damage and £20,779 by way of loss of profits, a total of £157,467.89.  I rejected all the other claims.  
9.	In the action concerned with the uninsured claims, the claimants fared even worse.  The largest claims, being the claim for loss of rent (£368,000) and the claim for loss of profits (£194,000), were abandoned part way through the trial.  6 out of the remaining 7 heads of claim failed in their entirety.  The only head of claim that was successful, and then only in part, was the claim for the wasted costs of employing staff, which was pleaded at £39,000 odd and in respect of which I awarded just £16,403.24.  
10.	The problems for the claimants created by my principal Judgment do not end with a simple comparison between what they claimed and what they recovered.  In the main action, there were inherent problems with the factual evidence which underpinned the claim for material damage (which I addressed at paragraphs 59-77 of my Judgment); other problems with the expert evidence adduced in support of that claim (paragraphs 78-90); and similarly fundamental difficulties with the evidence as to the claim for loss of profit (paragraphs 190-263).  In addition, all the other heads of claim, including one which attempted to resurrect items which had previously been abandoned by the claimants’ QS expert, all failed.
11.	As I observed in my Judgment, these problems were really created at the outset, when the loss adjusters failed to undertake a proper analysis of the claims being made and failed to see that large parts of the claim were unsubstantiated.  As a result, the sum paid out by the insurers was unjustifiably high. Thereafter, the insurers pursued the claim without properly scrutinising the detail of the claim or the evidence that supported it. The inter-solicitor correspondence makes clear that the claimants in the subrogated claim believed that, since the loss adjusters had approved the sum paid out by the insurers, there was little point in the defendants subsequently seeking to challenge the detail of the claim.  That was a high-handed and ultimately erroneous basis for pursuing this particular claim.
12.	The unjustified approach adopted by the claimants was not assisted by their experts, who failed to note the underlying problems or advise thereon.  The expert evidence of both Mr Woodall and Mrs Rawlin, the claimants’ experts, was unsatisfactory for a number of reasons, and I rejected it in its entirety at the trial.  One of the many ironies in this case is that, to the extent that the claimants recovered anything at all, they did so on the basis of the evidence adduced by the defendant’s experts, Mr Thomas and Mr Isaac.  
13.	The issues raised by the separate, uninsured claim reflect even more poorly on the claimants.  Indeed, I am in no doubt that there should never have been a separate action at all.  Ramsey J was plainly concerned about that at the very first CMC, and expressly reserved the costs of the second action to the trial judge.  There was no proper explanation as to why this matter was not dealt with in the usual way, with the uninsured losses being advanced as part of the subrogated claim: indeed, the written agreement between the claimants and their insurers expressly envisaged all claims being pursued in a ‘single action’. Moreover there was considerable overlap between the two; many heads of claim involved a common factual basis, with quantum being simply split between insured and uninsured elements. That was how I approached the claims in my Judgment.
14.	It was alleged that Mr Barber perceived there to be some sort of conflict of interest between himself and his insurers following an argument concerning the payment by Thames Water in respect of the first inundation, and that was why there were two sets of proceedings. Beyond that, the evidence relating to the potential conflict of interest was obscure. I find that there was no proper justification for there being two separate claims. In any event, even if Mr Barber’s explanation is accepted, it seems to me that, since the first inundation was not concerned with matters for which the defendant/third party were responsible, the claimants would still be liable for all the additional costs incurred by there being two separate actions.  
15.	On the basis of the material before the court, I am confident that there should never have been a separate action and that the claim for the uninsured losses should have been run in the same action as the subrogated claim.
4. OFFERS AND OTHER CORRESPONDENCE
16.	I was referred to a large amount of correspondence dealing with offers and the defendant’s complaints about inadequate particularisation.  I have read all of that material.  It would be unnecessarily wearisome to set it all out in this Judgment.  Accordingly, in the following paragraphs, I summarise only that correspondence which I consider to be particularly relevant to my decision on costs.
17.	On 15 January 2009, Norton Rose, the claimant’s solicitors in the insured action, wrote to Owen White, the solicitors then acting for the defendant and third party.  This letter of claim sought the sum of £622,830.10 on the basis that the claim was supported “by a complete set of invoices and a detailed spreadsheet setting out the material damage cost incurred…”  In fact, because of the inadequacies of the invoices (a matter with which I have dealt in detail in the main Judgment) this was an inaccurate generalisation.  In the response to that letter of 6 February 2009, the defendant’s solicitors acknowledged that payments had been made by the underwriters but denied that those payments were justified.  
18.	On 6 March 2009, Norton Rose attached the first report prepared by Mrs Rawlin dealing with the loss of profit claim.  The “detailed documentation” supporting the material damage claim was restated.  However, as the letter from Teceris Liability Services (also on behalf of the defendant) to Norton Rose of 22 September 2009 made plain, although liability was admitted, important issues as to causation and quantum remained outstanding.  That was reiterated in the letter of 3 December 2009 to Norton Rose in which Teceris stated that “we do not believe that these [the spreadsheet and invoices] provide either an adequate explanation or adequate evidence of damages caused by the ingress of water on 15 January 2007…”  The letter goes on to list a number of queries relating to the invoices.  These were not addressed by Norton Rose.
19.	Although there was a good deal of further correspondence, it does not appear that matters significantly advanced from this position.  I note that in the letter from Norton Rose to Owen White of 26 November 2010, the claim was still being advanced principally on the basis that “our client’s loss adjusters were satisfied that the payments made by underwriters were adequately supported by invoices paid by the assured.”  
20.	That was the position when proceedings were commenced on 2 December 2010.  For reasons which are unclear, the case was originally started in the Commercial Court and proceeded rather slowly there until it was transferred to the TCC almost a year later.  The first CMC in the TCC took place on 14 December 2011 where, amongst other things, Ramsey J expressly reserved to the trial judge any issues relating to the impact of the separate legal representation of the claimants in the two separate actions.  
21.	The inter-solicitor correspondence in the early stages of the proceedings can be fairly characterised as, on the one hand, complaints about the adequacy of documentation from Owen White and, on the other, assertions by Norton Rose that more than enough material had already been provided.  Owen White’s letter of 14 February 2011 and the response of 17 March 2011 by Norton Rose are perhaps typical of these exchanges. Although Mr Plewman relied on this last as evidence that the claimant wanted to engage in discussions rather than go on to trial, I do not accept that; the letter is one of many letters in which Norton Rose adopt an uncompromising stance, particularly in regard to the provision of disclosure and the like. The fact of the earlier pay-out by the insurers, and the alleged effect of that, is also put centre stage.
22.	On 17 June 2011, Norton Rose made a Part 36 offer on behalf of the claimants in the sum of £550,000.  There was no direct reply to that letter.  Instead, on 28 June 2011, Owen White wrote to Norton Rose on behalf of the defendant and third party making a Part 36 offer in the sum of £139,000.  That was the only valid Part 36 offer made by the defendant during these proceedings. In the result, although it was much closer to the sum recovered by the claimants at trial than the pleaded claim or Norton Rose’s valuation, it was about £35,000 too low.  
23.	Complaints about the adequacy of information and disclosure continued between the solicitors.  In letters dated 21 and 23 November 2011, Norton Rose complained to Kennedys (who had by then taken over the defence of the actions) about the defendant’s position, missing the point that it was their failure to provide proper supporting material that was the main reason for the impasse. In the later letter, they also noted that the claimants “remained concerned by your insistence in engaging in a disproportionate forensic analysis of the minutiae of the claim”.  In reply, on 30 November, Kennedys said that it was “absolutely reasonable” for the defendant to ask the claimants to prove its case in order to have constructive settlement discussions.  The disputes continued in that vein into 2012.  On 8 March 2012, Norton Rose described the claim as being “for a modest sum of £594,953”.  They rejected the requests for further detail in respect of the invoices and the more recent attempt by Kennedys to seek proof of payment of those invoices, and said they were no longer prepared to incur further costs in dealing with such correspondence.
24.	Pausing there, it will be seen from my principal Judgment that the complaints made by Owen White and Kennedys over this long period were broadly justified, and that Norton Rose were wrong to characterise the efforts to get to the bottom of the inadequate and unparticularised invoices as “disproportionate”.  Moreover, the principal reason why the matter was, by this stage, close to trial was because of the claimants’ unrealistic assessment of the claim, and their failure to realise that the defendant’s offer of a year before was far closer to the real value of the claim than anything which they had come up with. I reject the suggestion that it was the claimants who were anxious to settle rather than the defendant; their desire to settle was always conditional on an agreement which valued the claim far in excess of what it was actually worth. 
25.	On 16 May 2012, Kennedys made a fresh offer to Norton Rose.  This offer said expressly that it was not made pursuant to Part 36 but pursuant to Part 44.  The offer was in the sum of £267,046 (including interest) together with £85,000 in respect of costs. It was said to be open until 30 May 2012. On 22 May 2012, Norton Rose made a further Part 36 offer in the sum of £300,000, including interest, together with costs to be assessed or agreed.  That offer, which showed that, belatedly, Norton Rose were beginning to adopt a more realistic view of the underlying merits of the claim (although it was still considerably inflated), was rejected by Kennedys on 25 May 2012. 
26.	On the eve of trial, on 11 June 2012, the defendant made a further Part 44 offer: £200,000 in relation to the claim together with interest, and £100,000 in respect of costs.  The following day, the claimants offered to accept £270,000 inclusive of interest, and costs of £170,000.  Again, this exchange showed the claimants moving towards the defendant’s more realistic assessment of the claim, although they continued to have an inflated expectation as to its worth. Despite the fact that these offers show that there was only £140,000 between the parties (£70,000 in respect of principal, £70,000 in respect of costs), neither side accepted the other’s offer and there were no subsequent negotiations.  
27.	The trial then went ahead.  The difficulties with the claimants’ claim finally dawned on the claimants during the trial because, after the end of the evidence but before closing submissions, on 25 June 2012, the claimants offered to accept £141,000 (less than they actually recovered) together with costs of £200,000. By then, if not before, costs had become the real issue between the parties.
5. THE RELEVANT PRINCIPLES OF LAW
5.1 The Relevant Parts Of The CPR
28.	CPR Part 36.14 provides as follows:
“36.14(1) This rule applies where upon judgment being entered-
(a) a claimant fails to obtain a judgment more advantageous than the defendant’s Part 36 offer; or
(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer.
(1A) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.
(2) Subject to paragraph (6), where rule 36.14(1)(a) applies, the court will, unless it considers it unjust to do so, order that the defendant is entitled to –
(a) his costs from the date on which the relevant period expired; and 
(b) interest on those costs…”
29.	CPR Part 44.3 deals with the court’s discretion in circumstances to be taken into account when exercising its discretion as to costs.  The relevant provisions are as follows:
“44.3(1) The court has discretion as to –
(a) whether costs are payable by one party to another;
(b) the amount of those costs; and
(c) when they are to be paid.
(2) If the court decides to make an order about costs – 
(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but
(b) the court may make a different order.
(3) The general rule does not apply to the following proceedings – 
(a) proceedings in the Court of Appeal on an application or appeal made in connection with proceedings in the Family Division; or
(b) proceedings in the Court of Appeal from a judgment, direction, decision or order given or made in probate proceedings or family proceedings.
(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including – 
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and
(c) any payment into court or admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.
(5) The conduct of the parties includes –
(a) conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed the Practice Direction (Pre-Action Conduct) or any relevant pre-action protocol;
(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
(c) the manner in which a party has pursued or defended his case or a particular allegation or issue;
(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.
(6) The orders which the court may make under this rule include an order that a party must pay – 
(a) a proportion of another party’s costs;
(b) a stated amount in respect of another party’s costs;
(c) costs from or until a certain date only;
(d) costs incurred before proceedings have begun;
(e) costs relating to particular steps taken in the proceedings;
(f) costs relating only to a distinct part of the proceedings; and
(g) interest on costs from or until a certain date, including a date before judgment.
(7) Where the court would otherwise consider making an order under paragraph (6)(f), it must instead, if practicable, make an order under paragraph (6)(a) or (c). ”
30.	It should be noted that, whilst Part 44 gives the court a wide discretion as to costs, a point stressed by all parties at the hearing before me, a perusal of the numerous authorities in this area makes plain that, for the first instance judge at least, steering a path through these various provisions is something of a minefield.  In addition, the Court of Appeal has emphasised that attempts to arrive at a result that might appear just on the particular facts of the case, without reference to the principles underpinning these parts of the CPR, may well be illegitimate and may give rise to uncertainties as to the approach to be adopted in similar cases in the future.
5.2 The Importance Of A Valid Part 36 Offer
31.	In any consideration of costs issues, the first and most important question is whether there are Part 36 offers and whether or not those have been bettered.  That is because of the particular costs-shifting mechanism contained within Part 36.  As Moore-Bick LJ explained in Gibbon v Manchester City Council [2010] 1 WLR 2081:
“4. It can be seen from Part 36 as a whole, as well as from the extracts cited above, that it contains a carefully structured and highly prescriptive set of rules dealing with formal offers to settle proceedings which have specific consequences in relation to costs in those cases where the offer is not accepted and the offeree fails to do better after a trial.  In cases where there has been no Part 36 offer or a Part 36 offer has been bettered the judge has a broad discretion in dealing with costs within the framework provided by Part 44.  Rule 44.3(4) provides that when exercising its discretion as to costs the court will have regard to the general rule that the unsuccessful party should pay the costs of the successful party, but will also have regard to the conduct of the parties and any payment into court or admissible offer to settle made by one or other party which falls outside the terms of Part 36.  In seeking to settle the proceedings, therefore, 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.”
32.	In addition, Moore-Bick LJ stressed in paragraph 40 of his judgment that “to recover judgment for more than what was offered is legitimately regarded as success” and that, whilst a claimant who has beaten an offer by a very small amount and suffered serious adverse consequences to achieve such a result might not be regarded as a successful party, “such cases are likely to be rare. In most cases obtaining judgment for an amount greater than the offer is likely to outweigh all other factors”.
33.	In Fox v Foundation Piling Limited [2011] 6 Costs LR 961, a defendant failed to beat its Part 36 offer (albeit by a relatively small sum) and various issues arose as to conduct and the like.  In his judgment, Jackson LJ stressed the importance in such cases of making a Part 36 offer.  He said:
“62 There has been a growing and unwelcome tendency by first instance courts and, dare I say it, this court as well to depart from the starting point set out in rule 44.3(2)(a) too far and too often.  Such an approach may strive for perfect justice in the individual case, but at huge additional cost to the parties and at huge costs to other litigants because of the uncertainty which such an approach generates.  This unwelcome trend now manifests itself in a (a) numerous first instance hearings in which the only issue is costs and (b) the swarm of appeals to the Court of Appeal about costs, of which this case is an example.
63 I hope that the forthcoming amendment to rule 36.14 [the introduction of rule 1A] will point the way to a more clear cut approach to the costs rules in future.  In the context of personal injury litigation where the claimant has a strong case on liability but quantum is inflated, the defendant’s remedy is to make a modest Part 36 offer.  If the defendant fails to make a sufficient Part 36 offer at the first opportunity, it cannot expect to secure costs protection.  Different considerations may arise in cases where the claimant is proved to be dishonest, but (on the judge’s findings) that is not this case.”
34.	More recently, in F&C Alternative Investments (Holdings) Ltd and Others v Barthelemy and Another [2012] EWCA Civ 843, the Court of Appeal again stressed the importance of Part 36 and reiterated that offers which were expressly made under Part 44 should not be treated as having the same effect as offers under Part 36.  
5.3 Conduct
35.	There is a welter of cases dealing with conduct under Part 44, many of which were cited to me. In addition, numerous cases concerned with exaggeration are set out, in rather random fashion, in five pages of dense notes, without separate headings, in the White Book at paragraph 44.3.10.  It is unnecessary to refer to all these cases. Instead, I confine myself to those which I consider provide important guidance as to the general approach to be followed in a case of this sort.  
36.	In Islam v Ali [2003] EWCA Civ 612, the claimant maintained a claim for £156,000.  He lost on every head of claim, save for his claim for £12,746.41, the principle of which had been conceded from the outset.  The judge at first instance awarded the claimant his costs.  The Court of Appeal reversed that decision, concluding that the defendant was the successful party.  In all the circumstances, the Court of Appeal said that the right order was that there should be no order as to costs.  
37.	In Fulham Leisure Holdings Limited v Nicholson Graham and Jones [2006] EWHC 2428 (Ch), the claimant’s claim for £7.75 million was rejected, save for a claim for professional fees in the sum of £6,750.  In other words, the claimant recovered less than 0.1% of the sum claimed.  The judge concluded that, in general terms, the right order was no order as to costs, but that, from the date of a “drop hands” offer made by the defendant, which the claimant refused, the defendant was entitled to its costs.  
38.	Following a review of a number of cases concerned with conduct and the interplay with Part 36, in Multiplex Constructions (UK) Limited v Cleveland Bridge UK Limited [2008] EWHC 2280 (TCC), Jackson J (as he then was), identified the following eight principles:
“(i) In commercial litigation where each party has claims and asserts that a balance is owing in its own favour, the party which ends up receiving payment should generally be characterised as the overall winner of the entire action.
(ii) In considering how to exercise its discretion the court should take as its starting point the general rule that the successful party is entitled to an order for costs.
(iii) The judge must then consider what departures are required from that starting point, having regard to all the circumstances of the case.
(iv) Where the circumstances of the case require an issue-based costs order, that is what the judge should make.  However, the judge should hesitate before doing so, because of the practical difficulties which this causes and because of the steer given by Rule 44.3(7).  
(v) In many cases the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order.
(vi) In considering the circumstances of the case the judge will have regard not only to any Part 36 offers made but also to each party’s approach to negotiations (insofar as admissible) and general conduct of the litigation.
(vii) If (a) one party makes an order offer under Part 36 or an admissible offer within rule 44.3(4)(c) which is nearly but not quite sufficient, and (b) the other party rejects that offer outright without any attempt to negotiate, then it might be appropriate to penalise the second party in costs.
(viii) In assessing a proportionate costs order the judge should consider what costs are referable to each issue and what costs are common to several issues.  It will often be reasonable for the overall winner to recover not only the costs specific to the issues which he has won but also the common costs.”
39.	More recently, in Hullock v East Riding of Yorkshire County Council [2009] EWCA Civ 1039, the dispute was, as in the instant case, concerned with quantum only, Patten LJ said at paragraph 32 of his judgment:
“In a case such as the present, where the real dispute is confined to a claim for special damages which the judge finds to have been exaggerated and is therefore either dismissed or abandoned, that will normally be a central if not decisive consideration in determining who should pay the costs attributable to litigating that issue.  The fact that the defendant has failed to make an effective Part 36 offer at or soon after the interim payment order is not in my judgment an answer to the argument that most if not all of the costs which followed were attributable to the disputed claim for care and attention.”
He went on to find that the dispute would have been settled at the figure eventually agreed upon had the claimant not persisted in her exaggerated claim for special damages.  The Court of Appeal therefore ordered that, whilst the defendant had to pay the claimants’ costs up to the date of the interim payment, the claimant had to pay the costs thereafter.
40.	Hullock is also of assistance because it drew a distinction between cases like Painting v Oxford University [2005] EWCA Civ 161, where exaggeration was the real issue and a claimant who had been shown by surveillance evidence to be exaggerating her claim was ordered to pay the defendant’s costs, and Hall v Stone [2007] EWCA Civ 1354, where claimants who were only partially successful, but had not deliberately exaggerated their claim, were entitled to recover all their costs. Patten LJ said at paragraph 31 of his judgment that there was “a clear and justifiable distinction between a case where the claimant fails to make out the full measure of the claim and one where the outcome of the proceedings largely turns on a particular issue or issues on which the defendant [I think he meant claimant] is clearly the loser”.
41.	The cases in the White Book on exaggeration also draw a distinction between those claims, usually for personal injury, where there has been deliberate exaggeration, and where the claimant has been ordered to pay the costs (such as Ford v GKR Construction Ltd [2000] 1 WLR 1397), and those many cases where the claimant has recovered much less than it claimed, but there has been no question of fraud, where the claimant will usually recover at least a proportion of its costs.
5.5 Summary of Relevant Principles
42.	Accordingly, when dealing with costs in a case like this, the following principles apply:
(a) In a commercial case, the successful party will usually be the party that recovers money from the other (Multiplex and Gibbon);
(b) The only certain way for a defendant to shift its potential costs liability is to make a Part 36 offer which it then betters at trial (Gibbon and Fox);
(c) The pursuit of exaggerated claims may deprive the claimant of some or all of its costs (Islam and Fulham Leisure), but it is usually only where the exaggeration is deliberate that the claimant has been ordered to pay the defendant’s costs (Painting and Ford);
(d) In general terms, for costs to be shifted as a result of conduct, so that the claimant who recovers something at trial still has to pay the defendant’s costs, there needs to be more or less total failure on the issues that went to trial (Hullock) or a failure to accept a Part 44 offer that would have put the claimant in a better position than going on (Fulham Leisure).  
6. COSTS IN THE MAIN (SUBROGATED) ACTION
6.1 Part 36
43.	The claimants made two Part 36 offers, one for £550,000 and one for £300,000.  Their recovery wholly failed to match either offer.  The offers are therefore irrelevant for Part 36 purposes. They do, however, demonstrate that, for the purposes of Part 44.3, the claimants had throughout an unrealistic and unreasonable view as to their likely recovery.
44.	The defendant made one offer in the sum of £139,000, inclusive of interest.  Since the claimants recovered £175,217.20, the defendant/third party failed to beat their Part 36 offer.  Again, therefore, although the offer is a relevant element of conduct under Part 44.3 (and reflects well on the defendant because it was so much closer to the true worth of the claim) the particular costs-shifting consequences of Part 36 do not apply and cannot be relied on by the defendant.
45.	The defendant maintains that such a conclusion would be too harsh on the facts of this particular case, because of the claimants’ failure to provide the necessary information which, it is said, would have allowed the defendants to assess the merits or otherwise of the claim at an earlier stage.  Accordingly, they say that it is the claimants’ fault that they have failed to beat their Part 36 offer.  On the facts, I reject that contention for two reasons.
46.	First, whilst I accept that the claimants failed to provide all the relevant information timeously, and were still providing documents at the start of the trial, the evidence does not support the contention that this failure prevented the defendant from making a proper Part 36 offer.  On the contrary, the evidence shows that early on, in May 2011, the defendant was able to make a proper Part 36 offer, because they did just that.  Its only deficiency was that it was not quite enough.  But there is nothing to suggest that, if better information had been provided, a higher offer would have been made.  
47.	For that submission to be successful, the defendant would need to identify a particular area of claim which was assessed in May 2011 at nil (or at a negligible figure) because the information then available could not support a higher valuation, but in respect of which, at a later date, further information was made available by the claimants, which should have been provided before, and which led to the claimants recovering a larger sum than they would have done without the late information.  But there is no such evidence in the present case. The complaints about particularisation and supporting material are general and are not linked to the evaluation of the offer made by the defendant in May 2011.
48.	Secondly, if the problems with particularisation or disclosure were really so great that the defendant could not properly protect itself pursuant to Part 36, then applications should have been made to the court at an early stage setting out precisely what was missing and why it mattered.  There were no such applications.  In reality, this claim was always exaggerated and always suffered from the deficiencies (including slow and inadequate provision of information) identified in my principal Judgment.  But, although the defendant was aware of many of these problems from the outset, hence the repeated criticisms in the inter-solicitor correspondence, nothing was deemed so insuperable that it warranted specific applications to the Court.  
49.	In those circumstances, therefore, I reject the contention that the claimants were to blame for the defendant’s failure to beat the Part 36 offer.  Whilst, notwithstanding the decision in Abbott v Long [2011] EWCA Civ, I consider that such an argument is open to the defendant as a matter of principle, I find that, on the facts, it has not been made out.  That finding should not, however, detract from the wider position, to the effect that the claimants’ pleadings, substantiation of their claims and disclosure were deficient, for the reasons explained in my principal Judgment.
6.2 The Successful Party
50.	The first issue under CPR Part 44.3 is the identification of the successful party.  In some ways, that is a slightly artificial question here because, for the reasons already given, no party in this litigation could objectively be described as successful.  I apprehend that every party is going to be out of pocket, in one way or another.  But the court has to decide which of the parties in the main action has been successful, even though, as Patten LJ stressed at paragraph 22 of his judgment in Hullock, that decision is “only the starting point” for the consideration of costs and that “success alone will rarely be the sole determining factor of liability unless there are no countervailing circumstances of the kind specified in CPR 44.3(4)”.  
51.	In the round, on the basis of the authorities noted above, I am bound to conclude that, up to 30 May 2012, the claimants were the successful party for the purposes of Part 44.3(2).  There are a number of reasons for that decision.  
52.	The first, of course, is that the claimants recovered substantial damages under their two principal heads of claim (material damage and loss of profit).  In a commercial dispute, the party who recovers money from the other is prima facie the successful party.  
53.	Secondly, at least up to the making of the defendant’s Part 44 offer on 16 May 2012 (which I address in Section 6.6 below), the claimants can argue that, in order to recover the sum of £175,217.20, they had to continue with the litigation, because only a lesser sum had been offered to them before that date.
54.	Accordingly, my starting point for the general rule referred to in Part 44.3(2) is that, at least up to 30 May 2012, the claimants were the successful party, and the usual rule would be that the defendant should pay the claimants’ costs up to that date.  But that, of course, is subject to all questions of conduct under r44.3(4).  
6.3 Conduct/Offers
55.	I have dealt with the Part 36 offers at Section 6.1 above.  They are irrelevant for Part 36 purposes.  They are, however, relevant to considerations of conduct at least to this extent, namely that the defendant’s Part 36 offer was far closer to the final recovery than either of the Part 36 offers made by the claimants. That was just one of many signs that, from the outset, the defendant took a much more realistic view of these proceedings than the claimants ever did.
56.	The effect of the offers made from 16 May 2012 onwards is dealt with separately in Section 6.6 below. It will be seen from that section that I consider that these do have an important effect on the proper orders as to costs.
6.4 Conduct/Exaggeration and Other Matters
57.	The claimants’ claims suffered from all of the flaws outlined in my principal Judgment.  It was exaggerated, in some instances grossly so.  However, I fell short of finding that the original claim was dishonest or deliberately exaggerated and I see no reason for revising that view now.  
58.	For the purposes of Part 44, I consider that three principal criticisms should be made of the claimants’ conduct in pursuing this claim up to 30 May 2012.  The first, as noted in paragraph 11 above, is that they adopted the approach that, because the claim had been considered by loss adjusters, the amount paid out by the insurers was in some way sacrosanct, and payable, without more ado, by the defendant.  Whilst, as I said in the principal Judgment, such an approach will sometimes be justified, the flaws and deficiencies in this claim were so obvious that they ought to have brought about a significant change of approach by the claimants and their solicitors much earlier than they did.  
59.	Secondly, I consider that the claimants and their solicitors adopted a consciously unhelpful attitude in the correspondence.  They provided the bare minimum of explanation for many of the claims, and the disclosure of documents was slow and reluctant.  In particular, failure to provide almost any evidence of payment was, in the circumstances, surprising and disappointing.  I was left with the impression that it was only at the eleventh hour that the claimants and their solicitors realised that they could not, after all, substantiate significant elements of their claim. 
60.	Thirdly, the claimants’ expert evidence, in relation to both the material damage and the loss of profit claims, was fundamentally flawed from the outset, for the reasons set out in my principal Judgment.  Mr Woodall’s approach to the former was essentially an attempt to reverse the burden of proof and involved no expert input at all; the criticisms that I make at paragraphs 78-90 of my principal Judgment apply to all his work on this case. Mrs Rawlin’s approach was entirely conditioned by the unrealistic instructions that she was given by Mr Barber, and I have adversely commented about her blinkered and unrealistic approach in my Judgment.  Both experts failed to point out the obvious problems faced by the claimants’ claim, a stark contrast to the approach of the defendant’s experts. 
61.	Accordingly, just as with the offers made, the attitude of the defendant and its experts to the underlying claims was much more realistic, and much closer to the eventual outcome, than that of the claimants and their solicitors.  The claim was exaggerated and not properly supported by the underlying material and the claimants, their solicitors and their experts, did little or nothing to address these deficiencies.  
6.5 What Should be the Effect of Conduct on the Costs up to 30 May 2012?
62.	As previously noted, there is no relevant Part 36 offer and, because they recovered sums under their two principal heads of claim, the claimants are entitled to be treated as the successful party, at least down to 30 May 2012.  However, given my earlier findings, and the points made in Section 6.4 above, it would be manifestly unjust if the claimants were permitted to recover the entirety of their costs down to that date.  I am in no doubt that one of the principal reasons why this case fought, even up to 30 May 2012, was because of the claimants’ unrealistic expectations for what was, on any view, an exaggerated claim.  
63.	It would not, I think, be appropriate to order the claimants to pay any part of the defendant’s costs up to 30 May 2012.  There is no authority in which a claimant recovered more than a Part 36 offer, and made at least a partial and non-negligible recovery under its two principal claims, and yet was obliged to pay the defendants’ costs.  In both Fulham Leisure and Hullock, the claimant had to pay the defendants’ costs because of a failure to accept an offer (or in Hullock the equivalent of an offer) that was more advantageous to the claimants than going on.
64.	Similarly, I have concluded that it would not be appropriate to make no order as to the costs incurred up to 30 May 2012.  Whilst, but for the drop hands offer, that would have been the position in Fulham Leisure, the claimants’ recovery there was just 0.1% of the pleaded claim.  Furthermore, although that was also the result in Islam v Ali, that was because the only element of the claim that was successful was that part which had been accepted in principle at the outset.  At the trial in that case, the claimant lost on everything that was actually in dispute.  
65.	Neither of those doomsday situations quite apply here.  The claimants recovered damages under both main heads, albeit at about 40% of the pleaded claim for material damage and 10% of the pleaded claim for loss of profit.  Those recoveries were not negligible.  In addition, in relation to the loss of profit claim, it had been the defendants’ primary position that no sums at all were recoverable.
66.	Accordingly, the right order is for the defendant to pay a proportion of the claimants’ costs down to 30 May 2012.  I deal with the appropriate proportion in paragraph 68 below.
67.	In addition, in my judgment, because of the fundamental inadequacies of the claimants’ expert evidence, the defendant should not have to pay any part of the claimants’ costs incurred in connection with their experts. That would include, amongst other things, the costs of their reports (both draft and final), the costs of preparing for and attending experts’ meetings, all the other costs incurred by the experts, and all the costs incurred by the lawyers and others in dealing with those experts. 
68.	As to the claimants’ remaining costs up to 30 May 2012, I have concluded that the defendant should pay 60% of the claimants’ reasonable and proportionate costs, to be assessed if they cannot be agreed.  In other words there would be a reduction of 40% from the claimants’ costs (excluding all costs in connection with the experts) down to that date.  I make that significant deduction because I consider that, if the claimants had adopted the same detailed approach as the defendant, the main action would have been settled well before 30 May 2012, but I order that the defendant pay more than half the claimants’ costs down to 30 May 2012 (excluding experts’ costs) because of the absence of any Part 36 offer which the defendant bettered at trial. 
6.6 Costs After 30 May 2012
69.	In my judgment, the position changed when, on 16 May 2012, the defendant made its Part 44 offer of £267,046, together with £85,000 by way of costs.  That offer was open for acceptance until 30 May 2012.  That offer, and its non-acceptance, fundamentally changed the costs position, for the reasons set out below.
70.	The first and most obvious point is, of course, that the defendant bettered this offer, certainly in relation to the sum offered for damages and interest.  Indeed, this offer represented almost £100,000 more than that claim was actually worth.  Add that £100,000 excess to the offer of £85,000 in relation to costs, and I conclude, on the balance of probabilities, that the claimants would have been better off accepting that offer than going on to trial.  
71.	Precisely the same point can be made about the defendant’s subsequent Part 44 offer of 11 June 2012: again the capital amount of £200,000 was more than the claimants’ claim was worth and again there was a substantial contribution to costs of £100,000 which the claimants are now unlikely to better.  What is more, these offers need to be compared with the claimants’ offers of 22 May and 12 June 2012, which were much too high because they were still based on an unrealistic assessment of the claimants’ entitlement.  
72.	In my view, the defendant’s Part 44 offer of 16 May 2012 had a similar effect in this case to the “drop hands” offer in Fulham Leisure.  It marked the point where only the claimants’ unreasonable conduct and unrealistic expectations could explain their decision to go ahead to a trial; it therefore marked the point, when the offer was not accepted by 30 May 2012, when the claimants became liable to pay the defendant’s costs.
73.	The decision to make the claimants pay the defendant’s costs from 30 May 2012 onwards means that, in essence, the claimants will be liable for the entire costs of the trial.  That outcome is justified for a raft of additional reasons.  The first, of course, is that, at the trial, the defendants won every substantive argument.  My assessment of the material damage claim was based on my rejection of the claimants’ evidence of fact and the unsatisfactory evidence of Mr Woodall and relied instead upon the evidence of the defendant’s expert, Mr Thomas. Similarly, my assessment of the loss of profit claim involved the rejection of Mrs Rawlin’s entire approach and the acceptance of the evidence of Mr Isaac.  
74.	In addition, much of the remaining time of the trial of the main action was taken up with the items which the experts had earlier agreed should be abandoned and which were then the subject of a belated attempt to open them up again.  For the reasons set out in paragraphs 165-187 of my principal Judgment, that should never have happened: the experts had been right originally to abandon those items of claim (as was demonstrated when they were abandoned all over again in Mr Plewman’s closing written submissions) and considerable time and costs were wasted in this futile attempt to bolster a faltering claim by reopening these matters.  In addition, of course, all the other items of claim failed in their entirety.
75.	For those reasons, therefore, it would be manifestly unjust if the defendant did not recover its costs of a trial at which it won on every substantive point.  That is consistent with the principle in Islam, Painting and Hullock.
7. COSTS IN THE UNINSURED ACTION
76.	In the uninsured action, there was no Part 36 offer.  A Part 44 offer in the sum of £27,139.20 was made on 16 May 2012, with costs limited at £35,000.  The claimants made a counter offer in the sum of £141,793.20 together with an offer to accept 75% of their costs in pursuing the claims.  With typical realism, Mr Evans has suggested that, as a result of the shortfall between claim and recovery, the best that he can do on behalf of the claimants is an order that the defendant pay 50% of the claimants’ costs of the uninsured action. However, I have come to the view that, in reality, the claimants must pay the vast majority of the defendant’s costs of the uninsured action. There are three separate reasons for that conclusion.
77.	First, as Ramsey J noted at the very outset, it was very unusual for the uninsured losses not to be claimed as part of the subrogated action.  As I have observed in paragraphs 13-15 above, it appears that this arose for reasons which had nothing whatsoever to do with the defendant.  The claimants wanted to have two separate actions and two separate legal teams rather than deal with the claims in the conventional way. This decision inevitably duplicated costs, and the claimants must pay for that luxury. 
78.	In my view, if the uninsured losses had been dealt with as part of the subrogated claim, then the additional costs caused by the additional items would have been negligible.  Accordingly I am in no doubt that the vast bulk of the costs incurred in relation to the uninsured action were incurred solely because there was a separate action with separate representation. The claimants should be liable for such costs.
79.	Secondly, the recovery of £16,403.24 in the uninsured action amounted to a recovery of about 3% of the total sum claimed.  That was failure on a grand scale, and would again justify an order that the claimants pay the vast bulk of the costs of the uninsured action. The claimants’ eventual recovery was so miserable that no other result would be fair or just. 
80.	Looked at in another way, it might have been appropriate to give the claimants the costs of the one issue on which they were successful, namely the wasted costs of employing staff, and ordering them to pay the defendant’s costs of the nine other heads of claim on which they failed.  However, the steer at r44.3(7) suggests that percentage costs are a better solution.
81.	Thirdly, the defendant has bettered its Part 44 offer of 16 May 2012 in relation to the uninsured claim (paragraph 76 above).  This also supports the conclusion that the claimants must pay the majority of the defendant’s costs.
82.	For those reasons, it seems to me that it is appropriate to require the claimants to pay 90% of the defendant’s costs of the uninsured action.  That reflects both the result and the Part 44 offer; perhaps most important of all, it is consistent with the conclusion that the vast majority of those costs should never have been incurred at all, because the claims should have been dealt with in a single action with one legal team.
7. OTHER MATTERS
7.1 Reserved Costs
83.	The only reserved costs with which I have to deal were the costs of the late supplementary statements put in by the claimant.  This did not engender any further supplementary statements on the part of the defendant, and did not add materially to the costs of the trial.  I will simply order that the claimants pay their own costs of the supplementary statements.  
7.2 Indemnity Costs
84.	During the course of his submissions on behalf of the defendant, Mr Miller argued that the defendant was entitled to indemnity costs.  I reject that submission.  Because the claims were not deliberately exaggerated, and because there is nothing else in the claimants’ conduct which might be regarded as so out of the ordinary as to warrant an express statement of the court’s disapproval, it would not be appropriate to make an exceptional order for indemnity costs.  
7.3 Interim Payment 
85.	On behalf of the claimants, Mr Plewman sought an interim payment.  However, in the light of the various orders for costs which I have made, it is wholly unclear to me who will be the successful party in relation to costs overall.  In those circumstances, it is not possible to order an interim payment.
8. CONCLUSIONS
86.	In the main action, the defendant must pay 60% of the claimants’ costs down to 30 May 2012, but excluding all the costs incurred in connection with the claimants’ experts, and the late supplementary statements, both of which must be borne in full by the claimants themselves.  The defendant’s costs from 30 May 2012, essentially all the costs of the trial, must be borne by the claimants.
87.	In the uninsured action, the claimants must pay 90% of the defendant’s costs of the action.
88.	All such costs are to be assessed on the standard basis if they cannot be agreed.