Transocean Drilling UK Ltd v Providence Resources Plc [2016] EWHC 2611 (Comm)

Case No CL- 2012-00887[2016] EWHC 2611 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 20/10/2016
Before
THE HON. MR JUSTICE POPPLEWELL
Between
TRANSOCEAN DRILLING U.K. LIMITEDClaimantPROVIDENCE RESOURCES PLCDefendant
Colin West (instructed by Ince & Co) for ClaimantJohn McCaughran QC & Laurence Emmett (instructed by Herbert Smith Freehills) for DefendantHearing Hearing dates: 14 October 2016
JudgmentThe Hon. Mr Justice Popplewell :Introduction
[1]The background to this costs application is set out in my judgment of 19 December 2014 at the conclusion of the trial ([2014] EWHC 4260 (Comm)), my judgment on consequential matters, including costs, given on 20 February 2015 ([2015] EWHC 1136 (Comm)), hereafter referred to as my Costs Judgment, and the judgment of the Court of Appeal of 13 April 2016 ([2016] EWCA Civ 372). The effect of the decision of the Court of Appeal is to increase the amount recovered by the Claimant (“Transocean”) such that it now contends that it has beaten a Part 36 offer it made on 8 August 2014 which expired on 29 August 2014.[2]By this application Transocean seeks an order that the Part 36 consequences should apply from 30 August 2014, namely that its costs be assessed on an indemnity basis, that interest accrue at 10% on the principal sum awarded and on costs, and that there be a surcharge of £75,000. Transocean does not contend that my existing costs order should be varied in relation to the period prior to 30 August 2014.[3]At trial I held that Transocean’s claim succeeded to the extent of approximately US$7.6 million, inclusive of interest. In my Costs Judgment I concluded that although Transocean was the successful party, there should be no order for costs. My reasons are set out fully in that judgment. I analysed the costs which had been expended on each group of issues and on common costs, and which party had succeeded on those issues. At paragraph 32 I concluded:
“The upshot is that looking at the action as a whole, and using this very broad brush, Providence has succeeded on issues on which there has been spent something of the order of 70-75% of the costs of the action.”
[4]I considered a number of criticisms of Transocean’s conduct and concluded that two of them were relevant to the exercise of my discretion. I identified them in the following terms at paragraphs 34 and 35:
“34. Amongst the many points, I detected essentially six criticisms which were in the forefront of this aspect of Providence's argument. The first is that Transocean's management cannot truly have believed the case which was advanced to the effect that there had been compliance with the relevant maintenance procedures in relation to the pods, as I noted at para. 106 of my judgment. Transocean chose not to call Mr. McLean, who was the individual who was responsible for the pre-deployment check, but instead relied upon evidence from Mr. Scott, whose evidence was, as I found, contradicted by the documentary record to which it referred. There is, to my mind, force in this criticism. 35. The second matter is that it is said that Transocean sought to deceive Providence by sending it a report which purported to set out findings of its internal investigation but which had been deliberately doctored so as to remove conclusions which were adverse to Transocean, and I so found (see para.66 of my judgment). The vice in this, so Providence submits, is not merely the attempt to mislead prior to the conduct of the litigation but that having done so, both Mr. Scott and Mr. Clyne in their evidence actively compounded this dishonest behaviour by providing explanations for the changes to the report which they must have known to be incorrect. Both men signed witness statements which contained incorrect statements. Mr. Scott maintained his position in cross-examination, although Mr. Clyne eventually gave evidence as to the true position. Again, it seems to me that there is considerable force in this criticism.”
[5]I rejected a submission made on behalf of Providence that Transocean’s whole case in relation to the technical issues was one in which Transocean’s senior management had no honest belief. I said at paragraph 44:
“I am not prepared to decide the costs application on the basis that the technical case as a whole was put forward dishonestly by Transocean's senior management. It was supported by the expert evidence of Mr. Lewis and it was legitimate to run the case on that basis, albeit that it ultimately failed.”
[6]I summarised the position at paragraph 51 in the following terms:
“Drawing the threads together, in summary the position is this. Transocean is the successful party and therefore the starting point is that Transocean should recover its costs. It is appropriate to depart from that starting point to reflect the fact that something of the order of 70 per cent of the costs of the action have been incurred on issues on which Providence has won. It would not, however, be appropriate simply to apportion costs by reference to that assessment of who has won on the issues, in other words, it would not be appropriate simply to make an issue based order that Transocean should pay 70 per cent of Providence's costs and Providence should pay 30 per cent of Transocean's costs, or if one were netting off, that Transocean should be the paying party of 40 per cent of Providence's costs. That would not be appropriate for a number of reasons. One has to take into account and give some weight to the fact that Transocean is the successful party. It has had to come to court. One has to take into account that there have been no relevant offers made by Providence, notwithstanding that it is the paying party, to the tune of $7 million. One has to take into account the general principle that the winning party cannot be expected to win on every issue and if the successful party has failed on some issues by the wayside, that is not necessarily a reason for depriving it of costs. There then has also to be put into the balance the respects in which I have found that Transocean's conduct of the litigation has been unreasonable. ”
[7]One aspect of my decision at trial was that Providence’s spread costs counterclaim was not excluded by the terms of clause 20 of part II of the rig contract. On that issue alone Transocean appealed and the appeal was successful. An application to the Supreme Court for permission to appeal against the Court of Appeal’s decision is pending. The effect of the Court of Appeal’s decision is that the judgment in Transocean’s favour is increased to a principal sum of US$13,858,093.51.[8]Had I awarded such a sum at the conclusion of the trial, based on a determination of the issues in the way I decided them but with the correct application of clause 20 as determined by the Court of Appeal, I would still have made no order as to costs in the exercise of my discretion, if I were leaving out of account any consideration of any Part 36 offer. The issue of construction on which Transocean lost before me and won in the Court of Appeal occupied a very small proportion of the costs. The costs of all construction issues amounted to about 5% of the costs of the action. The clause 20 point was only one of a considerable number of construction points, including points concerning day rates, breach, and maintenance obligations, on which Transocean otherwise failed. The adjustment would make no difference to the exercise of my discretion which as I said at paragraph 51 of my Costs Judgment reflected a broad brush assessment that something of the order of 70% of the costs of the action were incurred on issues on which Providence had won. That remains the position in the light of the Court of Appeal decision.

The Part 36 Offer

[9]The Part 36 offer was made by letter of 8 August 2014. It is accepted that it complied in form with Part 36. It explained that Transocean’s claim was currently valued at US$22.5 million. It offered to accept US$13 million inclusive of interest in settlement of the entire proceedings including claims and counterclaims. It stated that that sum did not include costs, and drew attention to the fact that if it were accepted, Providence would be liable to pay Transocean’s costs on the standard basis by reason of the terms of Part 36. It replaced and withdrew a previous Part 36 offer dated 6 February 2014 which is not material to the current dispute.

The rival submissions

[10]The relevant provisions of the Civil Procedure Rules are those in force at the time of the offer. The relevant parts of CPR 36.14 were as follows:
“36.14 – (1) … this rule applies whereupon judgment being entered – (a)… (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)… (3) …where rule 36.14 (1)(b) applies, the court will, unless it considers it unjust to do so, order that the claimant is entitled to – (a) interest on the whole or any part of the sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired; (b) costs on the indemnity basis from the date on which the relevant period expired; (c) interest on those costs at a rate not exceeding 10% above base rate; and (d) an additional amount which shall not exceed £75,000 calculated by [there then followed a formula which in this case would result in the appropriate figure being £75,000] (4) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3) above, the court will take into account all the circumstances of the case including – (a) the terms of any Part 36 offer; (b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made; (c) the information available to the parties at the time the Part 36 offer was made; and (d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.” (a)… (b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer (a) interest on the whole or any part of the sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired; (b) costs on the indemnity basis from the date on which the relevant period expired; (c) interest on those costs at a rate not exceeding 10% above base rate; and (d) an additional amount which shall not exceed £75,000 calculated by [there then followed a formula which in this case would result in the appropriate figure being £75,000] (a) the terms of any Part 36 offer; (b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made; (c) the information available to the parties at the time the Part 36 offer was made; and (d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.”
The rival submissions Transocean submits that Part 36.14(1)(b) is satisfied. The offer was to accept US$13million and no interest. The sum awarded is approximately US$13.8 million and the interest on that amount to the date of the offer amounts to approximately US$800,000. One ignores any consideration of costs in determining whether Part 36 is engaged. Accordingly the normal Part 36 consequences follow unless it would be unjust for them to do so. There is nothing in the circumstances of this case which would make it unjust.[11]Providence submits that Part 36 is not engaged because when one takes account of costs, Transocean did not achieve a result which was as advantageous as the outcome which its Part 36 offer was asking Providence to accept. If Providence had accepted the offer, it would have had to pay Transocean’s costs up to that date, assessed on the standard basis, pursuant to rule 36.10(1). Such costs are estimated at just under £3 million, which assuming they were reduced by 30% when assessed on a standard basis, would amount to approximately £2 million of recoverable costs. Converted into US$ at the then current rate, that amounts to approximately US$3.3 million. Accordingly, accepting the offer would have involved paying some US$16.3 million (US$13 million for principal and interest and US$3.3 million in costs) compared with the court outcome of approximately US$14.6 million by way of principal and interest to that date with no order for costs.[12]Providence submits in the alternative that if Part 36 is engaged, it would nevertheless be unjust to apply the Part 36 consequences and the just result remains that there should be no order for costs because:(1) if one takes into account the commercial realities, including payment of costs, Transocean have not in substance beaten the Part 36 offer;(2) Transocean’s behaviour was unreasonable in the ways which I criticised in my Costs Judgment, in pursuing the technical case at all, and in a number of respects in which Transocean’s case changed between the date of the Part 36 offer and the conclusion of the trial.

Is Part 36 engaged?

[13]In Mitchell v James [2004] 1 WLR 158, there was a claim for specific performance of an oral agreement for a 50% beneficial interest in shares. The claimants made an offer that they would accept £91,410 and included within the terms of the offer provisions for each party to bear their own costs and to bear 50% of a third party’s costs. At trial the claimants succeeded in establishing their entitlement to a 50% interest in the shares, but were unable to establish that in money terms its value was likely to be worth more than the £91,410 which they had offered to accept in their Part 36 offer. They nevertheless contended that the judgment was more advantageous than their Part 36 offer because of the judgment on costs. The trial judge held that they should recover their costs and ordered an interim payment of £150,000, reflecting the fact that the value of the shares plus the award of costs was more advantageous to the claimants than the £91,410 and costs terms of their Part 36 offer. The relevant provision in Part 36 at that time was rule 36.21 which was in slightly different terms to Part 36.14(1)(b) which I am considering. Rule 36.21 then provided:
“This rule applies where at trial- (a) a defendant is held liable for more; or (b) the judgment against a defendant is more advantageous to the claimant than the proposals contained in a claimant’s Part 36 offer.”
Peter Gibson LJ, with whom Potter LJ and Sir Murray Stuart-Smith agreed, decided the case on the point that the offer did not engage Part 36 because it was not permissible to include within a Part 36 offer terms as to costs. In reaching that conclusion Peter Gibson LJ said at paragraphs 29 to 33:
“29. However, I have come to the conclusion that the draftsman of Part 36 did not intend terms as to costs to be included in a Part 36 offer for the following reasons. 30. First, rule 36.14 is worded as applicable whenever a claimant’s Part 36 offer is accepted without needing the permission of the court. It does not say “unless a claimant’s Part 36 offer indicates to the contrary” (cf rule 36.22.(1)) or other wording to indicate that the parties can agree otherwise. Similarly, paragraph 7.2 of the Practice Direction indicates that on acceptance of the Part 36 offer “the costs consequences set out in rule …. 36.14 will then come into effect”
. So too in a case where the court’s permission is needed for the defendants to accept a Part 36 offer, if permission is given, paragraph 7.5 envisages that the court may order that the costs consequences set out in rule 36.14 will apply. These provisions are inconsistent with a term as to costs being part of the Part 36 offer. 31. Second, rule 36.21 is applicable where at trial either a defendant is “held liable” for more, or “the judgment” against a defendant is more advantageous to the claimant, than the offer. The words “held liable” and “the judgment” both appear to me to connote what the trial judge holds or decides on the substantive issues in the case as distinct from the ancillary issue of costs to be determined after the substantive issues are decided. Mr Brunner accepted that that was so in relation to “held liable”, though not in relation to “judgment”. For my part, I cannot see why there should be such a difference. 32. Third, the rule is intended to apply universally at the end of the trial when the judge is required to make an order for costs. Save in a case where the judge can make a summary assessment or the rare case where the costs at that point are agreed, there will have been no assessment of the costs, the figure for which would therefore be uncertain. Yet the rule contemplates that merely by reference to that for which the defendant is held liable or by reference to the judgment the judge will be able to decide whether rule 36.21 applies because the defendant has been held liable for more, or the judgment against a defendant is more advantageous, than the offer. I find it hard to believe that the draftsman contemplated that a Part 36 offer is one which includes a term as to costs, so that the judge might have to evaluate the quantum of his costs order. That is normally the function of a costs judge, not the trial judge. 33. Fourth, there would be a real risk of abuse if a term as to costs could be included in a Part 36 order. Every well-advised claimant would make a Part 36 offer containing the terms sought in his claim plus an offer as to costs in the hope that if he succeeded in his substantive claim he would obtain indemnity costs in place of the ordinary award of costs on the standard basis. Merely to win on his substantive claim and to obtain an order for costs under the general rule (see rule 44.3(2)) will cause rule 36.2.1 to be applicable, so that the court “will” make the orders referred to in rule 36.21(2) and (3) unless it considers it unjust to do so. Injustice in the eyes of the court is therefore the only basis on which the court could refuse to make an order for indemnity costs and interest. That does not confer a general discretion on the court.”[14]On behalf of Transocean, Mr West submitted that this was binding authority that in deciding whether a claimant had beaten a Part 36 offer no account should be taken of costs. On behalf of Providence Mr McCaughran QC contended that the case was distinguishable because the terms of the rule in force at the time were different, and in any event the decision was only concerned with what could or could not amount to a Part 36 offer, not whether costs consequences under the Rules could be taken into account.[15]Whilst accepting that Mitchell v James may not be binding authority on the point, I have little hesitation in accepting Mr West’s submission that costs do not fall to be considered when determining whether Rule 36.14(1)(b) has been satisfied.[16]The starting point is that as Peter Gibson LJ observed at paragraph [31] of Mitchell, the word “judgment” naturally connotes what the trial judge holds or decides on the substantive issues in the case, as distinct from the ancillary question of costs which falls for consideration after the substantive issues have been decided.[17]At the stage when consideration is being given to whether Part 36 is engaged, the court will not normally have embarked upon the exercise of determining the incidence of costs absent the offer. If “judgment” in Part 36.14(1) were to include a decision on costs, it would be necessary for the court to undertake this exercise of determining what the incidence and basis of costs would be in the absence of the Part 36 offer. It would first have to exercise its discretion under Part 44, on the basis of all the circumstances of the case, before considering the effect of Part 36. This makes no sense, as Sir Stanley Burnton observed in Webb v Liverpool Women’s NHS Foundation Trust [2016] 1 WLR 3899 at paragraph [37]. Such a potentially elaborate and otiose exercise cannot have been intended.[18]Such a decision on costs, absent consideration of a Part 36 offer, could only be provisional: it would be a determination of what costs order the Court would make subject to the application of Part 36, which once considered might result in a different costs order. It is difficult to see how such a provisional determination on costs, as a precursor to a concluded decision on costs, could properly be described as a “judgment”. That word, if applicable to costs at all, could only apply to a concluded decision on costs. It is only the particular course of these proceedings which has meant that, unusually, the Court has expressed its decision on costs in the absence of knowledge of the Part 36 offer and is in a position to say what its costs decision would have been both now and at the time of expiry of the offer. That will not normally be the case.[19]Rule 36.14(1)(b) only applies “on judgment being entered”. The “judgment” referred to in rule 36.14(1)(b) must be the same as the “judgment being entered” in the introductory wording of the sub rule. What rule 36.14(1)(b) requires is a comparison between that judgment and the proposals contained in the Part 36 offer so as to determine whether the former is as advantageous to the claimant as the latter. The reference to the judgment “being” entered recognises that the court will be addressing the incidence of costs and the potential effect of a Part 36 offer when it has determined what judgment is to be entered in relation to the substantive issues in the case, but often before that judgment has formally been entered by being embodied in an order.[20]It is clear that the expression “judgment being entered” cannot include a decision on costs for a number of reasons. Providence’s argument requires one to treat the provisional decision on costs as a judgment “being entered”; yet the consequences of considering the effect of a Part 36 offer may be that the order on costs is not the same as that which would have resulted from the provisional decision based simply on the exercise of the Part 44 discretion. The provisional decision may never be “entered” in the sense of forming any judgment or order which is made and recorded as such. Put another way, it is necessary to be able to determine whether Part 36 is engaged before one can know what costs order will be entered.[21]Providence’s approach might require the provisional costs decision not merely to determine the incidence of costs but also to assess them. In order to determine whether the claimant had beaten the Part 36 offer it might be necessary not only to decide who should bear what part of the costs and on what basis they were to be assessed but actually to perform that assessment. As Peter Gibson LJ observed at paragraph 32 of Mitchell v James, the draftsman cannot have contemplated that the judge might have to evaluate the quantum of a Part 44 costs order, which is normally the function of a costs judge.[22]There is a further obstacle to Providence’s argument, which is that the potential exercise of deciding the incidence and basis of assessment of costs, and making that assessment, would have to take place not merely at the date of judgment but also at the date of the expiry of the Part 36 offer. That is because if one were including costs in deciding whether the Part 36 offer were more or less advantageous than the outcome, the relevant enquiry would be what costs order would have been made in relation to the costs up to the date at which the offeree was required to make his decision whether or not to accept the offer. It is for this reason that the appropriate comparison requires interest to be calculated to the date of the offer: see Purrunsing v A’Court [2016] EWHC 1528 (Ch) at paragraphs 15-16. The decision which the judge at the end of a trial will make on the costs of the action as a whole will often be reflected in a single overall award, not one which is broken down by reference to periods of time. It by no means follows that the same order would be made in relation to the costs up to a particular point of time. It cannot have been the intention of the draftsman of Part 36 that in order to determine whether it was engaged, the court might have to look into and quantify the costs incurred up to the point of time when the offer expired and decide how it would have allocated the costs had the trial taken place at that date.[23]In all these respects Providence’s argument is contrary to the purpose of Part 36, which is to provide a clear rule so that it can be easily determined whether the party has or has not beaten the offer. 36.14(1)(A) was obviously included for this purpose. An interpretation which might require the court to indulge in two provisional costs decisions, which might themselves be lengthy, controversial and costly, in order to decide whether Part 36 is engaged, would undermine the purpose of the rule which is one of simple application.[24]Moreover, if costs were to be taken into account in determining whether a Part 36 offer were effective to trigger the Part 36 consequences, this would create difficulties for the parties in determining where to pitch a Part 36 offer and whether to accept it. It is often relatively straightforward for a party to identify the amount of principal and interest which it thinks it will recover, or which it will have to pay. If, however, it has to assess what costs order the judge will make at trial or what costs order the judge would make if the trial were taking place at the date of the offer or its expiry, the task is immeasurably more difficult. Again such uncertainty is inimical to the purpose of Part 36.[25]Finally there is in any event a further difficulty, illustrated by the circumstances of this case where the costs decision is that each side should bear their own costs. Even were one to assume that an order that one party pay costs to the other is included in the expression “judgment”, it is difficult to see that a decision that there be no order for costs can amount to such a “judgment being entered.” Effect can be given to such a determination by making no provision in the order, and where provision is made it is often reflected by wording which is no more than clarificatory that “there be no order as to costs”. If a decision that each side should bear its own costs, which is a not uncommon form of costs decision and that which in fact arose in the current case, cannot amount to “a judgment being entered”, that is another powerful indication that the expression does not extend to decisions on costs at all.[26]For all these reasons costs do not fall to be taken into consideration in determining whether a judgment against a defendant is at least as advantageous to the claimant as proposals contained in a claimant’s Part 36 offer. It follows that in this case Part 36 is engaged. The principal and interest which form the judgment which is “being entered” is approximately US$14.6 million. That is more advantageous to Transocean than the proposal in the Part 36 offer that it would accept US$13 million inclusive of interest.

Are the Part 36 consequences unjust?

[27]The relevant principles have been considered in a number of authorities, most recently in Webb v Liverpool Women’s NHS Foundation Trust [2016] 1 WLR 3899, from which I derive the following principles:(1) Where Part 36 is engaged, the court does not start by exercising its discretion under Part 44. The sole decision is whether it is unjust that the Part 36 consequences should apply, which is a discretion exercised under Part 36: Webb at [37].(2) The discretion is not limited to the basis of assessment of costs, but extends to the incidence of costs. The court may disallow or apportion costs as well as disapply the indemnity basis of assessment or the interest provisions to such costs as it awards; Part 36 does not preclude the making of an issue based or proportionate costs[28]In most cases it will not be appropriate to embark upon an inquiry of how costs would be allocated in the absence of the Part 36 offer, either at the date of judgment or at the date of the offer, for the reasons I have endeavoured to explain. Save in exceptional circumstances, that is a consideration which will no more arise at the discretionary stage than it does in deciding whether Part 36 is engaged. However, the exceptional feature of the present application is that because of the unusual procedural history of these proceedings, I have been able to decide, without any significant additional inquiry or difficulty, what costs order the court would make in the absence of consideration of the Part 36 offer, both at the conclusion of the trial and at the time of the offer. As to the latter, I would have made no order as to costs, a conclusion with which it would not seem that Transocean quarrels because it accepts that that should remain the order in respect of the period prior to expiry of the Part 36 offer.[29]Am I bound to ignore that costs position when deciding whether it is unjust that the Part 36 consequences should apply? I do not consider that I am. It is well known that in heavy commercial litigation of this kind, costs can be substantial and the costs outcome can be an important consideration for the parties. The claims and counterclaims in this case were about money. What ultimately matters to the parties is the bottom line of how much is paid by one party to the other. That payment has to take account not only of principal and interest but also of costs, especially in a case such as the present where the amount of costs is significant by comparison with the sums at stake. Transocean would have had costs well in mind when making the Part 36 Offer and so would Providence when considering whether to accept it. I see no reason in principle why the court must ignore commercial reality and leave out of its consideration something which is of real significance to the parties.[30]Against that background it is convenient to look at the position at the time of the offer both from Transocean’s point of view and from that of Providence. From Transocean’s point of view it can fairly be said that its offer was too high. Had the issues been determined at the date of the Part 36 offer in the way in which they were ultimately determined, there would have been no order for costs at that date, and Transocean would have recovered a total of approximately US$14.6 million and no costs; whereas under the offer Transocean was seeking the receipt of about US$16.3 million from Providence. In this sense, if Providence had accepted the offer, Transocean would have recovered a windfall. Conversely, and looking at it from Providence’s point of view, if Providence had accepted the offer it would have paid Transocean more than the court would have ordered it to pay had the action been determined at that time, including a determination on costs.[31]However, there are other considerations which also need to be taken into account. As Mr West points out, by refusing to accept the offer and fighting on, Providence has incurred its own costs of the action, which include those of the trial and its unsuccessful opposition to the appeal, and has been held liable for Transocean’s costs of the appeal. Transocean’s solicitor, Mr Kirby, has sought to estimate those costs, in the absence of figures from Providence, on the basis of Transocean’s own costs, which would put them at approximately £2 million. That effectively wipes out the figure of about £2 million of Transocean’s assessed costs which Providence would have had to pay had it accepted the Part 36 offer. When one takes account of the difference in principal and interest between the sum offered and that awarded (about US$ 1.6 million), it is clear that Providence is worse off by having decided not to accept the offer. Moreover, it is not only Providence’s position following rejection of the offer which falls for consideration. By not accepting the offer Providence has caused Transocean to incur almost £2 million of further costs, irrecoverable unless the effect of not accepting the offer is taken into account; it has caused both parties to devote management time and effort to conducting the litigation which might have been better spent elsewhere; and it has caused a good deal of court time and expense to be incurred. A trial of this length has the effect of delaying hearings for other litigants. It follows that if the policy underlying Part 36 is to be given effect in encouraging settlement and encouraging the parties to avoid wasted costs and court time, it can be said that the offer was one which Providence ought to have accepted. Looked at in the round, if Providence had predicted how things were going to turn out, it would have accepted the offer because it would have been better off than it now is (even assuming no order for costs); and that would have served the policy ends of Part 36 in avoiding the adverse consequences of continued litigation in time and cost to the parties and the court.[32]A further relevant consideration is that if Providence had been concerned that the offer of US$13 million was acceptable but for the costs consequences, it would have been open to Providence to make a counter offer explaining that position, and to do so on terms “without prejudice save as to costs” so as to gain costs protection. It would also have been possible for Providence to make its own Part 36 compliant offer in monetary terms which were equivalent to the financial consequences of the Part 36 Offer adjusted for costs. It could have avoided providing Transocean with any “windfall” by making such counter offers.[33]It is also necessary to take into account that the conduct of the claim by Transocean after the Part 36 offer is open to serious criticism in the two respects which are identified in my Costs Judgment. That merits some disapplication of the Part 36 consequences for the reasons explained by Briggs J, as he then was, in Lilleyman at paragraph [16]. That is as far as the criticism legitimately goes. That conduct was in relation to parts of the technical case, but it does not infect the whole of the technical case, and I reject, as I did in my Costs Judgment, the submission that Transocean acted unreasonably or dishonestly in pursuing the technical case at all, which was supported by its expert, or that I should in some way treat the whole of the costs attributable to the technical issues to unreasonable conduct on Transocean’s behalf.[34]Providence also relied on a number of respects in which Transocean’s case had changed since the date of the Part 36 offer, including points on which it had failed or which it had abandoned. They do not affect the position. A Part 36 offer by a claimant at anything less than 100% predicates that there may be points on which it loses, and that the costs protection which it purchases is protection against running points on which it fails. In commercial cases of the complexity of this dispute, which involved a large array of different points, it is inevitable that some will change their focus and emphasis and some may be abandoned. That is part of the normal experience of commercial litigation and it is not unusual for a claimant to succeed on some but not all of its allegations. That is not of itself a reason for departing from the primary rule that the successful party should recover its costs: see Webb at paragraphs 24-28; nor should it be a factor which makes the normal Part 36 consequences unjust.[35]The position can therefore be summarised in this way. Transocean’s Part 36 offer was, in commercial terms, and taking account of its costs consequences, too ambitious. Had it been accepted, Providence would have paid, and Transocean would have received, more than would have been the case had the court given judgment on liability and costs at the date of the expiry of the offer. In that sense, Transocean’s offer was too high. There should, moreover, be some disapplication of the Part 36 consequences in any event to reflect the criticisms I have made of Transocean’s conduct, which was not merely unreasonable but dishonest. On the other hand, Providence could have avoided the windfall problem by making a counter offer which protected its costs position; and in any event, when taking into account the subsequent adverse consequences for the parties and the court which would have been avoided by accepting the offer, Providence should have accepted it.[36]Taking all those matters into account, I have concluded that it would be unjust that the full Part 36 consequences should follow, but it would not be right that they be disapplied in full. The overall justice of the position is that Providence should pay Transocean’s costs from 30 August 2014 but without the other Part 36 consequences. Such costs will be assessed on a standard basis, interest will not run at 10% on the principal sum nor on costs, and there will be no surcharge.

order

Webb at [38]. Equally the discretion extends to the other Part 36 consequences which are not concerned with costs, namely the rate of interest on the principal sum awarded and the surcharge of up to £75,000. (3) In exercising its discretion the court takes into account all the circumstances of the case. Those include, but are not limited to, the four particular circumstances which are enumerated in rule 36.14(4) (now expanded to five circumstances in rule 36.17(5)); there is no limit to the types of circumstances which may, in a particular case, make it unjust that the ordinary consequences set out in Rule 36.14 should follow: Webb at [38], Lilleyman v Lilleyman(No 2) [2012] 1 WLR 2801 at [16]. (4) Such circumstances include the conduct of the proceedings by the offeror. If the offeror has increased the costs of proceedings by conducting the litigation inappropriately, it will usually be unjust that he should recover such costs, let alone on an indemnity basis and with 10% interest. A party making a Part 36 offer does not have carte blanche thereafter to conduct litigation unreasonably or inappropriately with impunity and the Part 36 consequences may be modified where his conduct has not served the interests of justice: Lilleyman at [16]. (5) Nevertheless, the court does not have an unfettered discretion to depart from the ordinary costs consequences set out in Rule 36.14. The burden to show injustice which rests on a claimant who has failed to beat the defendant’s Part 36 offer, or vice versa, is a formidable obstacle to the obtaining of a different costs order. If that were not so, then the salutary purpose of Part 36, in promoting compromise and the avoidance of unnecessary expenditure of costs and court time would be undermined: Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch) at [13(d)], approved in Webb. (6) It is a relevant, but not determinative, factor whether it was reasonable or unreasonable for the offeree to refuse the offer in the circumstances which were known to him at the time: Matthews v Metal Improvement Co Inc [2007] EWCA Civ 215 and SJ v Hewitt [2012] EWCA Civ 1053, which is why the third and fourth of the particular circumstances which rule 36.14(4) requires the court to take into account are addressed to the provision and availability of information at that time. (7) However the relevant question is not whether it was reasonable for the offeree to refuse the offer in the circumstances then known to it. Rather the question is whether and to what extent having regard to all the circumstances, and looking at the matter as it affects both parties, an order that the offeree should pay the costs and suffer the Part 36 consequences would be unjust: Matthews v Metal Improvements at para 32, Smith v Trafford Housing Trust at [13(a)], Webb at [38]. The court will always consider whether the offeree “should have” accepted the offer, by reference to what the court subsequently determines to have been its substantive rights, regardless of whether the offeree took a reasonable view of its prospects at the time. (8) In exercising its discretion, the court must also take into account that by accepting the offer the offeree would have avoided the continuation of the litigation, including the subsequent costs of the action: Webb at paras [38], [39]. This is an important consideration. One of the functions of Part 36 is to encourage settlement. Settlement enables both parties to avoid incurring further costs thereafter; it avoids the devotion of time and energy to the litigation which might be more productively applied by the parties elsewhere; and importantly it also avoids the use of court time and resources which can then be allocated to other court users. Accordingly the avoided consequences of accepting a Part 36 offer, in terms of costs and court time, are an important consideration in the discretionary exercise which arises under Part 36, both from the point of view of the parties and the public interest in the administration of justice.