UK: Part 36 Offers And Costs Orders

Last Updated: 25 January 2013
Article by Beck Greener

Following trial and judgement in patent infringement proceedings relating to aircraft seats, the matter came to a hearing as to costs and, in particular, as to whether there should be disclosure of a Part 36 offer. The costs to be paid by the various parties were determined.

Floyd J had given judgement on substantive issues in July 2012, ([2012] EWHC 2153 (Pat)). Virgin v Jet Airways, Zodiac v Virgin, Premium v the Comptroller [2012] EWHC 3318 (Pat) deals with the costs issues.

Disclosure of Part 36 Offer

Virgin had made an offer to Contour (now Zodiac) under CPR Part 36 and the court had to decide whether it was appropriate for it to be shown that offer at this stage.

CPR Part 36.13 deals with restrictions on disclosure of Part 36 offers:

"(1) A Part 36 offer will be treated as 'without prejudice except as to costs'.

(2) The fact that a Part 36 offer has been made must not be communicated to the trial judge or to the judge (if any) allocated in advance to conduct the trial until the case has been decided.

(3) Paragraph (2) does not apply –

(a) where the defence of tender before claim has been raised;

(b) where the proceedings have been stayed under rule 36.11 following acceptance of a Part 36 offer; or

(c) where the offeror and the offeree agree in writing that it should not apply.

In Virgin's skeleton argument, they had disclosed the fact that a Part 36 offer had been made, and also one of the key terms of the offer. On this basis, Floyd J decided that it was appropriate for the court to be shown the Part 36 offer. This was on the basis that parties cannot pick and choose the terms of an otherwise privileged offer which they wish to bring to the court's attention. Virgin effectively waived the privilege in their offer by referring to one of its terms.

The offer and whether costs should be decided now

The existence of Virgin's Part 36 offer (which also referred to other proceedings) raised a question as to whether costs between Virgin and Zodiac should be dealt with at this stage, or should wait for the outcome of the other proceedings.

The judge did not accept that the existence of the offer was irrelevant. He did not accept the proposition that the only basis upon which a court could take account of an offer was if the party can be criticised for not accepting it.

Floyd J noted that if, in commercial terms, what is on offer is a solution to the litigation which is ultimately beaten by the claimant, it is arguable that the offer should have a bearing on the costs made. The judge noted that this approach may delay Zodiac's recovery of costs. However, it was further noted that Zodiac's position could be protected by an award of interest.

Air Canada's costs against Virgin

The issues to be considered were (i) the deduction to be made from Air Canada's costs to take account of the issues on which it lost; (ii) whether any part of those costs should be ordered on the indemnity basis; and (iii) interim payment.

i) Deductions from Air Canada's costs

Air Canada was the overall winner in the case, save for the issue of the validity of the designation of the UK for EP(UK) 1 495 908. Air Canada's total costs were £2.6 million, of which £228,000 (or 8.8%) was estimated to be attributable to the designation issue.

Virgin's total costs were £2.2 million. This was compared with the total costs of the defendants of £6.7 million (Air Canada - £2.6 million, Jet's costs – over £400,000 Delta's costs - £410,000 and Zodiac's costs - £3.3 million). The judge thus noted that Air Canada's costs were disproportionately high, and that it would be necessary for the costs judge to ensure that there had not been unreasonable duplication of effort.

The judge ordered that Virgin pay Air Canada's costs on the standard basis to be assessed, less the £228,000 incurred in respect of the designation issue.

ii) Indemnity basis for costs

Air Canada relied on two offers made in the course of litigation. The first offered to settle the action on the basis of an order declaring no infringement of EP(UK) 1 495 908, that EP(UK) 1 495 908 is valid, and that there was no order as to costs. The second was based on Zodiac's parent company providing a guarantee in respect of Air Canada's liability and that Virgin's claims against Air Canada would be discontinued with no orders as to costs.

Air Canada submitted that these offers justified an order for indemnity costs against Virgin.

The judge did not consider Virgin's pursuance of the action despite the first offer to be unreasonable, and this point was dismissed. The second offer was more complicated. The judge ultimately concluded that no offer had been made by Zodiac to provide an individual airline guarantee for Air Canada's liability, and that it was not obvious to Virgin that such a guarantee would be provided by Zodiac. Therefore, the judge was unable to condemn Virgin's conduct as so unreasonable as to justify an order for indemnity costs and this was not granted.

iii) Interim payment

Air Canada sought an interim payment and this was ordered at 35% of Air Canada's total estimated costs of £2.6 million, or £910,000.

Jet's costs against Virgin

Jet's total costs were over £400,000. Indemnity costs were declined for similar reasons to Air Canada's outlined above. Virgin was ordered to pay Jet's costs on the standard basis to be assessed, with an interim payment of approximately 40% of costs (£160,000).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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