UK: Whitecap Leisure Ltd v John H. Rundle Ltd [208] EWCA Civ 1026: The Modern Approach To Litigation Costs

Last Updated: 1 October 2008

"Anyone with any sense knows that litigation is expensive. Anyone with any sense knows that litigation is more expensive than one's worst fears. Anyone with any sense would avoid litigation. Commercial men should look at their balance sheet rather than the pleadings."

The common sense approach adopted by Lord Justice Ward in his judgment on costs following the appeal of this case reflects a new attitude adopted by the courts to this fundamental aspect of litigation.

The underlying dispute involved the rejection of goods by the buyer on the grounds the equipment in question was defective.

In brief, Whitecap entered into a contract with Rundle to buy a cable tow system to enable it to provide water skiing at its lake without the need for powered boats to tow the skiers. The price was £157,000, payable in instalments before and after the delivery and installation of the equipment.

Rundle delivered and assembled some of the equipment which was put to commercial use.

Whitecap experienced problems with the equipment, subsequently withholding payment of outstanding instalments of the purchase price. After Rundle threatened to sue for the balance, a compromise agreement was reached requiring Rundle to use its best endeavours to improve performance - but for a reduced payment.

Whitecap continued to operate the equipment, but then there was another major breakdown causing Whitecap to reject the equipment on the grounds that it was not fit for its purpose or of satisfactory quality in accordance with sections 14(3) and (4) of the Sale of Goods Act 1979. Whitecap dismantled the equipment and Rundle removed most of it but was refused access to remove the last of it.

Whitecap bought alternative equipment, but continued to make use of some of Rundle's equipment. Whitecap claimed damages for Rundle's failure to deliver goods in accordance with the contract, claiming for: (i) the amount paid to Rundle for the goods (ii) loss of profit for the periods when equipment was out of action (iii) the costs of carrying out the repairs. Rundle claimed for the balance of payments owed to it and referred to section 35(4) of the Act 1979 under which a buyer is deemed to have accepted goods after the lapse of a reasonable time.

The first instance judge held that Whitecap had taken too long to object and had lost the right to reject Rundle's equipment, as Whitecap was deemed to have accepted it in accordance with section 35, owing to the lapse of a reasonable time and by carrying out various acts (repairing and replacing defective equipment) that were inconsistent with Rundle's ownership.

The matter went to appeal. The Court of Appeal agreed with this part of the judge's conclusion. However, it also decided that Rundle had a choice: it could either dispute Whitecap's right to reject the equipment and claim the outstanding balance of the price, or it could agree to it, recover the equipment and claim damages for non-acceptance. Rundle had opted for the latter, resulting in Whitecap effectively rejecting the equipment. The result was that the goods vested unconditionally in Rundle and Whitecap ceased to be liable for the price, entitling it to recover the payments it had made to Rundle.

Whitecap's other claims, in respect of losses caused by the defective equipment, were rejected as a result of a limitation clause included within Rundle's contract terms which effectively relieved Rundle of liability for any defects other than those that appeared during the first year after delivery and were notified in writing within a period of 14 days thereafter. Whitecap issued no notices within that period and therefore its claims failed.

In considering the question of costs, Lord Justice Ward referred to CPR 44.3(2), which provides that the unsuccessful party should pay the costs of the successful party. The question for the court was who would be deemed the winning party in this case. Furthermore, under CPR 44.4, the court had the discretion to make an order that costs should not follow the event, having regard to all the circumstances including the following: the conduct of the parties, whether a party had been wholly or partly successful and whether a part 36 offer had been made and / or an admissible offer to settle had been proposed.

The judge commented that given both parties had behaved badly or, as he put it, "taking a charitable view, each has been as bad as the other in many ways in the stance each has adopted from time to time throughout this sorry story and we do not find that the conduct of the parties weighs heavily in the balance".

The next consideration was that Rundle's appeal had been allowed, but not in full, given that Whitecap had been allowed to recover the instalments it had paid for purchase of the equipment. The judge noted that a part 36 offer had been made by Whitecap even before the claim had been issued, offering to accept a settlement at £75,000. It was subsequently awarded £125,000, so its recovery had been more advantageous than its offer. A large part of the costs had been incurred in pursuing their claim for damages which they ultimately lost; nonetheless, it had not been unreasonable for them to have pursued that action given that the first instance court decided in their favour. It had been a tenable case to run. Furthermore, Whitecap had made an offer of "drop hands", had later proposed mediation, but Rundle had accepted neither. Had Rundle paid the £75,000 pursuant to the part 36 offer, they would have saved money, yet they chose to litigate.

Consequently, with regard to the costs incurred at first instance, the Court of Appeal allowed Whitecap their costs on a standard basis up to the expiry of the part 36 offer, with their subsequent costs through trial on an indemnity basis.

With regard to the costs of the appeal, Rundle was allowed to recover 80% of his costs on the basis that a discount should be given to reflect the fact that his appeal was not totally successful.

This case is a warning to litigants to keep costs proportionate to the size and type of claim concerned and to give serious consideration to the possibilities of settlement and mediation where possible.

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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