How Should The Discretion Be Exercised?
84 Prima facie costs follow the event. That result may be changed by an Offer of Compromise in which event the Court's discretion to make some other order is quite limited; or by the making of an offer by way of a Calderbank letter, in which event the Court has a greater degree of discretion as to whether it will follow the usual rule. The offer SMEC made under Part 19A should be treated as such an offer, it not having the more stringent consequences flowing from Part 39A rule (6). The rules in relation to Offers of Compromise were obviously introduced to give effect to the aims and objectives stated in Part 39A and, in my opinion, the Court, when exercising the wider discretion may have some regard to those aims and objectives, which are very important in the conduct of litigation.
85 It seems to me that in considering, in any particular case, the way in which the discretion, either in relation to an Offer of Compromise or a less formal offer, is to be exercised, the Court must have regard to the specific facts of the case. It is not, in my opinion, sufficient to simply rely upon a general observation that the position of the parties or the state of the litigation caused difficulty in determining whether an offer should or should not be accepted. One of the major difficulties in litigation is determining the result. Indeed one of the questions most frequently asked of legal advisers is what the likely result will be. The whole process of offers involves the parties' speculating, at least to some extent, on the answers to the questions whether liability will be established and, if it is, what will be the amount of damages. The earlier the offer is made, the less likely it will be that the parties can receive a confident answer to that question. The reason for that is that most litigation is now conducted on the basis of exchange of evidence in chief and experts' reports, so that the further prepared it is, the more likely it is that a reasonably accurate answer can be given.
86 Further, the rules providing for Offers of Compromise do not state that any such offer must be made at a time when the offeree is in the best, or even a good, position to assess its prospects in the case. Nor is an offer by way of a Calderbank letter necessarily governed by those considerations. Indeed, there is much to be said for making offers at an early stage before the parties take entrenched positions and before the costs expended make it very difficult, if not impossible, for a commercial settlement to be reached. The making of an early offer is also consistent with the aims and objectives of the rules.
87 In this case the plaintiff was suing the defendant. No question of multiple defendants affected any Offer of Compromise between those parties. The defendant should, in my opinion, have been in a position by April/May 1998 to form an assessment of its prospects of successfully defending the plaintiff's claim and of the likely range of damages to which the plaintiff would become entitled and to make a further assessment of any discount, which should be made, on the basis that the plaintiff would not succeed on liability.
88 I say that based on the facts that the litigation had been proceeding for at least fifteen months, i.e. at the shortest since the end of 1996; that the defendant was well aware of what steps had been taken in respect of the filling and must have been aware of the development proposed by the plaintiff, it being the relevant consent authority for it; and that it had instructed experienced commercial solicitors over some period. On the basis of the information it had, the defendant was able to make the assertions in the letters of 17 March and 28 April 1998, which I construe to be letters predicating that the defendant would offer to settle with the plaintiff provided it had a full indemnity. Where, in my opinion, the defendant failed, at least in the first instance, was by not advising those it was suing of the amount for which it proposed to settle, but rather seeking an unlimited indemnity.
89 Nor was the defendant was simply offering to hand over the conduct of the litigation to those it had sued in return for the full indemnity because, in the absence of any settlement between it and the plaintiff, it necessarily remained a party to the proceedings.
90 Accordingly, it seems to me that the correspondence of 17 March and 28 April 1998, properly construed, required a complete indemnity from those joined by the defendant to the defendant, which would enable the defendant to settle with the plaintiff and then leave those which the defendant had joined to fight out the question of contribution as between themselves.
91 In my opinion, having received the offer from SMEC, the defendant was not entitled to retreat to its position of only being prepared to negotiate on the basis of a complete indemnity. It was then bound, at the very least, to explore the prospect of settlement, it being pivotal to an overall settlement. However, it did not do so.
92 SMEC's principal submission was that an obvious course open to the defendant, which it should have taken, was to accept the offer of SMEC and pass it on, by way of Offer of Compromise, to the plaintiff. That would not have led to any complication in the litigation, because if it had taken it, and on the assumption that the offer was not accepted, SMEC would not have been removed from the litigation. As between it and the defendant, the proceedings would have been resolved, but it would have remained a party by virtue of the claims for contribution and indemnity made against it by Fordham and LL&H. Thus, in the case against the plaintiff its evidence would have been available and, of course, SMEC had a real interest in keeping the plaintiff's damages down and in contesting the amount of contribution for which it was liable.
93 In my opinion SMEC's submission should be accepted. The question to be asked was whether, as matters stood when it made its offer under Part 19A, it was reasonable for the defendant not to have passed it on by way of an Offer of Compromise to the plaintiff. I consider that it could only have been reasonable for it not to do so, if that left the defendant in a position of risk in the litigation. I do not believe, viewed as at April 1998, it did.
94 This conclusion must be tested by looking at the various results, which could have been foreseen as at April 1998, if such Offer of Compromise had been made.
95 Firstly, the plaintiff may have accepted it, in which case the defendant would have paid it out with money received from SMEC and had its costs substantially paid by SMEC. Any residual dispute about contribution between SMEC, LL&H and Fordham could not have adversely affected the defendant. Indeed that is what the defendant was suggesting in the correspondence should occur.
96 Secondly, the plaintiff may not have accepted the offer. In that case two situations can be hypothesised, viz that the plaintiff would have received a less favourable or a more favourable result than the Offer of Compromise.
97 In the first situation the defendant would have been able to meet the judgment from the offer made by SMEC; it would have received from SMEC its costs to the date of making the offer and it would have been entitled to an order under Part 39A rule 6 that the plaintiff pay its costs on a party and party basis from the date of the offer. One can see no basis why the ameliorating provisions of that rule would have led to any other conclusion. Thus the defendant would not have suffered any prejudice.
98 In the second situation the defendant would have had SMEC's contribution to the judgment and its costs to the date of the offer. As the parties it joined would have still been in the litigation, it could have claimed the additional amount from them, the defendant believing and asserting in very strong terms that it was entitled to recover a full indemnity against each of them. So far as the costs payable to the plaintiff, the defendant could have recovered them from LL&H and Fordham. The only possible prejudice was if the Court was to apportion costs between SMEC, LL&H and Fordham in a way which made SMEC liable for some costs which the defendant could not recover because of the settlement. But this was not a concern the defendant was expressing in 1998. As I have said several times it was demanding a full indemnity from each. However, more significantly, as s.109ZJ did not apply, any judgment against LL&H and Fordham would have been for the full amount of indemnity to which the defendant was entitled against each. Contribution would have remained an issue as between LL&H and Fordham, but would not have affected the entitlement of the defendant to recover the whole amount from either.
99 On this analysis the defendant would not have, in any of the situations which could have occurred, suffered any prejudice. It would have left the litigation without having to make any payment save for its own solicitor and client costs, for which it was liable in any event.
100 Accordingly, I consider that the defendant's retreat to the position it took in its letter of 28 April 1998 and its failure to pass on SMEC's offer to the plaintiff, it being the only party which could settle with the plaintiff, was completely unreasonable.