PART 36: WHEN THE NORMAL COSTS PENALTIES MAY NOT APPLY

In Yentob -v-MGN Ltd [2015] EWCA Civ 1292 the Court of Appeal upheld a decision of the judge not to impose the normal penalties when a claimant failed to beat a Part 36 offer.

KEY POINTS

  • When a party fails to beat a Part 36 offer the normal costs consequences apply unless the court finds it is “unjust” for them to do so.
  • In considering the issues of whether it is “unjust” the court is entitled to, indeed must, consider all aspects of the case.
  • The judge determining this issue cannot put any factors to one side, unless they provide no assistance on the issue of whether the normal consequences would be unjust.

PRACTICE POINTS

  • This case is unusual. Needless to say the only prudent assumption in the face of a Part 36 offer is that the normal costs consequences will apply.
  • There are some aspects (in paragraph 21 of the judgment set out below) in relation to requesting clarification of the offer which could be of relevance in some cases, however these will probably be rare exceptions to the normal principles.

THE CASE

  • The claimant brought an action against the defendant for “phone hacking”.
  • The defendant made a Part 36 offer which the defendant failed to beat at trial.
  • Rather make the “usual” order that the claimant pay the defendant’s costs from the expiry of the order the judge held it was unjust that the claimant pay any of the defendant’s costs and made no order for costs.

THE RULES RELATING TO WHEN IT MAY BE UNJUST TO APPLY THE USUAL COSTS CONSEQUENCES

  1. he argument turns on CPR 36.17, the relevant parts of which provide:
(1) Subject to rule 36.21, this rule applies where upon judgment being entered-

(a) a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer; or

(3) Subject to paragraphs (7) and (8) [which do not apply], where paragraph (1)(a) applies, the court must, unless it considers it unjust to do so, order that the defendant is entitled to-

(a) costs (including any recoverable pre-action costs) from the date on which the relevant period expired; and

(b) interest on those costs.

(5) In considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4), the court must 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 when the Part 36 offer was made;

(d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and

(e) whether the offer was a genuine attempt to settle the proceedings.

THE JUDGE’S REASONING

43 In what I might call a more normal case, it seems to me that the desire to have a trial in order to have a finding of a judge in public as to what happened is unlikely to be a legitimate objective in Part 36 terms so as to justify a claimant refusing to accept a Part 36 offer and insisting on going to trial. As Mr. Nicklin correctly pointed out, there may well be a lot of victims of personal injury incidents who would wish, for reasons which are entirely understandable in human terms, to have a trial so that it can be made plain what happened to them and how monstrous the behaviour was. As Mr. Nicklin points out, that is not a justification for not accepting a Part 36 offer which is greater than an amount which the claimant is ultimately awarded.
44 However, I do not think this case falls quite into that category. Looking at the way the case was conducted as regards Mr. Yentob and in particular the refusal to acknowledge the extent of hacking, even in final submission, I think it is more probable than not that had Mr. Yentob asked for an agreed statement in court which made the position clear, that it would not have been forthcoming in terms which would have matched the sort of findings which Mr. Yentob has now got in his favour. I also think it is of some significance that it will not have been wholly apparent until the trial itself that the material was not going to be available to enable Mr. Yentob to have his clear statement of how badly he had been hacked and what information had been obtained from and about him.
45 In the circumstances, I consider that the justice of the case does involve a departure from the normal rule which would otherwise entitle the defendant to their costs from the 21-day period applicable to the offer, but not to the extent of entitling Mr. Yentob to his costs throughout. Mr. Yentob did have, but did not take, an opportunity to clarify the position in response to the offer in the last sentence of MGN’s Part 36 offer letter, and so did not take the opportunity to avoid having this debate or perhaps the whole action. In my view, the justice of the case is met not by simply imagining Part 36 offer had never been made, but by acknowledging that in financial terms Mr. Yentob ought to have accepted that offer but has lost an opportunity perhaps to have avoided the action completely, with a serious question mark as to whether the defendants would have taken it, and to say that from the date of the expiry of the relevant period under that offer (which is, I think, the wording in the rule), there should be no order as to the costs of Mr. Yentob’s action. Each side will bear their own costs. That will be my order. (Italics added)
THE COURT OF APPEAL’S UPHOLDING OF THE JUDGE’S DECISION
  1. As to the question of law, in my judgment, the judge was correct for two reasons. My first answer is that the submission elides two separate questions: (a) the sub-rule (1) question: was the offer more advantageous than the award at trial? and (b) the sub-rule (5) question: is it unjust for the Normal Consequences to apply? These are separate inquiries and there is no logical reason why the same material should not be relevant to both. My second answer is a textual one based on CPR 36.17(5). This expressly requires the judge to look at “all the circumstances”. The judge cannot put some factors on one side, unless of course they provide no assistance in determining whether the Normal Consequences would be unjust.
  2. If it had been intended that the judge should leave out of account circumstances so obvious as the terms and circumstances of the relevant offer, the rule would have said so. It would have to be a mandatory exclusion in view of the mandatory obligation to take account of all the circumstances. Nor would it make any sense to exclude the terms and circumstances of the offer. Suppose that a person to whom a Part 36 offer had been made had asked for clarification or more relevant information and been refused it or the answer misrepresented the position. If that information was material and might reasonably have altered his view on whether to accept the offer, and was information within the offeror’s organisation, the court might well find that it would be unjust to order that the Normal Consequences should follow from non-acceptance. I accept the purpose of Part 36 offers is as Lord Pannick described it but that cannot be the sole purpose of CPR 36: a subsidiary purpose must be to prevent injustice from the Normal Consequences as a result of non-acceptance of a Part 36 offer.
  3. So, in my judgment, the judge was entitled to look at all the circumstances, including those pertaining to the offer. On the other hand, as Lord Pannick submits, it is not enough for the party who fails to beat an offer to show that the decision not to take up the offer was a perfectly reasonable one. He must show that it would be unjust were the Normal Consequences to apply.

On the facts of the case it was held that the judge’s decision that it would be unjust to apply the normal principles was a correct one.

RELATED POSTS ON PART 36

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