PART 36 COSTS CONSEQUENCES – NOT A BLACK AND WHITE ISSUE

January 6, 2016

 PART 36 COSTS CONSEQUENCES – NOT A BLACK AND WHITE ISSUE

 

When, following judgment at Trial, a Part 36 offer comes into play, perhaps understandably, the main focus is on whether the offeree has obtained a judgment “more advantageous” than the offer. However, in the recently published decision in Yentob v MGN Ltd [2015] EWCA Civ 1292 the Court of Appeal dealt with the second phase of consideration required by the rules, namely whether the natural consequences should not apply if it would be unjust.

 

We are dealing here with the particular provisions of CPR 36.17. By subsection (3) where a Claimant fails to obtain a judgment which is more advantageous than the Part 36 offer the Court must order that the Defendant is entitled to its costs from expiry of the “relevant period” unless it considers it unjust to do so. By subsection (5), in considering whether it may be unjust, the court is to take account of all the circumstances including the terms of the Part 36 offer; this stage at which it was made (in particular how long prior to trial); the information available to the parties at the time; the conduct of the parties in giving or refusing information to enable the offer to be evaluated and whether or not the offer was a genuine attempt to settle.

 

In this case, the Claimant did not accept an offer of £85,000 and when considering the issue, the High Court found that in financial terms he had not obtained a judgment which was more advantageous. However, whilst appreciating that it was a difficult issue, in the unusual circumstances of this case the Judge found that the normal consequences should not apply and therefore ordered no order for costs from the time of expiry of the relevant period until conclusion of the matter.

 

This was a phone hacking case in which the Judge found that there had only been limited admissions by the Defendant, particularly as to the period over which the hacking taken place. It appears that the defendant admitted hacking over a 2 ½ year period, whereas at trial it was found to have been conducted over 7 years. It was also found that it was only at trial, upon the evidence being tested, that full disclosure of the extent of the hacking was available and indeed it was found that some crucial evidence in that regard had been destroyed.

 

The Judge stated that simply because a Claimant wanted to know what had happened to him was insufficient to justify a trial (and therefore the refusal to accept the Part 36 offer). In this type of case, CPR 53 provides for the ability for the parties to have a joint statement in open court which would set out publicly the vindication for the Claimant in bringing the action. The Judge found that it was unlikely that the Defendant in this case would have agreed to a statement which would match the findings of the Court at trial as to the extent of the hacking. The fact that the Defendant had failed to respond to a request to consider such a statement following a previous Part 36 offer and the fact that there was a refusal to accept the extent of the hacking even in the final submissions drove the Judge to the conclusion that even if the Claimant had requested such a course following service of the later Part 36 offer, it was unlikely that the Defendant would have agreed to it.

 

The hearing before the Court of Appeal was an application for permission to Appeal. The first ground was that there had been no explicit finding that it would be unjust for the natural consequences to apply (the Judge had referred to the justice of the case being met by another course) and that the requirement for it to be unjust was not met simply by the offeree having reasonable grounds for not accepting. The Court of Appeal found that when looking at the judgment as a whole, it was clear that the Judge had set out the rule and it was improbable that the decision had been made on a misreading of that rule. By saying that the desire to proceed to trial itself was insufficient to render the natural consequences unjust, the Judge had clearly recognise that more was needed.

 

The second ground was that the Judge had erred in taking account of the facts that there had been limited admissions and that it was unlikely that the Defendant would have agreed to a statement. Having already found that the judgment was not more advantageous, the necessary threshold had been passed and therefore the terms and circumstances of the offer were irrelevant. The object of the rule was to provide an incentive to settle and therefore, the threshold having been passed, the normal consequences should apply.

 

The Court of Appeal found that this argument was not correct because it conflated the 2 separate tests provided for within CPR 36.17. First there had to be a determination as to whether the judgment was more advantageous and second there had to be a consideration of whether it was unjust for the natural consequences to apply. There was no reason why the same material should not be relevant to both questions, but in relation to the second question, the rule explicitly required the Court to look at all the circumstances. If the Court was supposed to leave out of its consideration such obvious circumstances as the terms of the offer, the rule would have said so and it would make redundant the explicit consideration required as to the conduct of the parties on the giving or refusal of information to enable the offer to be evaluated. The Court of Appeal held that the Judge was entitled to make a finding of fact that it was unlikely that the Defendant would have agreed to a joint statement which would mirror the terms of the final judgment and that in all the circumstances, the Judge’s decision not to follow the natural consequences was appropriate.

 

In conclusion, it must be said that this case is not perhaps the same as in many cases which proceed to trial and that in those other cases it may well be that there are not circumstances which would so plainly point to the justice of the case substantiating the need for a trial which would no doubt be a very expensive part of the whole proceedings. However, it does give a very clear exposition of the factors which should be taken into account when considering the second limb of the Part 36 test and provides scope for further consideration of what tactics may reasonably be employed following receipt of even a tempting Part 36 offer.

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