High Court held it could determine costs where Part 36 offer accepted one day after expiry of relevant period, even though the offer contained a term as to costs

The High Court has found that a defendant who accepted a claimant’s Part 36 offer after the expiry of the relevant offer period could ask the court to determine costs, even though the offer contained a term as to costs: Pallett v MGN Ltd [2021] EWHC 76 (Ch).

Where a Part 36 offer is accepted within the “relevant period” specified in the offer, the claimant is automatically entitled to its costs up to the date of acceptance. However, if the offer is accepted after the relevant period has expired – even if just by one day, as in this case – the court will determine liability for costs, unless agreed by the parties.

The present case is unusual in that the court found the defendant was entitled to have costs determined by the court, despite the claimant’s offer having stated expressly that the defendant would pay the claimant’s costs on acceptance. The court emphasised that Part 36 was a ”self-contained” regime that displaced certain ordinary contractual principles. This should not be taken too far, however: it is implicit in the decision that the court considered the claimant’s offer to be a valid Part 36 offer, and so it could not contain an effective term inconsistent with the costs consequences set out in Part 36 (see for example James v James [2018] EWHC 242 (Ch), considered here). Presumably if the court had considered the term as to costs to be effective, it would have followed that the offer was not a valid Part 36 offer.

In any event, although the court accepted that the defendant was entitled to have the court determine the costs, it declined to depart from the normal order that the defendant should pay the claimant’s costs. That is the default position on late acceptance of a claimant’s offer, unless the court considers that such an order would be “unjust”. This is a very high threshold.

Background

The case relates to allegations that the defendant news group had infringed the privacy rights of the claimant by intercepting her voicemails. (It was one of a number of claims against the defendant and other news groups in relation to the ‘phone hacking’ scandal.)

In October 2020, the claimant made a Part 36 offer to settle the claim. The offer stated that the claimant would accept £99,500 in damages, plus certain ancillary relief, in full and final settlement of the claim, and that the defendant would pay the claimant’s costs of the claim. The offer went on to say that, in accordance with CPR 36.5(1)(c), it specified a “relevant period” of 21 days within which the defendant would be liable for the claimant’s costs in accordance with CPR 36.13(1) if the offer was accepted.

Under CPR 36.13(1), where a Part 36 offer is accepted within the relevant period, the claimant is automatically entitled to its costs up to the date of acceptance. However, if the offer is accepted after the relevant period has expired, CPR 36.13(4) provides that liability for costs must be determined by the court, unless agreed by the parties. In those circumstances, CPR 36.13(5) provides that the court must, unless it considers it unjust to do so, order that (where it is a claimant’s offer) the defendant pay the claimant’s costs up to the date of acceptance.

In the present case, the day after the relevant period expired, the defendant wrote to the claimant, purporting to accept the Part 36 offer, but stating that it intended to ask the court to vary the standard form of costs order adopted by settling parties in the litigation.

The claimant argued that the defendant had accepted the claimant’s Part 36 offer and it was not entitled to qualify that acceptance by seeking to depart from the costs element of the offer. The defendant responded that it was entitled to accept the offer and invite the court to make an order as to costs under the relevant provisions of the CPR, and that the court should disallow the claimant’s costs from a particular date on the basis that the claimant had not properly engaged in settlement negotiations. The claimant argued that her position in relation to negotiations was justified as, amongst other things, she required disclosure from the defendant in order to properly evaluate her claim, and so the court should not depart from the normal costs order even if it had power to do so.

Decision

The High Court (Mann J) held that the defendant was entitled to seek an alternative order as to costs but, on the facts, ordered that the defendant should pay the claimant’s costs in the normal way.

The court rejected the claimant’s argument that the defendant had accepted the claimant’s offer and was therefore bound by the term in the offer as to costs. It was not appropriate to apply a purely contractual “offer and acceptance” analysis as Part 36 was a self-contained procedural code with certain prescriptive rules. CPR 36.13(4) provides that, where a Part 36 offer is accepted after expiry of the relevant period, liability for costs must be determined by the court unless agreed by the parties. The defendant was therefore entitled to accept the claimant’s Part 36 offer and request that the court determine costs, notwithstanding the term as to costs in the Part 36 offer.

The court noted that, even if the claimant’s contractual analysis had been appropriate, it would not have assisted the claimant. It would have led to the conclusion that the defendant had not accepted the claimant’s offer at all, due to the inconsistency between the parties’ proposals regarding costs.

The court went on to consider the defendant’s argument that it should depart from the normal order as to costs, as the claimant had failed to engage in settlement negotiations. The defendant accepted that, on the authorities, it faced a “formidable obstacle” in showing the necessary injustice under CPR 36.13(5). The parties had only been able to find one reported case in which the court had departed from the normal costs order: Optical Express Ltd v Associated Newspapers [2017] 6 Costs LR 803.

Mann J considered that, to succeed in its argument that the claimant failed to engage in settlement discussions to an extent that should lead to the sort of costs order for which the defendant argued, the defendant would have to show either: (i) that the parties probably would have reached an early settlement, had the claimant engaged in discussions; or (ii) that the claimant’s failure to engage was a ”culpably lost opportunity” to reach a possible settlement that the claimant should have tried to reach even if the result was uncertain.

On the facts of the case, the court found that the claimant had not acted unreasonably in declining to negotiate until she had further information, as there was an asymmetry in information between the parties due in part to the defendant’s failure to comply with the early disclosure regime in the litigation.

However the court noted that this conclusion was highly fact dependent, and had been reached against a backdrop where the burden was on the defendant under Part 36. The court emphasised that it should not be taken as a “green light” for claimants to decline to enter into negotiations before disclosure is complete. There may be other cases in which such non-engagement would be unreasonable; all would depend on the facts.