THE DANGER OF CLAIMANT’S PART 36 OFFERS: THE DEFENDANT CAN WAIT ONE DAY AND THEN PUT COSTS AT LARGE

In Pallett v MGN Ltd [2021] EWHC 76 (Ch)  Mr Justice Mann considered a major anomaly in the rules relating to claimant’s Part 36 offers.  This shows that any claimant making a Part 36 offer must remember that a defendant can accept that offer late and be in a position to argue that it should not pay costs, or even that the claimant should be responsible for costs.  It may well lead to claimants deciding that Part 36 offers are extremely unattractive.

 

“The one thing that an offeror would not expect is that the offeree can wait until the relevant period (usually 21 days in practice) has passed, accept the offer (and thus bind the offeror) and then seek to avoid the costs by asking the court to determine them. The offeror will usually not think that that is an appealing option to have forced on him or her; otherwise it would have been offered in the first place. Yet that seems to be the effect of CPR 36.13(4)…”

 

THE CASE

The claimant brought an action for infringement of privacy rights.  In October 2020 she made a Part 36 offer to settle for £99,500 and ancillary relief.  On the 22nd day after the offer was made the defendant accepted the claimant’s officer, but with a proviso as to csots.

THE DEFENDANT’S PROVISO

On the 22nd day the defendant accepted the offer to settle at that sum, on the expressed basis that the court would be invited to deal with the extent to which it would have to pay costs. It claims that, since the offer was accepted outside the “relevant period” (here, 21 days) it was entitled to invite the court to consider its liability for the costs of the action and was not bound to pay those costs, which it would have been if it had accepted within the 21 days, pursuant to CPR 36.13(5). If it gets over that hurdle it invites the court to disallow the claimant’s costs from 26th March 2019 on the basis (putting it shortly) that the claimant did not engage properly in a settlement process. The claimant disputes the defendant’s entitlement to have that ruling. She says that the Part 36 offer was accepted and the defendant was not entitled to introduce the qualification which it did. If it was then there is no justification for departing from the sort of costs order in her favour that would follow from acceptance of the Part 36 offer within the relevant period (21 days).

THE DEFENDANT’S TACTIC

This was a deliberate strategy by the defendant.  It waited until after the 21 days for acceptance, when costs would be automatic and waited until costs were put “at large”.

THE DEFENDANT WAS ENTITLED UNDER THE RULES TO DO THIS

The judge rejected the claimant’s argument that there was a contractual compromise.  The decision in Gibbon v Manchester City Council [2010] 1 WLR 2081 meant that the position had to be considered according to the rules and not contractual principles.
  1. I say that it may seem odd because of the way in which it is said to operate in this case. The claimant has made an offer which she has pitched as being acceptable provided that her costs are paid. In making an offer an offeror is likely to make it on the basis that the monetary offer proposed is acceptable provided that the costs are also paid. That is what the offer says, and that is the effect of an offer accepted within the 21 days. The offeror (if a claimant) might well expect that if the offer is not accepted it is open to the offeror to continue with the action and see if he/she can better the offer and still get costs. The one thing that an offeror would not expect is that the offeree can wait until the relevant period (usually 21 days in practice) has passed, accept the offer (and thus bind the offeror) and then seek to avoid the costs by asking the court to determine them. The offeror will usually not think that that is an appealing option to have forced on him or her; otherwise it would have been offered in the first place. Yet that seems to be the effect of CPR 36.13(4), and Mr Sherborne did not contend otherwise. That this is the effect of the rule is demonstrated by the decision of Warby J in Optical Express Ltd v Associated Newspapers [2017] 6 Costs LR 803, and the decision of the Court of Appeal in Dutton v Minards [2015] 6 Costs LR 1047 which accepted that position without demur. I must therefore apply that rule, though the nature of the oddity, and the potential oddity of its application, is something that I consider should be borne in mind when exercising my discretion. Indeed, it might be thought to be the factor underpinning the presumption in CPR 36.13(5).
  2. I therefore consider that the defendant was entitled to do what it did, that is to say to accept the Part 36 offer and say what it said about the costs. In making the latter point it was merely pointing out what it would be saying to the court conducting the exercise of deciding the costs which it was entitled to call upon the court to decide.

THE EXERCISE OF THE COURT’S DISCRETION

The judge, carrying out an exhaustive examination of the facts of this case and associated litigation, concluded that the claimant had not acted unreasonably.

  1. In all those circumstances while it can be said that the claimant was not engaging in a negotiation prior to October 2020, it cannot be said that in the circumstances she should have been, and certainly not that the absence of a negotiating stance was culpable (in the manner identified in the authorities) to an extent which makes it unjust to allow the normal consequences of the late acceptance of a Part 36 offer.
  2. I therefore find that those normal consequences should follow and that the claimant should have all the costs of the proceedings on the basis of the normal template order.

THE JUDGE’S WORD OF CAUTION

  1. This case has turned on its own facts, and to a large extent on the justification of the claimant in pressing on for disclosure before valuing her claim. It involves a determination in which the burden is on the defendant under Part 36. Because it turns on its own facts, it should not be taken as a green light for all claimants to decline to enter into negotiations before disclosure is complete. Such a posture would not be correct in every case. Each case must turn on its own facts. There may be other cases in which a non-engagement will be unreasonable. That will depend on the facts of those cases. Other cases may not involve the burdens of Part 36. The defendant will no doubt be concerned that every case will now go to disclosure. That would be regrettable, and should not be the case, and in any event the defendant can always seek to protect itself by making early offers which are more generous and less combative than they were in this case. Claimants should not seek to apply this case too generally.