Costs News

07 January 2016
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CA backs decision to disapply part 36 consequences

A subsidiary purpose of part 36 is to prevent injustice from the normal costs consequences that flow from failing to beat an offer, the Court of Appeal has ruled in the high-profile case brought by former top BBC executive Alan Yentob over phone-hacking.

In winning £85,000 in damages for misuse of his private information, Mr Yentob failed to beat the part 36 offer made by Mirror Group Newspapers (MGN) as part of the phone-hacking trial last year. At the same time, he obtained a judgment which found that MGN's wrongdoing was far more extensive than it had been prepared to admit.

Deciding it was unjust for the usual costs consequences to apply, Mr Justice Mann made no order as to costs following the period of acceptance for the defendant’s part 36 offer.

He found the case exceptional because, until the trial took place, Mr Yentob would not have known how badly he had in fact been hacked, it was unlikely that MGN would have agreed to make a statement in court which matched the findings made at trial, and because it was not apparent until trial that he could never get disclosure of the full extent of the hacking.

While Mr Yentob could not recover his costs from MGN for the latter period, Mann J ruled that justice did not, in those circumstances, require him to pay MGN's costs for that period.

The Court of Appeal, with Lady Justice Arden giving the judgment, rejected MGN’s argument that the judge had made no finding, as required by CPR 36.17(3), that it would be “unjust” for the normal consequences of failing to beat an offer to apply. While he did not say so explicitly, it was clearly his line of reasoning, the court held.

MGN also submitted that the judge misdirected himself when he held that there might be cases where a party was justified in continuing to trial even though he had received a favourable offer.

Arden LJ said: “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.

“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.”

While the main purpose of part 36 was to provide an incentive to parties to make offers and to settle cases, Arden LJ said, “a subsidiary purpose must be to prevent injustice from the normal consequences as a result of non-acceptance of a part 36 offer”.

Equally, she continued, “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”.

In the circumstances therefore, the court upheld Mann J’s ruling.

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