Part 36: When it is unjust to apply the usual cost consequences

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Yentob -v-MGN Ltd [2015] EWCA Civ 1292

The Court of Appeal has upheld a High Court decision which deviated from the usual cost consequences where a Part 36 offer was not beaten at trial.

Background

The original action was a claim by British television executive Alan Yentob against MGN Limited, part of Trinity Mirror PLC, for phone hacking.  Mr Yentob was successful at trial, being awarded £85,000 for MGN’s illicit activities over a period of 7 years.  Earlier in proceedings, however, MGN had put forward an offer which was more favourable than the damages figure awarded at trial.

 

Part 36

In general terms, under Part 36 of the Civil Procedure Rules (“CPR”), where a Claimant fails to obtain a Judgment more advantageous than the Defendant’s Part 36 offer, the Court must unless it considers it unjust to do so order that the Defendant is entitled to costs from the date that the ‘relevant period’ expired.  The relevant period is a period of at least 21 days within which the Defendant is to be liable for the Claimant’s costs, if the offer is accepted.

It was MGN’s contention that the normal rules should apply such that Mr Yentob be responsible for their costs from the expiry of the relevant period, plus interest.  The trial Judge, however, exercised a discretion within r36.17(c) of the CPR allowing him to make another form of order where he considered it “unjust” to follow the usual rule.  He held that this situation was distinct from a personal injury claim where a litigant seeks a final trial to make public what happened.  In Mr Yentob’s case, it was theoretically possible for the parties to agree an open statement for MGN to acknowledge its wrongdoings.  However, the Judge found that it was unlikely MGN would agree to make such a statement acknowledging hacking to the extent that he found it to have taken place.  The “justice of the case”, said the trial Judge, meant that from the expiry of the relevant period, both parties should bear their own costs – rather than Mr Yentob fund the Defendant’s costs.

 

The Appeal

In its appeal, MGN argued that the Judge did not determine whether or not the usual rule would be “unjust” but instead considered a “balance of justice” test.  The publishing company also contended that the Judge took into account factors which should not have formed part of his reasoning in making the Order.

Lady Justice Arden accepted that the trial Judge’s wording was difficult to understand on the point, but agreed with Mr Yentob’s barrister that the Judge’s reasoning should be read as a whole, and in determining the “justice of the case” he had decided that it would be “unjust” to follow the usual rule.

Arden LJ also stated that had a Judge been required to leave out certain circumstances in deciding what was unjust, then Part 36 would have explicitly stated this.  There was no such “mandatory exclusion” and so the Judge was entitled, as he did, to take into account all information which was relevant, including that relating to circumstances of the offer.

In further support of Mr Yentob’s position, the Court of Appeal rejected MGN’s arguments that the trial Judge had erred in assuming that it was significant that an open statement would not match a favourable Judgment.  The Court pointed out that an open statement required willingness on the part of the Defendant to make a “frank statement of its wrongdoing.”  In this regard the trial Judge had been entitled to question whether this was a realistic prospect, not least because, even in its final submissions, MGN maintained that hacking had taken place for 2 ½ years, and not the 7 years found by the Judge.

 

Comment

Part 36 can be a complex area of law, as demonstrated by the technical arguments raised in the Court of Appeal.  A Part 36 offer can be a vital weapon in a litigant’s armoury and can play a significant part in tactical considerations and the overall costs outcome of a claim.  If you require advice on a claim you would like to pursue or if your business is facing action, contact Tom Smith, Head of Dispute Resolution, at tom.smith@forbessolicitors.co.uk or call 0800 689 0831.

Tom Smith

About Tom Smith

Tom is a Partner and Head of the Dispute Resolution Department at Forbes Solicitors. Tom’s blogs cover his specialisms of business disputes involving commercial contracts, shareholders, partnerships, share sales and warranties, banking issues, restrictive covenants and professional negligence.
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