Late acceptance of a Part 36 offer; the indemnity basis conundrum
Part 36 can offer litigators significant benefits when pitched correctly. Andrew MacKenzie, Senior Costs Draftsman, discusses the advantages of making such offers and the detriment of not accepting the same.
The High Court has provided further guidance on when it is appropriate to award costs on the indemnity basis following late acceptance of a Part 36 offer in the case of Edmund Patrick Jordan v MGN Limited  EWHC 1937 (Ch).
The case involved Mr Eddie Jordan, of Formula 1 fame, and his claim against MGN Limited, publishers of The Daily Mirror newspaper, for alleged phone hacking and other unlawful activities which resulted in the publication of articles alleged to contain private information that had been obtained unlawfully.
The parties had exchanged numerous offers of settlement throughout the litigation, including offers pursuant to CPR Part 36, but they were unable to reach a compromise. The matter was consequently listed for a Trial to commence on the 5th July 2017. At the eleventh hour the Claimant applied to the Court seeking an order declaring that he be entitled to accept, and had accepted, the Defendant’s Part 36 offer of £15,000.00 which had been made on the 24th September 2014 and that the Defendant do pay the Claimant’s costs to date. It is important to note that this was the first Part 36 offer made by the Defendant, had been advanced just 6 weeks following the issue of proceedings and the Defendant had made several subsequent offers culminating in an offer of £80,000.00. The Claimant had elected to either reject or not to respond to the Defendant’s subsequent offers.
It was the Claimant’s averment that, despite having accepted the Defendant’s Part 36 offer after expiry of the relevant period, he should not have to pay the Defendant’s costs and in fact the Defendant should be made to pay his costs to date. In the alternative the Claimant argued that the Defendant should not be entitled to his costs on the indemnity basis.
As the Defendant’s Part 36 offer pre-dated the 6th April 2015 the relevant provisions establishing the appropriate costs consequences are to be found in a former version of CPR 36.10(4) and (5). They read:
“36.10(4) Where - …
(b) A Part 36 offer is accepted after expiry of the relevant period, if the parties do not agree the liability for costs, the court will make an order as to costs.
(5) Where paragraph 4(b) applies, unless the court orders otherwise –
(a) the claimant will be entitled to the costs of the proceedings up to the date on which the relevant period expired; and
(b) the offeree will be liable for the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.”
It was evident the Claimant had accepted the Defendant’s Part 36 offer long after expiry of the relevant period and the Court therefore had to consider whether it should depart from the making of the normal costs order. In deciding whether to depart, Mr Justice Mann considered the conduct of both parties and the chronology of offers made to date. At paragraph 54 he found as follows;
“If one asks who has been responsible for incurring unnecessary costs then the answer, in my view, is plainly Mr Jordan, once he has accepted the Part 36 offer. He has accepted an offer which is very much less than the range of subsequent offers… He could have had as much as £80,000 instead of £15,000. After incurring very large amounts of costs he decided to go back and accept the earlier and much lower sum… He was responsible for all the costs, which turn out to be wasted since he originally failed to accept the Part 36 offer.”
Having established that the Claimant was responsible for payment of the Defendant’s costs following expiry of the relevant period Mr Justice Mann then turned to the more difficult question of whether to award those costs on the indemnity basis. At paragraph 61 he said:
“… so far as the offers and negotiation known to me are concerned the claimant did not materially engage. He did not respond to the offers… and did not respond to the £80,000 offer at all.”
However, this was not considered sufficient grounds for an indemnity basis costs order on its own, with the Court stating at paragraph 65:
“This degree of lack of engagement would probably not, of itself, have justified indemnity costs.”
It was the Claimant’s additional conduct shortly before Trial in April 2017 that ultimately led Mr Justice Mann to award costs on the indemnity basis; the Claimant having made an offer at that time which matched one made by the Defendant nearly a year prior in July 2016 and with which the Claimant had provided no explanation for the sudden lowering of his expectations. Mr Justice Mann said at paragraph 66:
“There was therefore, in my view, a culpable failure to engage in negotiations which would, if conducted more properly, have been likely to have led to a settlement. That is very significant matter.” [sic]
The conclusion reached by the Court is summarised at paragraph 72:
“The bottom line is that Mr Jordan did not advance any explanation, let alone a good one, why, having run his case for 2½ years, having failed to respond properly to a number of offers, one of which was close to his own proposed financial settlement, having caused himself and the other side to run up significant amounts of costs… should at the last minute do the equivalent of walking away from the action. I consider that all those factors… are good reasons for the ruling that costs be paid on the indemnity basis, and I so order.”
This is a complex judgment involving several case specific conduct considerations and should not be taken as a general rule that an indemnity basis costs order will be made simply as a result of a failure to negotiate. Nevertheless, it is important for parties to remember that conducting yourself in such a manner provides your opponent additional ammunition for the obtaining of an indemnity basis costs order.
Andrew MacKenzie is a member of Civil and Commercial’s Costs Lawyer’s Multi-Track and Catastrophic Injuries Team. He has been practicing in the field of costs for over five years and has significant experience in both paying and receiving party work.
If you would like to speak to Andrew or the rest of our experienced team about this or any other Costs Issue, give us a call on 0207 842 5950 or send us your enquiry online.