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Case Review: Late acceptance of Part 36 offers brings costs to the table

02 February 2021
The High Court has ordered that a defendant pay a claimant's costs despite the defendant's protestations that they had accepted the claimant's Part 36 offer outside the "relevant period" and their invitation to the court to consider their liability for costs. Rob Bennett considers the case of Pallett v MGN Limited (2021). 

Pallett v MGN Ltd [2021] EWHC 76 (Ch) (19 January 2021)

Background

This was a phone-hacking claim for infringement of privacy rights brought by the actress Roxanne Pallett against MGN Limited. In October 2020, the claimant made a Part 36 offer to settle the claim for £99,500 and ancillary relief. The defendant accepted that Part 36 offer on the 22nd day after the offer was made with a specific proviso in relation to costs that it would invite the court to consider its liability for costs of the claim and that "it 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)". 

By accepting the Part 36 offer a day late, the defendant ensured that the costs remained at large rather than the automatic entitlement to costs that would have been triggered under the 21 day provision for acceptance.  Had the defendant accepted the claimant's Part 36 offer within 21 days, the defendant would have been liable for the claimant's costs up to the point of acceptance. Where an offer is accepted outside the relevant period, CPR 36.13(4) states that "the liability for costs must be determined by the court" in the absence of agreement between the parties. 

The defendant took issue with regards to the claimant's conduct in respect of disclosure and failure to enter into negotiations. The defendant invited the court to disallow the claimant's costs from the date of service of the defence (which was 20 months before the expiry of the relevant period for the Part 36 offer in question) on the basis that the claimant did not engage in the settlement process. The claimant said that none of the defendant's offers was sufficient and that she wanted disclosure before making an offer or deciding whether to accept one. The defendant had resisted early disclosure for an extended period on the basis that it would risk revealing a confidential source. 

Findings

The court had to determine the following issues:

  1. Could the defendant accept the offer and extinguish the automatic costs entitlement by accepting the offer on the 22nd day?
  2. On the facts of this case, could the Court depart from the usual order?

Mr Justice Mann determined that the defendant was entitled to accept the offer on the 22nd day and extinguish the automatic costs entitlement under CPR 36.13(5). This was summarised at paragraph 18 of the judgment where he stated:

"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 costs.  In making the latter point, it was merely pointing out what it would be saying to the court conducting the exercise in deciding the costs which it was entitled to call upon the court to decide". 

However, he found that on the specific facts of this case it did not warrant a departure from the usual costs order. He said that the claimant was not simply refusing to engage, but indicating that she could not sensibly engage until she had further information. He said, "In my view, the claimant's attitude of declining to negotiate until she was better informed was an entirely reasonable one."  

Comment

We consider that this case could have some application where there are significant issues in respect of a claimant's conduct or handling of the claim.  This may be particularly relevant in cases where there are potential allegations of fundamental dishonesty, overarching surveillance evidence or abandoned heads of claim. 

However, caution is advised before adopting this tactic. As can be seen from this case, each case will turn on its own facts and there will be cases where non-engagement will be reasonable just as there will be cases where non-engagement will be unreasonable. Such non-engagement would have to be to such an extent that the court could be persuaded that it would be unjust to allow the normal consequences of late acceptance of a Part 36 offer. The costs of pursuing this approach need to be analysed against the potential gain. 

It remains to be seen whether we will now see claimants shying away from making Part 36 offers to avoid this situation arising. We do not expect to see a paradigm shift in the making and acceptance of Part 36 offers as this case is so specific to the facts, and we expect it to be business as usual when it comes to Part 36. Parties to litigation would be wise to consider the implications of deliberately accepting a Part 36 offer out of time as so doing could bring their own conduct under scrutiny. 

For further information please contact Rob Bennett.

Further Reading