Gulati & OrS v MGN Ltd

This reserved judgment deals with two points – whether Ms Frost and Mr Ashworth should each have their costs of this action on the indemnity basis from a date on which it is said that pre-trial offers of settlement ought to have been accepted. There is no dispute that they should have their costs of the action on at least the standard basis. No other claimant makes the same application.

When this application was first foreshadowed in Mr Sherborne’s skeleton argument it seemed to be firmly rooted in what was said to be an offer under CPR Part 36 which was less than the sum eventually awarded to her, although it was backed up by an appeal to the general costs discretion.

In a letter dated 22^nd December 2014 her solicitors made an offer to settle on the following terms:

The letter went on to refer to the “relevant period” under the rules, and then added these words:

“After 21 days, this offer is withdrawn.”

It was met by a counter-offer the next day, also under Part 36, offering £xxxx and an undertaking not to intercept messages, not to republish the articles (including removing them from online access) and not to publish unlawfully any medical records (which it was said the defendant did not have anyway).

After the 21 days Ms Frost’s solicitors made clear the withdrawal of her offer in an email which withdrew it in terms. In the event I ordered that Ms Frost should receive the sum of £260,250, so in monetary terms she beat both offers.

Mr Sherborne’s skeleton argument in support of his client’s claim for indemnity costs put the application in two ways – the defendant’s conduct of the litigation, and the defendant’s failure to beat her Part 36 offer. So far as the latter is concerned, it seemed from that document, and from a supporting witness statement, that Ms Frost was relying on the operation of CPR 36.17(1)(b), which would have entitled her to indemnity costs (subject to the court considering that that was unjust) had it applied. However, as pointed out by Mr Nicklin for the defendant, that provision does not apply where the offer has been withdrawn (see CPR 36.17(7)). This was an offer that had been withdrawn. Accordingly, although the time limit within the offer no longer prevents it being a Part 36 offer (by virtue of the introduction of CPR 36.9(4)(c)), once the offer has been withdrawn by virtue of the time limit in the offer itself (and, if relevant, the subsequent express withdrawal) the semi-automatic consequences of CPR 36.17 do not apply. By the time of the hearing Mr Sherborne accepted that.

Mr Sherborne therefore put his application on the footing of the discretion of the court given to it by CPR 44.3. He relied on various aspects of the conduct of the defendant which he said were bad sufficiently beyond the norm to justify it (on now familiar principles), coupled with the failure to accept or beat the Part 36 offer, which he submitted could be taken into account under this head (see CPR 44.2(4)(c)).

Mr Sherborne’s “bad conduct” points were as follows:

Mr Sherborne then adds the failure to accept the Part 36 offer to this mix. He drew attention to The Trustees of Stokes Pension Fund v Western Power Distribution (South West) plc [2005] EWCA 854 [2005 1 WLR 3595. He says that this, and CPR 44.2(4)(c), entitles the court to take offers into account and to give them the same effect as a successful Part 36 offer notwithstanding that the offer did not comply with Part 36. In that case a defendant made an offer of settlement which did not comply with Part 36 (because it was not accompanied by a payment into court, which was required under the then state of the rules) and then withdrew it after the final date for acceptance. The Court of Appeal held that, in the circumstances, it would be appropriate to give the offer the same effect as it would have given to a full Part 36 offer, notwithstanding the absence of a payment in.

All this is submitted to be “unreasonable conduct to a high degree”.

Mr Nicklin submitted that the failure of the offer to comply with Part 36 once it was withdrawn meant that we were now in Part 44 territory, which depended on misconduct. The essential question was one of reasonableness, and it was not unreasonable to refuse an offer, because where the parties are divided as to the true worth of a claim it cannot be unreasonable (without more) to take a wrong view of its value. So far as Stokes is concerned, it concerned a defendant’s offer, in different circumstances, and is not a justification for allowing the claimant the benefit of a Part 36 offer when the rules do not provide for her to have it. So far as the conduct is concerned, he observed that much of it was conduct which occurred before 12^th January (the last acceptance date for the offer) and said it was strange to rely on pre-12^th January conduct to justify an order about post-12^th January costs. He drew attention to the fact that the costs of the disclosure applications which succeeded were not ordered on the indemnity basis, so resistance to the applications cannot have been as bad as all that. He pointed out (correctly) that the impression of the length of Ms Frost’s cross-examination was a false one (her cross examination spanned an overnight break, but was not as long as the impression given by the claimant’s formulation), and part of the total period referred to was attributable to a disclosure application that was being dealt with in the middle of it. Her cross-examination was not so bad as to justify aggravated damages, and was not bad enough (even taken with any other relevant points) to support an indemnity costs claim. The procedural steps complained of were steps in which the defendant failed, but were “minor” (the word used in the skeleton argument).

While all the factors (the procedural matters and the offer) have to be taken together, it will be useful first to assess the cumulative impact of the procedural matters in order to take a view on their strength as factors justifying indemnity costs. Individually none of them is particularly significant. The disclosure matters are applications in which the defendant failed, but even allowing for the fact that the material that was disclosed was highly significant in the end, I do not think the circumstances of the failure and the significance of the material are such as require the applications to be treated as much more, if indeed anything more, than applications on which the defendant failed at the time. Failure in disclosure applications is not without more a badge of unreasonable conduct, and it is not without significance that indemnity costs were not awarded (nor even, if my recollection is correct, sought) at the time. There was no attempt to demonstrate that the significance of the disclosure meant that the way the applications were resisted was itself very unreasonable.

The way in which the proposed amendments were dealt with is, in this context, a fairly minor matter. It may not have been impressive, but one cannot say more about it than that.

The manner of pleading, the failure to respond to the schedules prepared by the claimants and the failure to provide assistance to the court on the figures applicable were the claimants’ methodology to be correct, were distinctly unimpressive aspects of the defendant’s behaviour, and I have already made remarks about their inconsistency with the professed intention of the board of the holding company to get to the bottom of things and to co-operate. It is to be hoped that in future litigation that sort of conduct will not be repeated. However, having said that, I do not consider that the conduct is of such seriousness as to bring about much infection of unreasonableness into the proceedings as a whole (since 12^th January 2015) for the purposes of considering indemnity costs.

The length of the cross-examination of Ms Frost is not a matter for criticism at all, and it is regrettable that the point has been over-stated by the claimant. The tone and some of the content of her cross-examination has already been commented on by me. It came to an end on my intervention, which was not based on its impropriety but was based on its apparent inconsistency with the frequently expressed contrition of the holding company board. It may, to that extent, have been unwise, but its weight in an indemnity costs inquiry is slight if it exists at all.

My conclusion in relation to those matters it that individually they have, in the main, little weight, and cumulatively they would not get Ms Frost as far as being able to establish that they are unreasonable conduct so far out of the norm as to require indemnity costs. This is ultimately a matter of impression, and that is the view that I have reached. Most of them are not impressive, but “not impressive” is not enough. Of course, in due course I shall have to take them with the refusal of the offer.

I turn, therefore, to the offer point. In order to assess the significance of the beaten offer in this context it is useful to consider first what weight it would have had had it been the only factor. Mr Sherborne’s submissions seemed to invite me to treat it as being tantamount to an offer which was entitled to the Part 36 consequences notwithstanding its failure to maintain its status as such an offer by reason of its withdrawal. If he is right about that then it is almost capable, by itself, of carrying the day for him. If he is wrong then it probably has less significance than the other “conduct” factors, because of itself a failure to accept an offer has generally not been treated as the sort of undesirable behaviour justifying indemnity costs.

The significance of the non-acceptance of the offer has to be placed against the background of the Part 36 regime. It was, as made, a Part 36 offer. It then ceased to be an offer which attracted Part 36 consequences when it was withdrawn (CPR 36.17)7)(a)). Mr Sherborne’s submissions involve an averment that, notwithstanding the effect of the rules which bring that about, nonetheless one of the Part 36 consequences (indemnity costs) should still be attracted. He relied particularly on the fact that without such a consequence a non-Part 36 offer by a claimant would not carry any particular incentive for acceptance. He contrasted a defendant’s offer – even if an offer were made other than under Part 36, it is established that the incidence of costs could still be altered in the light of such an offer if beaten. The possible shift of incidence would be the incentive to accept. There was no equivalent of a shift of incidence where one had a claimant’s offer. The claimant would, as a successful claimant, be getting all his costs anyway, so some other form of incentive ought to be in operation if a claimant’s offer was to have any material effect on the court’s discretion as to costs. That other form was, or could be, an order for indemnity costs in place of standard costs .

To make such an order in those circumstances, absent any other unreasonable behaviour which goes sufficiently beyond the norm in litigation, would in my view be novel. It is well established that the court has jurisdiction to award indemnity costs for serious unreasonable behaviour, and in other limited circumstances, but to award them on the basis that a claimant’s offer has been beaten by the claimant (absent compliance with the Part 36 regime) would be new. It would involve the introduction of an award of indemnity costs for behaviour which was not necessarily unreasonable, or unreasonable to a sufficient extent beyond the norm. I do not consider that, without Part 36, it would be correct to formulate that principle. It seems that it took the enactment of Part 36 to introduce the concept of the payment of indemnity costs to claimants who made offers which they beat, and Part 36 contains a number of requirements, all of which have to be fulfilled before the consequences of CPR 36.17 are attracted. Mr Sherborne’s submissions involve the substantial by-passing of the Part 36 requirements. That would not only be novel (which is not, of itself a bar, but it does not help); it would be contrary to the thrust of Court of Appeal authority.

Stokes does not, in my view, assist Mr Sherborne. It was decided under a former Part 36 regime which has been amended twice since then. In French v Groupama Insurance Company Ltd [2011] EWCA Civ 1119 the Court of Appeal considered the status of Stokes after the first change of regime, and counselled caution in applying it. Rix LJ said:

“44.

Thus there appears to be a new determination in the amended rules to specify carefully what does or does not count as a Part 36 offer with Part 36 consequences. All other admissible offers are relevant to the Part 44 discretion, but they do not carry with them the costs consequences of Part 36. It seems therefore rather harder to formulate a principled approach to the Part 44 discretion that some offers which are not Part 36 offers should nevertheless, in certain circumstances which are not the circumstances of the rules, be treated as though they were Part 36 offers for the purposes of applying Part 36 consequences under Part 44. It is noticeable that Stokes has currently dropped out of the notes in The White Book under Part 36. It may be, therefore – but I do not have to decide this issue because, as stated above, the offers in question in this case could not in any event count as quasi Part 36 offers for the purposes of Stokes – that Stokes should be regarded as dealing primarily with the specific problem of the absence of a Part 36 payment in a context where that was a formal requirement which in certain circumstances added nothing to the value of the offer.” (my emphasis).

Giving the sort of weight that Mr Sherborne’s submissions seek to give to Ms Frost’s offer would be to give a lot of weight to an offer which Part 36 has (for reasons which, I confess, are not apparent to me) provided should not have the indemnity costs consequences which Mr Sherborne says should follow. It is true that Mr Sherborne does not seek all the consequences that would have followed if the offer had remained a Part 36 offer, but nonetheless indemnity costs is a very significant one. Mr Sherborne’s submissions in effect invite the court to proceed by analogy. He impliedly says that this offer is very like a Part 36 offer, and differs only in that it has been withdrawn, so Ms Frost should still have indemnity costs. This way of looking at it overlooks the fact that the precise factor which distinguishes the offer, at the date of the trial, from a proper Part 36 offer is something which the rules say should disqualify it. To ignore that factor would be contrary to the principles underlying the rule (whatever they may be) and contrary to the approach suggested in French v Groupama.

It therefore seems to me that, as a beaten offer, Ms Frost’s one-time Part 36 offer has no great significance. It could play a part in a general assessment of the reasonableness or unreasonabless of the defendant’s conduct, but it cannot be elevated to a position comparable to a living Part 36 offer merely because it has been beaten.

This conclusion means that, in the circumstances, the Part 36 offer, having lost its normal consequences as a result of its withdrawal, loses much of its significance. It takes its place alongside the other factors relied on by Ms Frost, but in fact adds little. In my view, looking at all these factors together, Mr Sherborne has identified some unattractive conduct, but not a level of conduct which elevates this case into the levels of unreasonableness required to attract indemnity costs. Ms Frost’s application therefore fails.

Mr Ashworth has a similar application, but this time based primarily on an offer to settle which was in essence a Calderbank offer, which he, like Ms Frost, bettered. It was not a Part 36 offer. He also relies on the same sort of unreasonable conduct as Ms Frost. There are one or two additional factors. He relies on a specific reference made in his offer to his making it in order to avoid the stress and unpleasantness of a trial. He says that the rejection of his offer put him through precisely what he wanted to avoid, and that makes, or helps to make, his case for indemnity costs stronger. In addition, Mr Sherborne pointed to what was said to be an unreasonable line of cross-examination which looked as though it might be suggesting that Mr Ashworth (through his solicitors) had refused in correspondence to indicate what he would accept in respect of his claim when he had in fact made his offer (and engaged in other relevant correspondence).

In the light of my conclusion in relation to Ms Frost I can deal with this application shortly. Nothing that Mr Ashworth relies on in respect of the conduct of the litigation produces a stronger case of unreasonableness or bad behaviour which is much, if at all, beyond what Ms Frost has established. His case on his offer is no stronger, and if anything is weaker by never having been a Part 36 offer. In the circumstances his claim for indemnity costs fails too.