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Late acceptance of a Part 36 offer – what are the costs consequences?


Clarification has recently been given by the High Court in Pallett v MGN Ltd [2021] EWHC 76, on the operation of the Part 36 regime in the context of an attempt by a defendant to avoid the usual costs consequences of accepting a claimant’s offer. 

Part 36 of the Civil Procedure Rules (CPR) aims to encourage parties to try to settle their disputes and sets out the costs consequences of offers to settle made in accordance with Part 36. If a party fails to accept a realistic offer made by the other side, there is a risk of penalised costs and interest at the end of the case.

Factual background

The claimant (Ms Pallett) brought a claim against the defendant (MGN Ltd – owner of The Mirror Newspaper) for infringement of privacy rights by mobile telephone voicemail interception and other unlawful information gathering techniques.  Her claim was due for trial in January 2021, but on 20th October 2020 she made a Part 36 offer to settle for £99,500 and ancillary relief.  Ms Pallett's offer specified that if accepted within 21 days the defendant would be liable for her costs of the action.

On the 22nd day, the defendant accepted the offer on the express basis that the court would be invited to deal with the extent to which it would have to pay costs.   The defendant claimed that, since the offer was accepted outside of the relevant period (here, 21 days) it was entitled to invite the court to consider its liability for the costs of the action and was not bound to pay those costs, which it would have been if it had accepted the offer within the 21 days, pursuant to CPR 36.13(5).

The defendant's "acceptance" of the offer

Justice Mann first considered whether the defendant was entitled to accept the offer in the manner in which it did, i.e. on the basis that it would invite the court to exercise a discretion over all the costs of the action.

The claimant contended that the Part 36 offer was accepted by the defendant, and the defendant was not entitled to introduce qualifications into that acceptance by seeking to depart from the costs element of the offer.

The defendant argued that it was entitled to invoke the provisions of CPR 36.13(4)(b) which states that when an offer is accepted outside the relevant period, the liability for costs must be determined by the court if the parties cannot agree them.

Justice Mann held that the defendant's position was correct and emphasised that the Part 36 regime does not adopt a traditional contractual regime and instead operates as its own self-contained regime, whose terms it prescribes.  Justice Mann then turned to the question of how the court's discretion on costs should be exercised. 

The court's discretion on costs

CPR 36.13(5)(b) requires that unless it considers it ‘unjust’ to do so, the court must order that the offeree (in this case the defendant) pays the offeror's (the claimant’s) costs for the period from the date of the expiry of the relevant period to the date of acceptance. 

In this case, the defendant accepted that attempting to overcome the presumption in CPR 36.13(5), by contending that the normal consequences of the acceptance of an offer should not apply, was a "formidable obstacle".  The defendant invited the court to find that Ms Pallett was culpable of a serious failure to engage in the settlement process based on the pattern of offers made by the defendant (open, without prejudice save as to costs, and Part 36) from 2018.

The claimant's solicitors said that none of the offers put forward by the defendant were adequate and that Ms Pallet wanted to have disclosure before accepting an offer or putting forward a counteroffer.   The claimant's solicitors identified the useful and significant disclosure which was obtained by Ms Pallett, which demonstrated the potential for making a case that the level of infringement of privacy was greater than the five or so instances conceded by the defendant.

Ultimately, the defendant was unable to establish that the claimant's failure to engage in settlement discussions fell so far short of the standards which the courts now expect of litigants (in terms of a willingness to negotiate) that the defendant could be seen to have discharged the heavy burden of showing that it would be unjust to apply the normal Part 36 costs consequences.

Justice Mann accepted that the claimant had reasons for not engaging in horse-trading over figures from the outset, and her attitude of declining to negotiate until she was better informed was an entirely reasonable one, bearing in mind the one-sided nature of the possession of information and the failure of the defendant to comply with the early disclosure regime in this particular case.

Concluding remarks

The judgment is a useful reminder of the operation of the rules in the context of offerees attempting to avoid the usual consequences of accepting a Part 36 offer.  In this case, MGN's strategy did not work - Justice Mann concluded that normal consequences should follow, and that the claimant should have all the costs of the proceedings on the basis of the normal template order.  However, Justice Mann cautioned that the case turned on its own facts and should not be taken as a 'green light' for all claimants to decline to enter into negotiations before disclosure is complete as there may be cases in which non-engagement will be unreasonable. 

There is a potential tactical advantage of late acceptance in cases where the offeror's conduct justifies a departure from the usual costs consequences of accepting a Part 36 offer.  In short, late acceptance provides the offeree leverage to argue about costs, which acceptance within the relevant period does not.  While 36.13(5)(b) sets a high bar to displace, offerees may seek to gamble on this by accepting an offer outside of the relevant period, particularly in cases where costs are significant and / or unreasonable. 

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