High Court Clarifies Consequences of Late Part 36 Offer Acceptance

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The decision highlights a potential tactical advantage of late acceptance in certain circumstances.

In Roxanne Pallett v. MGN Limited,[1] the High Court held that the usual costs consequences of accepting a Part 36 offer do not apply if a party accepts a Part 36 offer outside the “relevant period”, meaning the offeree is not bound to pay the offeror’s costs. The offeree is entitled, in appropriate circumstances, to invite the court to make a different order, based on all the circumstances of the case.

The decision highlights a potential tactical advantage of late acceptance in circumstances in which an opponent’s conduct justifies a departure from the usual costs consequences of accepting a Part 36 offer. The decision will be of particular interest to parties that settle litigation for commercial reasons.

Background

The case concerned a claim brought by the actress Roxanne Pallett against MGN in the “phone hacking” litigation. A few months before the trial, the claimant made a Part 36 offer to settle for £99,500 (the Part 36 Offer). In the usual way, the Part 36 Offer specified that if the offer was accepted within 21 days (the Relevant Period), MGN would be liable for her costs.

MGN accepted the Part 36 Offer on the 22nd day — one day after expiry of the Relevant Period — on the basis that MGN would invite the court to consider its liability for the claimant’s costs. The claimant argued that the offer had been accepted in accordance with its terms, i.e., on the basis that her costs would be paid, and that MGN could not qualify its acceptance.

Consequences of late acceptance

The Part 36 regime provides that, if an offer is accepted within the “relevant period”, the offeree will be liable to pay the offeror’s costs of the proceedings “up to the date on which notice of acceptance was served.[2]

However, if an offer is accepted after expiry of the relevant period, the costs must be determined by the court, unless the parties agree otherwise.[3]

The Civil Procedure Rules (CPR) r.36.13(5) provides that, when determining liability for costs after late acceptance of a Part 36 offer:

“the court must, unless it considers it unjust to do so, order that —

(a) the claimant be awarded costs up to the date on which the relevant period expired; and

(b) the offeree do pay the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.”

In considering whether it would be “unjust” to make such an order, the court is required to take into account all the circumstances of the case, including “the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated”.[4] This provision opens the door to a departure from the usual cost consequences of accepting a Part 36 offer.

Having considered the relevant provisions of the Part 36 regime, Mann J held that MGN was entitled to have the court determine its liability for the claimant’s costs. He observed the resulting “oddity” that:

  • A party will pitch an offer at a level considered acceptable, and on the assumption that its costs will be paid.
  • The offeror will be prepared for the offer not to be accepted and the claim proceeding to trial (at which point the offeror either will or will not reap the rewards of a successful Part 36 offer).
  • The offeror may not anticipate the offeree waiting until the relevant period expires, accepting the offer (binding the offeror and triggering an automatic stay of the proceedings), then seeking a departure from the usual costs consequences by referring the issue of costs to the court.

Whilst Mann J did not dispute that this was what the CPR requires, he considered it “something that … should be borne in mind when exercising my discretion”, and suggested that this may explain the presumption in CPR 36.13(5).

Mann J rejected the claimant’s contractual analysis entirely. He found that the analysis failed not only because there was no contractual acceptance in circumstances in which MGN proposed an alternative term, but because:

“[i]t is clear from Part 36 itself and from authority that the Part is its own self-contained regime, whose terms it prescribes. It does not adopt a traditional contractual regime.”

Significance

The decision is a reminder to litigants, particularly those settling proceedings for commercial reasons, that there may be advantages in accepting a Part 36 offer shortly after the expiry of the relevant period.

However, a departure from the usual costs consequences will only be triggered if a litigant discharges “the heavy burden … of showing that it would be unjust to apply the normal Part 36 consequences”. MGN could only identify one reported case in which such a departure was considered appropriate: Optical Express Ltd v Associated Newspapers,[5] in which the court held that a Part 36 offer could have been made and accepted much earlier, had the claimant not been so slow in particularising the quantum of its claim. On the facts, Mann J declined to depart from the usual rule.

MGN’s strategy didn’t work in this case — but that doesn’t mean this approach is always bound to fail. If a party’s conduct of proceedings has been sufficiently unreasonable (e.g., by failing to engage in settlement discussions or failing otherwise to comply with the Overriding Objective without a good reason), but then the party makes a Part 36 offer that means a settlement is commercially attractive, it is open to the offeree to accept the offer late and argue that it should not be liable for all or part of the offeror’s costs, or, in an extreme case, that the offeror should pay all or part of the offeree’s costs. That option is not open to a party that accepts a Part 36 offer within the relevant period, no matter how egregious the offeror’s conduct of the proceedings.

Endnotes

[1] [2021] EWHC 76 (Ch).

[2] CPR r.36.13(1).

[3] CPR r.36.13(4)(b).

[4] CPR r.36.17(5)(d).

[5] [2017] 6 Costs LR 803.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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