QUEEN'S BENCH DIVISION
MEDIA AND COMMUNICATIONS LIST
Strand, London, WC2A 2LL |
||
B e f o r e :
____________________
(1) Optical Express Limited (2) Optical Express (Gyle) Limited (3) The Frame Zone Limited |
Claimants |
|
- and - |
||
Associated Newspapers Limited |
Defendant |
____________________
Ben Williams QC and George McDonald (instructed by RPC) for the Defendant
Hearing date: 24 October 2017
____________________
Crown Copyright ©
Mr Justice Warby :
(1) awarding the defendant its costs from 5 February 2015 (the date when it made an Offer of Amends pursuant to the Defamation Act 1996) to 17 June 2016 (the end of the "relevant period") ("The Pre-Offer Issue") or alternatively making no order as to the costs incurred in that period, or reducing the claimants' default entitlement to a proportion of their costs; and/or(2) ordering that the costs to which the defendant is admittedly entitled from 18 June 2016 be assessed on the indemnity basis ("The Indemnity Costs Issue").
(1) The claim form was issued on 23 January 2015, seeking damages "including special damages."(2) On 5 February 2015, the defendant made a qualified Offer of Amends in respect of the libel claims. At the same time, it made a Without Prejudice Save as to Costs ("Calderbank") offer on damages in the sum of £25,000. The open letter with the Offer of Amends made clear that the defendant did not at that stage accept that the claimants had any right to recover special damages. Later, it was spelled out that the money offer was in respect of general damages. The Offer of Amends was promptly accepted. On 2 March 2015, an apology was published on page 2 of the Daily Mail and from that date on the Mail Online website. On 24 March 2015, a statement was read out in open court before me.
(3) The defendant's Calderbank offer was not accepted. The claim for damages proceeded. The malicious falsehood claim also continued, as the Offer of Amends procedure is not available for that tort.
(4) The Particulars of Claim, served on 24 February 2015, alleged that the claimants had suffered serious financial loss as a result of a "dramatic collapse in business following the widespread dissemination of the defendant's allegations." A Confidential Schedule set out calculations to support a claim that in January 2015 alone the claimants had sustained a total loss of revenue from refractive eye operations of some £3.7 million, with consequent lost profits amounting to £2.89 million. These were said to be the best particulars that the claimants could provide at the time. The Particulars alleged that there was further and continuing loss, details of which would be "provided once it has crystallised."
(5) On 6 May 2015, the defendant served a Defence, which was amended on 1 April 2016. This denied the claimants' entitlement to any damages for financial loss, asserting that the claim was misconceived in various respects. It further complained that the Particulars of Claim impermissibly sought "to impose on the defendant responsibility for a general downturn in the claimants' business", despite widespread negative publicity affecting Optical Express resulting from entirely independent events.
(6) On 29 October 2015, the defendant served a request for further information about the claim, seeking details of the further and continuing financial loss alleged to have been suffered.
(7) At the first CCMC on 10 November 2015, Master Leslie imposed a stay of 3 months "save for negotiations concerning costs and case management" and preparation for an adjourned CCMC on 17 February 2016.
(8) Some further information was provided on 8 March 2016, but not the details of financial loss requested in October 2015. An Amended Reply was filed on 26 April 2016. A third set of Further Information was provided by the claimants on 3 May 2016, in response to the request made over 6 months earlier. The claim, as set out in this document, had risen to some £21.5 million.
(9) On 27 May 2016, the defendant made a Part 36 offer in the sum of £125,000. Of this sum, £100,000 was attributed to the special damages claim. £25,000 was attributed to the claim for general damages.
(10) On 17 June 2016, the claimant's solicitors responded that the offer was "wholly derisory" and rejected, in view of the special damage claim for £21.5 million based on "proper forensic analysis of the losses caused by your client's publications". The "relevant period" for accepting the defendant's Part 36 Offer expired that day. The matter continued. The offer was not withdrawn.
(11) On 7 October 2016, by consent, the third claimant discontinued all its claims, the second claimant discontinued its claim in defamation, and those two claimants were ordered to pay the defendants' costs of the abandoned claims.
(12) The remaining claims proceeded. The action was listed for trial over 5 weeks commencing on 12 June 2017. Disclosure was given, and on 12 December 2017 forensic accountancy evidence was served. This calculated the claim at £17m, though the Particulars were not amended.
(13) On 21 February 2017, the first and second claimants served and filed notice of acceptance of the defendant's Part 36 Offer.
(14) Since then, the issues about costs which I have identified above have emerged. The claimants applied for the prescribed orders by application notice dated 21 April 2017. The defendants filed their cross-application on 18 August 2017.
Applicable principles
"(4) Where—
…
(b) a Part 36 offer which relates to the whole of the claim is accepted after expiry of the relevant period; …
… the liability for costs must be determined by the court unless the parties have agreed the costs.
(5) Where paragraph (4)(b) applies but the parties cannot agree the liability for costs, 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."
"(a) the terms of any Part 36 offer;
(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;
(c) the information available to the parties at the time when the Part 36 offer was made;
(d) the conduct of the parties with regard to the giving or refusal to give information for the purposes of enabling the offer to be made or evaluated; and
(e) whether the offer was a genuine attempt to settle the proceedings."
"a) The question is not whether it was reasonable for the claimant to refuse the offer. Rather, the question is whether, having regard to all the circumstances and looking at the matter as it affects both parties, an order that the claimant should pay the costs would be unjust: see Matthews v Metal Improvements Co. Inc [2007] EWCA Civ 215, per Stanley Burnton J (sitting as an additional Judge of the Court of Appeal) at paragraph 32.
b) Each case will turn on its own circumstances, but the court should be trying to assess "who in reality is the unsuccessful party and who has been responsible for the fact that costs have been incurred which should not have been.": see Factortame v Secretary of State [2002] EWCA Civ 22, per Walker LJ at paragraph 27.
c) The court is not constrained by the list of potentially relevant factors in Part 36.14(4) to have regard only to the circumstances of the making of the offer or the provision or otherwise of relevant information in relation to it. There is no limit to the types of circumstances which may, in a particular case, make it unjust that the ordinary consequences set out in Part 36.14 should follow: see Lilleyman v Lilleyman (judgment on costs) [2012] EWHC 1056 (Ch) at paragraph 16.
d) Nonetheless, the court does not have an unfettered discretion to depart from the ordinary cost consequences set out in Part 36.14. The burden on a claimant who has failed to beat the defendant's Part 36 offer to show injustice is a formidable obstacle to the obtaining of a different costs order. If that were not so, then the salutary purpose of Part 36, in promoting compromise and the avoidance of unnecessary expenditure of costs and court time, would be undermined."
(1) The mere fact that the parties' positions or their assessment of the merits and risks of the litigation change during the process will not of itself provide reason to hold that the default rule will be unjust [16].(2) Many factors enter into the decision of a defendant to make an offer, and as to the timing and amount of the offer; similar factors enter into the decision of whether to leave it on the table or to withdraw it: [18].
(3) If the Judge thinks the Part 36 regime itself is harsh or unjust, that cannot be a reason to depart from the usual order: [21].
(4) Adherence to the default costs order involves holding a party to an offer to pay pre-offer costs which is an essential element of any Part 36 offer: [23], [36].
(5) This is, prima facie, a just approach because the offer "must have involved a considered acceptance of the value as much to the offeror as to the offeree, of the claimant recovering its pre-offer costs…": [29], [36].
(6) Application of the default rule is "highly unlikely to be unjust" if the defendant is unable to show clearly that its assessment of the risks and benefits of making the offer has been in some significant way upset, contradicted, or misinformed: [30].
The Defendant's case
(1) Applying the Factortame test, the substance of the matter is that the defendant was the successful party in this litigation and the claimants were the losers. It is not enough to recover some money. The claimants failed to win the prize for which they were fighting. The sum they accepted via the Part 36 process was less than 1% of the maximum sum claimed. To recover this sum the claimants caused the parties to incur costs in excess of £1.7m. The offer can be regarded as a "nuisance" payment, or something close to it, or as nothing more than a "token" recovery, which ought not to blind the Court to the practical realities.(2) Alternatively, the factors just mentioned mean that the defendant has to be regarded as the "more successful" party and that must be reflected in the allocation of costs, if injustice is to be avoided. In this respect, reliance is placed on Walker Construction (UK) Ltd v Quayside Homes Ltd [2014] EWCA Civ 93.
(3) In the further alternative, if the defendant was neither the winner nor the more successful party there was no clear winner in the pre-offer period, so that it would be unjust to award any of the costs of that period to the claimants.
(4) If, contrary to the above, the claimants were to any degree the successful party it would be wrong to characterise them as the unqualified winners. The huge shortfall on the claim means that this is akin to a case where the claimant has succeeded on some issues but failed on others. It would be unjust to award anything other than a proportion of the claimants' pre-offer costs. It is suggested that nothing more than 20-30% could be justified.
(5) Further and alternatively, the claimants' conduct of the action provides good reason to depart from the usual order as to pre-offer costs, in order to avoid injustice. Three broad criticisms of the claimants are advanced:
a) They failed properly to evaluate their own claim or to engage with settlement proposals. Had they done so, the claim would have been settled shortly after the defendant's original Calderbank offer, and the vast majority of the costs incurred would have been avoided.(b) They failed to plead their case properly in good time, thus delaying the Part 36 offer which was ultimately accepted.
(c) They were guilty of breaches of duty in respect of disclosure, compliance with court orders, and the proportionate conduct of the litigation.
Discussion
(i) Approach
(1) This is an argument capable of general application. Its acceptance would seem to run counter to the logic of the default position so far as post-offer costs is concerned, and hence to undermine the certainty of the regime.(2) Secondly, it is hard to accept that the court's decision on this issue should be affected by the fact that certain categories of loss or expense that may be incurred in practice are irrecoverable as litigation costs. Similarly, it would seem wrong to proceed on the basis that costs orders in respect of post-offer costs do not represent proper compensation. If such considerations are left out of account, it is not easy to see the logic of the contention that the just allocation of pre-offer costs should depend on post-offer costs and expenses. The allocation of costs during that later phase of the litigation is provided for separately by the Rules.
(3) Thirdly, a defendant who did wish to take account of such matters could do so by withdrawing the offer after the 21 days, or making a Calderbank offer, or a true nuisance payment offer. Offers of that kind can be shaped to reflect a willingness to pay a price which does not depend on any assessment of the merits, but is arrived at in order to cut short expensive litigation and free up the defendant's time and resources. This offer letter did say that "both sides have better things to do with their time and money". But the figure was not characterised as a "nuisance" payment. It was expressly stated that it "reflects the maximum sums our clients considers your client might be awarded…"
(4) Fourthly, and in addition, I note that the offer letter in this case did not advance any such arguments as Mr Williams now puts forward. It described the special damage claim as "outlandish" and "spurious". But it did not suggest that the defendant might contend that pre-offer costs should be treated differently if its offer was accepted outside the 21 day period. On the contrary, the letter stated, without qualification, "The offer made in this letter is intended to have the consequences set out in Section 1 of Part 36 of the Civil Procedure Rules." The claimants, who would be aware of the default position under Part 36, were given no warning or reason to believe that the defendant might argue for a different outcome if the offer remained on the table and was accepted later on. They were told, expressly, that the defendant would argue for a costs order in their favour if the claimants recovered a judgment for £125,000 but the allocation of that sum between special and general damages differed from the one adopted by the defendant. The defendant's advisers had, as one would expect, thought carefully about the matter. There is, however, no evidence that they had in mind at the time the outcome on costs for which the defendant now contends.
(ii) Success?
"73. First, in my view, the Judge, when considering the history of the matter and assessing the various offers, failed adequately to take into account the commercial reality of this litigation, how it was conducted on each side, its ultimate outcome, and who, on an objective basis, was the more successful party. These were matters to which he was obliged to give appropriate consideration under CPR Part 44.3(2), (4) and (5) . By failing to take into account these relevant matters, and simply focusing on the various offers, the Judge in my view adopted too mechanistic an approach, and failed to address the costs issues in their proper commercial context."
"The present case was essentially one where the exercise of the discretion to award costs had to reflect the reality that Quayside had substantially failed on its counterclaim, which on any basis was substantially exaggerated. Moreover consideration clearly had to be given to whether an issue based, or partial, costs order was appropriate."
(iii) Conduct
The Indemnity Costs Issue
Set-Off
Summary of Conclusions
(1) I have been persuaded that it would in all the circumstances be unjust to make the normal orders upon late acceptance of a Part 36 offer. The just and appropriate costs orders, in respect of the claims settled by acceptance of the Part 36 offer, are that:(a) the claimants should recover their costs up to 11 January 2016, and the costs of and caused by the preparation and service of the Further Information of 8 May 2016 (in which they set out details of their claim for special damages), such costs to be assessed on the standard basis if not agreed;(b) the defendant should recover its costs from 12 January 2016, such costs to be assessed, if not agreed, on the standard basis until 17 June 2016 and on the indemnity basis thereafter;
(2) the costs to which the claimants and defendants are entitled under the above orders should be set off against one another;
(3) I decline to order a set-off of costs against damages.