In a recent case the Court looked at a situation where the Defendant accepted a part 36 offer to settle a privacy case one day outside the 21 period. The Court rejected the argument that the Defendant should not have to pay the Claimant’s costs of the claim because she had not engaged in negotiations.
Although the Defendant failed in this case to get the Court to punish the Claimant, the decision highlights the risk a party faces when they fail to negotiate. In fact it is unclear why the parties did not short circuit the process and mediate using a third party independent mediator at the outset. Mediating could have saved them a large proportion of the costs they incurred.
The claimant in Pallett v MGN Ltd, the actress, Roxanne Pallett, had made a Part 36 offer to settle her claim against the publisher of the Mirror newspaper for infringement of privacy and specified that if accepted within 21 days the defendant would be liable for her costs.
The offer was made against a background in which the defendant and the claimant had both made offers of settlement. The offers of the defendant were of varying amounts from time to time and their common theme was that they offered only the costs prior to one or other of two dates relatively early in the action. The offers of the claimant always sought the payment of all her costs.
The Defendant argued that the Defendant should not have to pay the costs because the claimant was culpable of a serious failure to engage with the settlement process. If she had engaged at prior stages, and particularly in the pre-issue period and for a few months after issue, the matter would likely have settled, and even if there is any doubt about that then the failure to engage was serious, not to be encouraged, and in fact should be discouraged by the judge making the costs order that they sought, depriving the claimant of her costs since March 2019.
The judge took the view that the Claimant had not received the early disclosure she should have received.
The Defendant relied upon what they said was a failure to engage in negotiations both before and after the commencement of proceedings, and authorities which rendered that culpable to an extent which justifies departure from the normal rule. The Defendant relied upon remarks made by Sir Geoffrey Vos C in OMV Petrom SA v Glencore International [2017] 1 WLR 3465:
“The culture of litigation has changed even since the Woolf reforms. Parties are no longer entitled to litigate forever simply because they can afford to do so. The rights of other court users must be taken into account. The parties are obliged to make reasonable efforts to settle, and to respond properly to Part 36 offers made by the other side. The regime of sanctions and rewards has been introduced to incentivise parties to behave reasonably, and if they do not, the court’s powers can be expected to be used to their disadvantage. The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process.
The Defendant also referred to what Jackson LJ said in Thakkar v Patel [2017] EWCA Civ 117, [2017] 2 Costs LR 233 at para [31]:
“The message which this court sent out in PGF II v OMFS Ltd was that to remain silent in the face of an offer to mediate is, absent exceptional circumstances, unreasonable conduct meriting a costs sanction, even in cases where mediation is unlikely to succeed. The message which the court sends out in this case is that in a case where bilateral negotiations fail but mediation is obviously appropriate, it behoves both parties to get on with it. If one party frustrates the process by delaying and dragging its feet for no good reason, that will merit a costs sanction.
The Defendant’s case was that they were making offers and were met with silence, and the failure to engage went back to the pre-issue stage. The claimant should have engaged properly before issue, and she did not, without any good reason.
They argued that there was a culpable failure to engage in settlement negotiations from the moment the claim was made in 2018. The claimant ought to have engaged, as the defendant’s correspondence invited, and if she had done so then the matter might have settled. That remained as true after the issue of proceedings as before. The claimant never put forward an offer until October 2020, and that was not good enough. There was a chance of settlement before then had the claimant engaged with a settlement process. So far as the claimant justified her stance by a need to have disclosure, that was no real justification. A large number of cases in the litigation had settled before disclosure. She did not necessarily need disclosure. This was a bad case, and bad enough to allow the defendant to discharge the burden imposed by Part 36 and to limit the claimant’s costs to the period prior to the Defence.
The claimant’s case had two strands. First, that the offers by the defendant were always inadequate in terms of amount, as the final acceptance of £99,500 demonstrates. The first offer was way below that, and even as offers started to approach what turned out to be the final figure, they did not (after the first offer) include costs, and there was no justification for not including costs. The real value of each later offer was therefore somewhat less than the headline figure of the amount of damages offered, and that must be borne in mind at all times. The second strand is the justifiable desire of the claimant to have disclosure before pitching an offer or deciding whether to accept one from the defendant. At the start of the process she did not have the equivalent of early disclosure, and she did not even have that at the point of time (after the issue of proceedings) which entitled her to it. It was the decision of the defendant to challenge the existing early disclosure regime which deprived her of that information and that decision turned out to be unjustified. The information was information which was to be provided precisely so that the claimant could consider the strength of her case, and it is not a legitimate complaint that she did not negotiate in the absence of that information. Once it was provided, the claimant was justified in reviewing matters and in deciding that she needed more disclosure in order to evaluate her claim. That was a reasonable stance, and it turns out to have been justified when what emerged on disclosure, both in relation to her claimant-specific disclosure and subsequent generic disclosure which revealed documents relating to her which had not previously been revealed. The offer that she ultimately made was a bona fide one (and not one designed to be a bit more than the preceding ones) and since it included costs it was worth a lot more than any of the prior offers, which did not include all the costs.
The judge found that there were two possible ways in which the defendant might succeed in this sort of debate. They both turned on the question of whether the claimant failed to engage in settlement discussions to an extent which should attract the court’s censure sufficiently to lead to the sort of costs consequences which the defendant urged. The first is whether the failure to engage at an early stage can be seen to have cost an early settlement which would probably have been reached. The court was able to see, from the facts as they appeared at the time, that the settlement which was ultimately reached could and probably would have been reached earlier if the claimant had provided its information earlier. The second is whether the failure to engage was, in more general terms, a culpably lost opportunity to arrive at a possible settlement which the claimant should have at least tried to reach even if one cannot be at all certain that any given settlement would have been arrived at.
The Judge found that was not really in issue in the case was whether the claimant acted unreasonably in rejecting any particular offer. The Defendant relied more on a more general failure to engage, and suggested that there was a gap which might have been bridged with some negotiation, and the claimant ought at least to have tried.
The Court found that it was not necessary to consider the reasonableness of each offer in that context. However, the terms of the offers that were made are not entirely irrelevant, because they at least set the atmosphere for a negotiation. If they can be seen to have been pretty generous, and very close to the final compromise, then the averment of a culpably lost opportunity can be made more strongly. If they did not have that character then the “lost opportunity” point is weaker. A failure to respond to a ludicrously low offer with a counter-offer may not be as culpable as a failure to respond to an offer which can be seen to be generous.
The judge did go on to consider the terms of the offers that were made, and to see how they fitted into the developing scenario. It seemed to the Judge to be clear that they could not be used as a background which gave serious prospects of a compromise even when one sees the end result.
The Judge concluded that there was not a promising stage for a negotiation in the early phases of the dispute. It is not possible to conclude that an earlier negotiation would have been likely to have led to a settlement. The claimant would not have been encouraged by the defendant’s approach. The offers did not set a promising scene for further negotiation.
Furthermore, the Judge did not think it could be said that it is likely that there would have been a settlement at this stage if the claimant had indulged in negotiation. The defendant was apparently making less than generous offers and which would not have compensated for the chance of improving the claimant’s case via disclosure, and was playing hardball over the costs. The judge thought it unlikely that the parties would have reached an agreement.
The judge then turned to the more significant questions about the culpability of the claimant’s absence of engagement per se. In dealing with the picture of negotiations the judge considered that it could not be said that the final settlement sum would have been agreed earlier if only the claimant had done something earlier. The position is too complex for that. So if the Defendant was to succeed it must establish that, in the circumstances, a failure to engage fell so far short of the standards which the courts now expect of litigants (in terms of a willingness to negotiate) so to have discharged the heavy burden on it of showing that it would be unjust to apply the normal Part 36 consequences.
The Judge did not consider that the Defendant had discharged that burden. In the Judge’s view the claimant had reasons, which cannot be dismissed as unreasonable, for not engaging in horse-trading over figures from the outset. In the Judge’s view the claimant’s 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 in all these cases and, in this one, the failure of the defendant to comply with the early disclosure regime. In a real sense the defendant brought the claimant’s attitude on itself by persisting in its failure to comply with the early disclosure regime, both informal (pre-issue) and formal (post-issue).
The claimant in this period was not simply refusing to engage; she was indicating that she could not sensibly engage until better informed. That was entirely reasonable, in the Judge’s view.
The Judge found that by March 21 2019 the early disclosure had been given, but by now on the evidence (which was accepted) the claimant had decided that she wished to get full disclosure in order to value her claim. It is not possible to say that that view is unreasonable; it is a sensible view to adopt. The position might have been otherwise if the defendant was making more attractive overtures, but on 27 March the defendant actually reduced its level of offer. It was also making costs offers which assumed that the claimant had been unreasonable in not settling before issue, which was again not promising. While its offer letters did invite a response, both in relation to the amount and in relation to the costs, the hectoring tone and level of the offers made did not actually encourage a belief that a negotiation would achieve a figure which the claimant might have thought attractive enough to forego disclosure (or further disclosure). In the face of all that a decision that there was no point in putting forward figures without getting some disclosure becomes even more understandable.
The Defendant tried to argue that getting disclosure was not really necessary, and a lot of cases had managed to settle without getting that far. The Judge accepted the statement about settlement as being accurate. Nonetheless, it did not make this claimant’s decision, in these circumstances, to press on without engaging in a negotiation somewhat blind, unreasonable in all the circumstances. Nor can it be seen that the disclosure process turned out to be pointless.
The disclosure enabled the claimant to put forward her figure of £95,000 on 14 October 2020, which the defendant accepted as a sum in its email of 16 October (despite its protestations that £60,000 was an excessive sum in its offer of 27 March 2019). In other words, the disclosure (expensive though it no doubt was) enabled the claimant to raise the negotiating stakes by over 50% of the previous offer.
The Judge found that it was relevant to reflect on the basis of the offers that the defendant made after early disclosure. At that stage it made offers on the basis of an admission that there were 5 instances of invasion of the claimant’s privacy. Those 5 instances were instances which were apparent from the early disclosure. The claimant might well reason that if that was the case, then further disclosure (which she had not got by then) might well reveal further instances so waiting for that event, rather than accepting a settlement said to be founded in a limited number of wrongs and gambling that there are not a lot more, becomes more justifiable.
The Court found that in circumstances while it can be said that the claimant was not engaging in a negotiation prior to October 2020, it cannot be said that in the circumstances she should have been, and certainly not that the absence of a negotiating stance was culpable (in the manner identified in the authorities) to an extent which made it unjust to allow the normal consequences of the late acceptance of a Part 36 offer.
The Court therefore found that those normal consequences should follow and that the claimant should have all the costs of the proceedings on the basis of the normal order.
There was a sting in the tail as the Judge did issue a word of caution saying that the case turned on its own facts, and to a large extent on the justification of the claimant in pressing on for disclosure before valuing her claim. It involved a determination in which the burden is on the defendant under Part 36.
Because it turned on its own facts, it should not be taken as a green light for all claimants to decline to enter into negotiations before disclosure is complete. Such a posture would not be correct in every case. Each case must turn on its own facts. There may be other cases in which a non-engagement will be unreasonable. That will depend on the facts of those cases. Other cases may not involve the burdens of Part 36. The defendant will no doubt be concerned that every case will now go to disclosure. That would be regrettable, and should not be the case, and in any event the defendant can always seek to protect itself by making early offers which are more generous and less combative than they were in this case. Claimants should not seek to apply this case too generally.
Conclusion
This case shows how the Courts will analyse offers and attempts to negotiate during proceedings and will possibly penalise a party in costs if they fail to negotiate. There is always a risk that there will effectively be an inquest into the conduct of the parties after the Court has made its decision.
Despite the Judge’s word of caution, parties may well consider that they can justify not resolving or engaging in negotiations until disclosure has been provided and they know enough about their case. That would be a risky strategy nonetheless as there is no guarantee the judge will be so understanding about the Claimant’s predicament. Litigators often point to disclosure and expert evidence as justifiable reasons not to settle, particularly in personal injury claims.
To persuade a Court to depart from the normal rule about costs, is a “heavy burden” a Defendant must establish that, in the circumstances, a failure to engage fell so far short of the standards which the courts now expect of litigants (in terms of a willingness to negotiate) so that it would be unjust to apply the normal Part 36 consequences. This is quite disappointing from the point of view of people who want the Courts to be quicker to discourage litigation and encourage settlement.
In my view this is a case which could have been resolved earlier if the parties had mediated rather than try to engage in offers and negotiating in correspondence. It is a shame that the Defendant did not rely upon a failure to accept an offer to mediate as they might have been on more solid ground in their arguments or better still have resolved the litigation earlier without having to pay such a large amount of costs.
https://www.bailii.org/ew/cases/EWHC/Ch/2021/76.html