The long running saga playing out in the High Court in the phone hacking litigation against MGN Ltd has provided interesting reading to tabloid journalists, members of the public and civil litigators alike.  The most recent decision of Mr Justice Mann is not likely to catch the headlines, but provides an important restatement of principles which litigators should be aware when making (and accepting) offers to settle.  It stresses the importance of adequately explaining a course of action and provides a stark warning that poor conduct leads to a risk of an indemnity costs order being made.

The phone hacking litigation – as a series of cases – is being managed by Mann J.  The case of Eddie Jordan (“a well-known person in Formula 1 circles”[1]) was issued in August 2014 and is one of four cases due for trial in July 2017.  Like a great number of similar cases, Mr Jordan’s case went through a process of negotiation before trial.

The afternoon prior to the trial commencing, Mr Jordan applied for a determination that he could accept a Part 36 offer, made as far back as 24 September 2014, and to disapply the normal costs rule which would dictate that the Mr Jordan would then pay MGN’s costs from 15 October 2014.[2]  MGN cross-applied for their costs from this date to be assessed on the indemnity basis.

In order to understand the approach Mann J took, it is important to consider the long chronology of offers which spanned the 2½ years before the matter came before the Court.

The Offers

Not long after the Particulars of Claim were served on 12 September 2014, the process of offers and counter-offers began. 

• 24/09/2014 – Defendant’s Part 36 offer of £15,000 damages, an undertaking not to intercept voicemails and a further undertaking not to re-publish articles which had already been published.  The Claimant set out why he would not accept that offer on 14/10/2014.
• 31/12/2014 – Defendant’s Part 36 offer of £20,000 damages and undertakings as per 24/09/2014 offer.  The offer was not accepted.
• 15/01/2016 – Defendant’s ‘Without Prejudice Save as to Costs’ (WPSAC) offer of £45,000 damages, undertakings as per 24/09/2014 offer, a public apology and payment of reasonable costs.  The offer was open until 28/01/2016.  No response was received to this offer.
• 24/02/2016 – Defendant’s WPSAC offer of £30,000 damages, undertakings as per 24/09/2014, a public apology and costs.  The offer was open until 31/03/2016.  No response was received to this offer.
• 24/03/2016 – Defendant’s WPSAC offer increasing damages to £40,000.  The offer was open until 04/04/2016.  No response was received to this offer.
• 26/04/2016 – Defendant repeated the 24/03/2016 offer for a further 3 days.  Still no response was received.
• 17/05/2016 – Defendant increased the WPSAC offer to £60,000 damages.  The offer was open until 24/05/2016.  No response was received to this offer. 
• 07/07/2016 – A Without Prejudice meeting was held between the parties.
• 19/07/2016 – Defendant increased the WPSAC offer to £80,000 damages with costs to 07/07/2016.  No response was received to this offer.
• 26/08/2016 – Defendant repeated the 19/07/2016 offer.  The offer was not accepted.
• 20/12/2016 – Defendant repeated the 19/07/2016 offer.  The offer was not responded to.

It is interesting to pause and note a comment of Mann J that indicates that this type of negotiating strategy has been adopted in other litigation within the phone hacking saga.  At para. 62 of his judgment – quoting himself from an earlier judgment in Henson v MGN Ltd (unrep., 07/03/2017), Mann J notes that:

It may be that inviting one's opponent to make a series of offers without ever making one oneself after an initial stab (which is what happened in the correspondence which I have been allowed to see) is a clever tactical manoeuvre to extract ever higher offers, but there comes a point at which it does not facilitate settlement."

 After some lull in early 2017 – the negotiation continued:

• 18/04/2017 – Claimant’s Part 36 offer of damages of £90,000, an undertaking not to intercept voicemails and public and private apologies. 
• 09/06/2017 – Defendant responded that had the 18/04/2017 offer been made in July 2016, it likely would have been accepted.  Accordingly, the Defendant declined to pay costs until April 2017 and counter-offered damages of £90,000, the payment of the Claimant’s costs until July 2016 and then the Claimant would pay the Defendant’s costs – on the indemnity basis.
• 14/06/2017 – Claimant rejected the Defendant’s counter-offer and suggests a Without Prejudice meeting.

Interestingly, and in light of the increasing settlement offers perhaps, the Claimant at this juncture applied – and received permission – to increase the value of the claim from £100,000 as it had been issued at, to £150,000.

• 22/06/2017 – A further Without Prejudice meeting was held between the parties.
• 30/06/2017 – Claimant’s WPSAC letter taking the view that everything was agreed (i.e. damages at £90,000) except costs.  The Claimant was seeking costs up to the date of their offer, the Defendant was seeking to pay the Claimant’s costs until July 2016 and then the Claimant pay the Defendant’s costs.  [Costs were, by this stage, £150,000 in solicitor’s costs and £81,000 in Counsel’s fees.]
• 30/06/2017 – Defendant’s WPSAC letter setting out that they would pay £90,000 damages, £108,000 in costs and not seek any costs from the Claimant.
• 01/07/2017 – Claimant rejected Defendant’s offer and counter-offered £90,000 damages, £173,250.00 costs and payment of an ATE premium of £45,315 in this case, and 2 other similar cases.  This remained open until the following day.
• 02/07/2017 – Despite WPSAC negotiations on this day, the matter was not resolved.

In a manner which will be all too familiar to litigators who routinely deal with settlement negotiations before trial, matters intensified on 3 July 2017 as the trial date loomed nearer:

• Late in the morning, the Claimant put forward an offer which was quickly rejected by the Defendant.
• At 13:47, the Claimant sought to accept the Defendant’s offer made on 30/06/2017.  The Defendant quickly pointed out that this was rejected by the Claimant on 01/07/2017 and was therefore incapable of being accepted.
• At 16:44, the Defendant reiterated that their offer of 24/09/2014 was open for acceptance and they would permit it to be accepted out of time on the basis that the Claimant would pay the Defendant’s costs from 15 October 2014.
• At 17:24, the Defendant – clearly trying to ensure that any further options for the Claimant were closed – formally withdrew the offer made on 31/12/2014 – leaving only the 24/09/2014 offer capable of acceptance.

On this basis, Mr Jordan indicated that he would accept the £15,000 offer made on 24 September 2014.

Claimant’s Application to Disapply the Usual Order

The Claimant sought to disapply the usual order that the Claimant would pay the Defendant’s costs from 15 October 2014 pursuant to CPR36x10(5)(b).  The application was put on the basis that CPR 44 gave the Court a wide discretion relating to costs and that because the parties had reached agreement about damages at £90,000, it was submitted that it would have been entirely disproportionate to have a 4 or 5-day trial when the outcome would purely be about the costs. 

Mann J rejected the argument.  He observed that the damages were not agreed at £90,000 – but the figure of £90,000 was being settled on as part of a ‘package’ in relation to settlement.  He noted that it would be clear that if the matter proceeded to trial, the Claimant would be asking for much more (especially given the recent application to increase the value of the claim) and the Defendant would be seeking much less. 

Defendant’s Application for Indemnity Costs

More interestingly, however, was the Defendant’s application for indemnity costs.  Mann J identified that the test to be applied was that “costs can be awarded on an indemnity basis where the court considers that the conduct of the paying part was unreasonable to a high degree which takes the situation away from the norm.”[3]  The Defendant submitted that this was the case for two reasons:

(a)    there was a culpable failure to engage properly by the Claimant in settlement negotiations; and

(b)   the Claimant was advancing a seriously exaggerated and fabricated claim.

Perhaps unsurprisingly, Mann J declined to decide the second point.  He noted that this would require him to run inter alia a mini-trial and although it seemed like it may be the case, he did not need to consider the point because he found for the Defendant on the first point.

In his judgment, the Judge observed that the chronology of settlement negotiations spoke for itself.  He held that the failure to engage to begin with was perhaps understandable and “not so culpable”, when parties are in early stages of investigations and formulating their cases and that it was when the offers started to come in in 2016 that the failure to engage became increasingly culpable.  He noted that in respect of the £80,000 offer in July 2016, had a response been given “recent events tell us that such a response would probably have been fruitful in getting a settlement.”[4]

This alone was not sufficient to persuade the Judge to award indemnity costs, however.  As warned by the Defendant in April 2017, the Judge took the view that the offer of £90,000 which was made in April 2017 could (and should) have been made much earlier and this would have brought the matter to a much swifter, less costly conclusion.  Mann J observed that: “On the evidence that I have seen I think that [settlement at that stage was] likely.”[5]  The combination of these factors persuaded the Judge that there had been “a culpable failure to engage in negotiations which would, if conducted more properly, have been likely to have led to a settlement.”[6]

The final observation of the Judge is one which is applicable to all litigators when they are considering whether the other side has run up costs: the Court will want to know why the course of action has been adopted.  The proverbial ‘final nail in the coffin’ for Mr Jordan was that he –

… did not advance any explanation, let alone a good one, why, having run his case for 2 ½ years, having failed to respond properly to a number of offers… having caused himself and the other side to run up significant amounts of costs and having exposed the defendant to the prospect of having to pay the [conditional fee agreement] uplift and [After the Event insurance] premiums… should at the last minute do the equivalent of walking away from the action.[7]

Yet again therefore the Court has endorsed the view that litigation is not a game to be played by people with deep pockets, choosing to keep the other side engaged and running up costs before walking away at the last minute.  Offers need to be dealt with properly and considered counter-offers put forward where appropriate.  It is not acceptable to just sit on one’s hands and wait.  As costs increase and patience decreases, this case shows that a well timed Part 36 offer is still a powerful weapon in a litigator’s arsenal.