In Gilham v MGN Ltd and Another [2021] Costs LR 371, the High Court of Justice considered the issue of a Claimant’s entitlement to costs following the acceptance of a qualified offer of amends pursuant to s.3(5) of the Defamation Act 1996.

The action arose following the publication of a number of articles by the Defendants, MGN Limited and Reach PLC. The Defendants had erroneously reported on an incident involving the Claimant in 2017 (an alleged grabbing of a pupil by the collar) which had been ultimately referred to the Teaching Regulation Authority (TRA) following the Claimant’s dismissal. No finding of misconduct was made, yet the Defendant’s published articles suggested otherwise. Whilst both Defendants took action upon realising their error, the reputational damage to the Claimant had already been done.

The Defamation Act 2009 and Part 36 Offers

A claim was brought and ultimately settled pre-litigation following a number of offers (including Part 36 offer(s)). These offers were made pursuant to the Defamation Act, Section 3 of the same providing a framework for agreement in terms of correction of information and/or the issuance of an apology by the relevant parties.

Sections 3(5) and 3(6) further provide the necessary tools for the Court to determine the appropriate amount of damages (determined at a figure of £49,000 in this case) and costs to be payable. Importantly section 3(6) highlights that considering the position on costs is informed by the usual principles of costs awarded in Court proceedings.

Gilham v MGN Ltd and Another: Costs issues

Whilst the parties were in agreement that damages and costs were payable by the Defendants in principle, and that these were to be on the indemnity basis (therefore pursuant to CPR 44.3(1)(b) and CPR 44.3(3)), the parties were unable to agree on a number of specifics, namely:

A. The date from which costs should be payable on the indemnity basis

B. Whether the Claimant was entitled to the benefits of CPR 36.17(4)(d) 10% uplift on damages

C. Whether enhanced interest was to be payable (if payable, the parties had already agreed that this would be 2% above base rate in principle)

These distinct issues were addressed as follows:

A. The date from which indemnity costs should be payable

The Claimant made a Part 36 offer on 19/12/2019 for an amount lower than the judgment sum of £49,000, thus it had beaten its offer and indemnity costs would naturally run from 10/01/2020. However, in light of the Defendant’s alleged poor conduct, the Claimant wished to rely upon a previous offer made on 21/06/2019, which was not a Part 36 offer, and to seek costs on the indemnity basis from the expiration of the same.

The Court rejected this in line with the decision in  F&C Alternative Investments Ltd v Barthelemy (No 3) [2013] 1 WLR 548. The disputes that arose were simply fundamental differences between the parties – this was not sufficient to make an award of indemnity costs pursuant to the prior offer under CPR 44.3 (para 40). As such, the usual cost principles applied, with indemnity costs to run from 10/01/2020 following the expiration of the Claimant’s Part 36 offer.

B. Whether the Claimant was entitled to the benefits of 36.17(4)(d), the 10% uplift on damages

CPR 36.17(4)(d) provides for a uplift of 10% on damages, unless it is considered unjust to do so. This provision is not compensatory but rather acts as an incentive to make parties negotiate (para 45).

Was the Claimant Entitled to the Benefits of CPR 36.17(4)?

It was considered that the Claimant had acted in good faith and had made a series of offers. It was also considered that otherwise, there were not circumstances which would make it ‘unjust’ to award the usually applicable damages uplift (for example where a Claimant had failed to enter into effective pre-action negotiation). As the 10% uplift on damages equally applied to defamation cases, uplift was awarded (para 48).

C. Whether enhanced interest on those damages was payable

CPR 36.17(4)(a) entitles parties whom beat their own offers to enhanced interest on the relevant sum/part of that sum for some or all of the relevant period, starting with the date on which the relevant Part 36 period expired (para 51).

The Defendants sought to argue that enhanced interest was compensatory in nature, and given that compensation had already been paid via damages, the additional sum of enhanced interest was not suitable to be awarded (para 52). The Claimant contested the position and averred that enhanced interest was not purely compensatory in nature (para 55) but rather was something considered in light of all relevant facts and circumstances of the case (para 59).

CPR 36.17(4): The Two-Stage Test

The Court considered the value of the provisions within the context of the overall Part 36 policy objective to incentivise genuine attempts to settle (para 60). In applying the two-stage test set out by the Court of Appeal in Omv Petrom SA -v- Glencore International SA [2017] EWCA Civ 195 and Telefonica UK Ltd v The Office of Communications [2020] EWCA Civ 137, the Court considered:

1. Whether it would be unjust to award enhanced interest and 2. If not unjust, what percent enhanced interest should be set in the circumstances (para 61). Whilst it was possible that any award of enhanced interest could be considered disproportionate, this was not in and of itself reason for it to be considered ‘unjust’ to award interest, but rather, was something to be considered in assessing the magnitude of any enhanced interest awarded (para 58).

Gilham v MGN Ltd and Another : The Decision of the Court

The Court considered that enhanced interest was payable in the circumstances and as such, adopted an enhanced interest rate of 2% above base rate, as had already been agreed in principle by the parties.

The decision provides an insight into circumstances in which the Court may look to diverge from the usual implications of beating a Part 36 offer. Such circumstances are limited and the policy reasons for this are obvious – the Part 36 code places a party at considerable peril of paying an additional amount if it does not give genuine offers to settle the necessary weight of consideration.

If the incentive to negotiate were to be dismantled through case-law, the risk that the Court may award an additional amount through any costs order made would be diminished; and therefore, the true benefit of Part 36 would ultimately become lost.

How can ARC Costs Assist?

As Costs Draftsmen and qualified Costs Lawyers, we can assist in the recovery and negotiation of any costs case.  As an independent party, we can be instructed by either the paying or receiving party, and therefore can assist as to reduce costs if your or your client receives a Bill of Costs. If you have a costs query, please contact us on 01204 397302 or alternatively, email us at info@arccosts.co.uk.

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