Optical Express Ltd & Ors v Associated Newspapers Ltd [2017] EWHC 2707 (QB) (03 November 2017)


An application to consider whether it was ‘unjust’ to award the normal orders following late acceptance of a Part 36 offer.

Background

The Claimants in this action were companies involved in the operation of Optical Express. One of Optical Express’s services is refractive eye surgery, involving a lens implant. The claimants sued for damages and an injunction in respect of alleged libel and/or malicious falsehood in an article published by the Defendant in the Mail Online on 4 January 2015 and in the Daily Mail on 5 January 2015. The claim form was issued in January 2015, seeking damages, including special damages. The Particulars of claim put the loss in January alone at £3.7m, saying there was further and continuing financial loss. In February 2015, the Defendant made a qualified offer of amends in respect of the libel claims and a £25,000 Calderbank offer.

In October 2015, the Defendant sought details of this, which were not provided until just over six months later, at which point the value of the claim had risen to £21.5m.

On 27 May 2016, following receipt of further information requested, the Defendant made a £125,000 part 36 offers, made up of £25,000 in general damages and £100,000 in special damages.

The offer of £125,000 made by the Defendant was initially rejected as “wholly derisory”. However on 21 February 2017, the Claimants accepted the Part 36 Offer which the Defendant had previously made. That brought the action to an end, subject to costs. Each side applied for the Court’s determination on the issues of costs.

The Claimants’ costs up to 17 June 2016, when the offer period expired, were £549,000. The Defendant’s costs from 18 June to the date of acceptance were nearly £500,000.


Applicable Law

The costs consequences of late acceptance of a Part 36 offer are governed by CPR 36.13(4) (b) and (5) which provide as follows:

“(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.”

These provisions were supported by the following case law:

SG v Hewitt [2012] EWCA Civ 1053 [2013] 1 All ER 1118 [22], where the Court found that it must make the normal orders unless it considers it unjust to do so.

In addition reference was made to Tiuta Plc v Rawlinson & Hunter (A Firm) [2016] EWHC 3480 (QB) [14] (Andrew Baker J), which provided that the burden is on the Offeror to persuade the Court that the normal orders would be unjust.

CPR 36.13(6) provides that the Court must consider the five factors in CPR 36.17(5) when assessing whether it would be unjust to make the orders specified in CPR 36.13(5). These are:

“(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.”

The Court gave consideration to the decision in Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch), where Briggs J (as he then was) had to apply the “injustice test”, contained in what was then CPR 36.14. (“The Smith v Trafford principles”)


Approach

Warby J considered that it was appropriate in this case to apply the Smith v Trafford principles; however the application of these principles in this case was a different one than would have had to be undertaken after a trial, where the Claimant failed to beat a Part 36 offer previously made. At paragraph 25, Warby J states:-

“The exercise is different, not least because in this situation the defendant has decided that it is willing to pay the claimant’s pre-offer costs, as the price of settlement. The defendant has gone further and made an explicit commitment to the claimant that it will pay those costs, if the offer is accepted.

In addition the Court provided that the burden was on the Defendant to show a reason why it was unjust to make the “normal orders”, which he considered that the burden was a formidable one.


Success?

The Court considered the issue of which party had been successful. The Defendant’s submissions were based around the fact that the Claimants had made a claim for £21.5 million, however accepted £125,000, which was considered a “token” amount. The Court rejected this assertion and considered the general level of damages recovered in this type of case. Warby J stated at paragraph 31:-

“Damages awards for corporate libel claimants are rarely very large. Companies can only suffer financial loss. Business being a complex matter, it can be hard to prove that loss or reduction in profit has followed a libel, and even harder to prove the causation of such loss or profit reduction in the presence of multiple competing factors which might have caused them. The recovery of a seven figure sum at trial is I believe unheard of. Recovery of six figure sums is rare. I cannot regard the agreed compensation in this case as anything other than substantial damages in all the circumstances”.

In addition the Court acknowledged that the Claimants had obtained an Offer of Amends and an additional £100,000 following service of Further Information in early May 2016. The Court found that both had to a degree been successful in this matter and therefore an order contrary to that, which is normally allowed would not just.

Warby J summarized this position at paragraph 41 when he stated:-

“There is nothing about these aspects of the matter that would make it unjust to adhere to the normal order as to the allocation of costs. Indeed, in all the circumstances of this case, a decision not to make the normal costs order on the grounds that the recovery falls far short of the claim would in my judgment be unjust.”


Conduct

Warby J then went on to consider the conduct of the Claimants. The Judge rejected the Defendant’s assertion that this matter would have settled promptly if only the Claimants had made a realistic assessment of their claim on the grounds that the article defamed the Claimants in a way that clearly would have caused substantial financial loss. The Claimants could not have been expected to calculate that loss prospectively with any degree of accuracy at the outset of the claim.

The Claimants could not have been expected to calculate that loss prospectively with any degree of accuracy at the outset of the claim.

On the other hand, he did find that the Claimants’ failure to provide the Defendant with their case on special damages in a timely manner had left the Defendant in the dark for up to 14 months. Warby J considered that the Claimants could and should have provided their case to the Defendant in October or November 2015. Given the unreasonable conduct of the Claimants’, the Court did consider it unjust to allow the normal order for costs on this case.

When assessing the correct order to apply, the Court considered that the Further Information should have been provided to the Defendant in October or November 2015. If this would have happened then the Defendant, would have made the offer of £125,000 in November or December 2015, therefore as a result the Court ordered that Claimants should recover costs up to and including 11 January 2016, which represented the likely date at which the Defendant’s Part 36 offer would have expired.


Indemnity Costs

The Court next considered whether to allow the Defendant to recover indemnity costs. The Court set out the test provided by Waller LJ in Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson [2002] EWCA Civ 879 which provides that costs are awarded on the indemnity basis rather than the standard basis only where there is something in the conduct of the action or the circumstances of the case in general which takes it outside the norm, in a way which justifies a non-standard order of this kind.

On account of the above, Warby J found that it was insufficient to allow indemnity costs because of the fact that the Part 36 offer had been accepted out of time, however at paragraph 51 he set out the reasons for allowing indemnity costs in the case:-

“There is much that is outside the norm. The claim as pleaded was huge. The offer was a tiny proportion of the sum claimed. It was brusquely rejected as “derisory”, spurned for many months, and then accepted later on with no explanation. Nor has any explanation since been provided for the claimant’s volte face, or its eventual readiness to accept a sum so vastly less than the claim as pleaded. Sometimes there may be valid reasons for such a change of stance. Here, in the absence of any explanation, it is permissible to infer that the belated acceptance was prompted by a re-assessment of the claim which could and should have been made earlier; or by some external factor which meant that it happened to suit the claimants to bring an end to the claim at that time.”


Conclusion

This Judgment appears well balanced in its reasoning with consideration both to the relevant rules and case law but also to the circumstances of the claim. Firstly it is important to note that the “injustice test” applied by the Smith v Trafford principles, differs significantly in circumstances where the Claimant has failed to beat a Part 36 offer therefore receiving party’s seeking to accept a Part 36 late, should be aware of this.

It is evident that conduct was the key factor in the Court’s decision not to apply the normal orders on this matter. The Claimants failure to quantify their claim in good time resulted in the Defendants being left in the dark for 14 months. This failure alone does not appear to have been sufficient for the normal order to have been “unjust” however the Claimant’s poor conduct was made worse by correspondence from the Claimants on the 4 March 2015, confirming they would “shortly have available details of the financial loss suffered by our client in February 2015”. In addition the Claimants were unable to provide an explanation as to why the delay occurred or why the offer was capable of being accepted later after initially being considered “derisory”. Taking these additional factors into consideration, with the fact that the Defendant was able to make an offer shortly after receiving the Further Information, it was evident that the Claimants’ poor conduct had resulted in the case being unreasonable prolonged and therefore it was unjust for the Claimants to be enriched as a result.

When considering whether to accept a Part 36 offer out of time, it should not be taken for granted that the normal orders will be applied and consideration should be given to both parties conduct.