Kiam v MGN Ltd (No 2)

Upon the handing down of our judgments on 28 ^th January 2002, dismissing by a majority MGN Limited's appeal against the jury's award of £105,000 damages to the late Mr Kiam (the appeal ultimately being argued on the sole ground that the award was excessive), Mr Browne QC for the successful respondent applied for the costs of the appeal on an indemnity rather than standard basis. The essential basis for the application was that on 27 ^th June 2001 Mr Kiam's solicitors, by letter headed "Without Prejudice Save as to Costs", had offered to accept £75,000 and to return to the appellants £30,000 plus appropriate interest, an offer which the appellants simply ignored.

The application seemed to me to raise an important point of principle and we had the advantage of both written and oral submissions upon it.

The question of indemnity costs orders following upon offers of settlement has recently been explored in a trilogy of Court of Appeal decisions: Petrotrade Inc v Texaco Limited [2001] 4 AER 853; McPhilemy v Times Newspapers (No 2) [2001] 4 AER 861; and Reid Minty (a firm) v Taylor [2001] EWCA Civ 1723 (transcript 29 ^th October 2001). The first two of these cases dealt specifically with the claimant's position under Rule 36 and decided that an Order for indemnity costs under Rule 36.21(3) was not penal and carried no stigma or implied disapproval of the defendant's conduct and so ought generally to be made where a claimant recovers in court more than he has previously offered to take. The two cases are fully reported and I need not further summarise them. Reid Minty, however, has broken new ground. To some extent it appears to suggest that the Rule 36 approach may allow defendants too, by way of Rule 44(3), to claim indemnity costs when they defeat a claim having previously made a settlement offer which the claimant has declined. The most directly relevant part of Rule 44(3) is paragraph 4 which reads:

"In deciding what Order (if any) to make about costs, the court must have regard to all the circumstances, including a) the conduct of all the parties; b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention (whether or not made in accordance with Part 36)."

The leading judgment in the Court of Appeal was given by May LJ (and to this I shall return) but Kay LJ pithily added:

"The approach of the CPR is a relatively simply one: namely, if one party has made a real effort to find a reasonable solution to the proceedings and the other party has resisted that sensible approach, then the latter puts himself at risk that the order for costs may be on an indemnity basis. What would be a reasonable solution will depend on all the circumstances of the case …."

It is principally upon Reid Minty that Mr Browne relies in submitting that the unsuccessful appellants here, having refused the "reasonable solution" and "sensible approach" represented by Mr Kiam's offer (to take reduced damages of £75,000), should accordingly pay the costs of the appeal on an indemnity basis. Mr Browne does not go so far as to suggest that the respondent is in the same position as a first instance claimant who beats his own Rule 36 offer. He submits, however, and with this I agree, that he is in a comparable position to that of a first instance defendant whose position was explored in Reid Minty.

The reason why I regard this application as raising an important point of principle is this: the underlying rationale of Rule 36.21—to encourage claimants to make offers—has simply no counterpart with regard to defendants. As Chadwick LJ pointed out in McPhilemy, the provision in Rule 36 that, where it applies, the court will order indemnity costs "… unless it considers it unjust to do so …" is:

"… intended to provide an incentive to a claimant to make a Pt 36 offer. The incentive is that a claimant who has made a Part 36 offer (which is not accepted) and who succeeds at trial in beating his own offer, stands to receive more than he would have received if he had not made the offer." (p871)

I myself put it thus:

"The judge below, without the benefit of this Court's judgment in Petrotrade, wrongly directed himself that an indemnity costs order under CPR 36.21 is of a penal nature and implies condemnation of the defendant's conduct and so would be unjust unless the defendants had behaved unreasonably in continuing the litigation after the offer. That misunderstands the rationale of the rule. It is not designed to punish unreasonable conduct but rather as an incentive to encourage claimants to make, and defendants to accept, appropriate offers of settlement. That incentive plainly cannot work unless the non-acceptance of what ultimately proves to have been a sufficient offer ordinarily advantages the claimant in...