The Court of Appeal decides that where a party's claim was successful but it had failed to better the terms of the defendant's Part 36 offer, the claimant should not suffer the normal costs consequences.

This important case illustrates the Court's willingness not to award the normal Part 36 costs consequences where the circumstances of the case make it unjust for it to do so. This sounds a warning bell for those making Part 36 offers, as they cannot simply assume that the offer provides complete immunity from adverse costs consequences where it is not bettered at trial.

The defendant newspaper group, MGN Ltd, appealed against the costs order made following the claimant's (Mr Alan Yentob) successful claim for damages for infringement of his privacy rights as a result of the defendant misusing his private information. The newspaper group had made a Part 36 offer to compromise the claim, which was rejected by Mr Yentob. The High Court found that the newspaper group's wrongdoing was far more extensive than it had been prepared to admit. MGN had admitted hacking Mr Yentob’s voice mailbox for only half the period of hacking for which the Court had found hacking had taken place.

The Court awarded the respondent the sum of £85,000 in damages. That award failed to beat the terms of MGN's Part 36 offer. On the issue of costs, the Mr Yentob argued that it would not be fair for the normal consequences to apply. The High Court concluded that in the unusual circumstances of this case, where the newspaper group had made limited admissions and had until shortly before the trial denied any liability, Mr Yentob had "some form of justification for pursuing the matter to trial." The High Court decided that he could not recover his costs from the newspaper group but equally, justice did not require him to pay the newspaper group's costs. In making this decision, the High Court used the exceptional power contained in rule 36.17 of the Civil Procedure Rules, to make no order as to costs.

On appeal, the Court of Appeal upheld the High Court's decision, finding that the High Court had recognised that there had to been, "some further element, implicitly unjustness, in the application of the normal [costs] consequences." The Court of Appeal went on to state that there were two key questions, "whether the offer was more advantageous than the award at trial, and [secondly] whether it was unjust for the normal consequences to apply." The Court of Appeal held that those were "separate inquiries and there was no logical reason why the same material should not be relevant to both. CPR 36.17(5) expressly required the judge to look at "all the circumstances." The Court of Appeal held that the Court could not ignore any relevant factors, unless they provided no assistance in determining whether the normal consequences would be unjust.

However, that said, the Court of Appeal warned that it is not enough for the party who failed to beat an offer to show that the decision not to take up the offer was reasonable. He must also show that it would be unjust for the normal consequences to apply. The Court of Appeal concluded that the High Court was fully entitled, in the circumstances of the offer as made by MGN to Mr Yentob, to decide that it was unjust to penalise Mr Yentob in costs for not accepting the offer.

The Court of Appeal stated, "The judge was very familiar with the whole background to the case, and he had regard to the fact that MGN’s admissions had been made at a very late stage and were vague, and had fallen far short of what he had found to have occurred in Mr Yentob’s case. This is in my judgment the explanation for the judge’s conclusion, and it was a conclusion that he was entitled to reach."