KC v MGN Ltd (Costs)

On 1 November 2012, the appeal by D was successful and the award of damages to C was reduced from £75,000 to £50,000. The parties asked the Court to determine the issue of costs.

The relevant chronology was as follows:

• An offer of amends was made by D on 12 Nov 2010. D initially made an offer of £35,000 damages and costs. This was followed, by open letter dated 15 Dec 2010, with an offer of £50,000 damages plus costs open for 21 days.
• C rejected the offer the following day by telephone and a figure of £80,000 was referred to as a figure which C might be persuaded to accept.
• On 5 Jan 2011, C wrote to D and quantified its costs to date as being in excess of £25,000. D complained about the level of costs and responded with an all-in-offer of damages and costs in the sum of £50,000, which was eventually rejected.
• On 15 Feb 2011, C stated that he was prepared to settle his claim for £80,000 plus costs.
• In March 2011, the parties met to see if an appropriate level of damages could be agreed but the meeting was unsuccessful. Following the meeting, D made alternative offers of (i) £50,000 damages with reasonable costs up to 16 Dec 2010 (the date of the first £50,000 offer) with C paying up to £3000 of D’s costs; or (ii) an all-in-offer of £60,000.
• On 4 May 2011, C made a Part 36 offer in the sum of £75,000 plus costs. D rejected the offer on 16 May.
• Proceedings were issued in June 2011.
• On 23 Sep 2011, D stated it was willing to pay £50,000 damages plus C’s costs up to 16 Dec 2010, but it would not pursue payment of its own costs.
• On 6 Oct 2011, C made a Part 36 offer of £50,000 damages with costs to be assessed.
• Finally, by email dated 23 Dec 2011, D offered to pay £50,000 damages plus costs up to 5 Jan 2011 (the date of expiry of the first £50,000 offer), alternatively £50,000 damages and £20,000 costs plus VAT. D said it was prepared to waive its own costs. C rejected the offer on 6 Jan 2012.

What is the appropriate order for costs?

It was clear that the D had made an offer for £50,000 damages together with reasonable legal costs on 15 Dec 2010 and the offer was rejected at the outset. After it was rejected, it was temporarily withdrawn. In the meantime, the C was seeking damages of £80,000 and then £75,000.

By the time the case came before Bean J, both sides were in agreement that £50,000 was a fair level of damages, and the subsequent judgment of the CA confirmed this. However, by the time C accepted this was the right figure, his costs had escalated considerably and in reality, the argument thereafter was directed to the costs of the litigation.  It is plain that the objective of the Offer of Amends regime is vindication without litigation. Its purpose is to reduce delay and expense. Therefore, if a claimant chose to reject an offer and then causes both parties to incur unnecessary legal expense, the burden of the expense should normally fall on C.

Therefore, the appropriate orders are:
(i) D pays C’s costs on the standard basis up to 16 Dec 2010
(ii) There be no order of costs between 17 Dec 2010 and 10 April 2011 (owing to the temporary withdrawal of the offer)
(iii) C pays D’s costs after that date on the standard basis, including the costs of the trial and appeal.

The Court further ordered payments on account against the Claimant and the Claimant’s solicitor (in relation to costs overpaid under the Judge’s order).

A rare judgment on the issue of costs in an Offer of Amends case. It is clear from the judgment that the guiding principle in Offer of Amends cases is that litigation should be the last resort.  The Lord Chief Justice emphasised that the objective of the OOA regime is “vindication without litigation” and to provide the claimant with an opportunity “to achieve an economical and rapid resolution of his complaint”. Therefore, if a claimant rejects a reasonable offer of damages pursuant to the Offer of Amends, and incurs unnecessary legal costs by bringing litigation to seek greater damages and does not succeed, he should have to bear the financial burden of that.