McPhilemy v Times Newspapers Ltd & Ors

Factual and Procedural Background

The underlying facts of this case were detailed in the judgment of Lord Justice Simon Brown on the principal appeal and are not restated here. The principal appeal by Company A and others (referred to collectively as "The Times" or "the defendants") against an order made by Mr Justice Eady on 31 March 2000 was dismissed by the court on 12 June 2001. This judgment concerns the claimant's cross-appeal against the dismissal of his application under Civil Procedure Rule (CPR) 36.21 related to offers to settle and associated costs consequences.

Legal Issues Presented

1. Whether the court should exercise its discretion to make orders under CPR 36.21(2) and (3) for the payment of interest and indemnity costs where the claimant has succeeded at trial in obtaining a judgment more advantageous than his Part 36 offer.
2. Whether it was unjust to make such orders in the specific circumstances of the case, including the timing of the offer, conduct of the parties, and the nature of the offer's terms.
3. The proper interpretation of the nature and purpose of indemnity costs and enhanced interest orders under CPR 36.21, including whether they carry punitive or stigmatic implications.
4. The extent to which interest under CPR 36.21 can be awarded on damages and costs, including whether interest can run after judgment.

Arguments of the Parties

Claimant's Arguments

• The claimant made a Part 36 offer on 21 December 1999 offering £50,000 damages plus other terms including a retraction, apology, and costs up to acceptance.
• The claimant succeeded at trial, receiving £145,000 in general damages, thus beating his own Part 36 offer and triggering CPR 36.21.
• The claimant contended he was entitled to indemnity costs and interest on those costs from the date the offer could have been accepted without court permission (11 January 2000).
• The claimant argued that the judge below erred in refusing to make orders for indemnity costs and interest, wrongly viewing such orders as punitive or stigmatic.
• The claimant relied on the court’s discretion to award interest on costs at a reasonable rate to fairly compensate for the cost of money before judgment.

Defendant's Arguments (The Times)

• The defendants contended it was unjust to make orders under CPR 36.21 due to the late timing of the Part 36 offer, made only 21 days before the original trial date.
• They argued that their solicitors bore the burden of trial bundle preparation, reducing the claimant’s recoverable costs and thus making indemnity costs inappropriate.
• The defendants emphasized the public interest element, asserting that accepting the offer would have implied that alleged conspirators were unwilling to face their accuser, which could be unfair and contrary to public interest.
• They highlighted that the offer required a retraction and apology and a statement in open court, steps they considered inconceivable to accept given their strongly held views on the case.
• The defendants relied on established practice that interest is not awarded on libel damages prior to judgment, to avoid double compensation for anxiety and distress already reflected in the jury’s award.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by outlining the relevant provisions of CPR 36.21, which require the court to order interest and indemnity costs where a claimant beats his own Part 36 offer at trial, unless it would be unjust to do so. The court noted that the offer in question met the formal requirements and that the claimant had indeed beaten his offer by obtaining a higher damages award.

The judge below had refused to make such orders, reasoning that indemnity costs orders carry stigma and imply disapproval of the defendant’s conduct, and that awarding interest on libel damages would be unjust due to the jury’s traditional accounting for distress and delay. The court found this approach flawed, particularly as clarified by the Petrotrade case, which explained that indemnity costs orders under CPR 36.21 are not punitive but designed to achieve fairness by compensating claimants more fully for costs incurred.

The court considered the defendants’ factors cited by the judge: the late timing of the offer, the defendants’ burden in preparing trial bundles, the public interest concerns relating to the alleged committee of conspirators, and the retraction and apology terms. The court held that while these factors are relevant, none justified finding it unjust to make the orders under CPR 36.21 in this case. In particular, the timing of the offer allowed the defendants a proper opportunity to consider it, and the burden of bundle preparation did not reduce the claimant’s recoverable costs.

Regarding public interest and the terms of the offer, the court observed that the claimant’s position at the time meant any retraction or apology would have clarified that the claimant did not challenge the existence of the alleged committee, but the terms of such a retraction were never explored because the defendants did not respond. Thus, the court was not persuaded that the offer was one which could not fairly have been accepted.

The court agreed with the established practice that interest should not be awarded on libel damages prior to judgment to avoid double compensation. It reasoned that the jury’s award already accounted for distress and delay, so awarding interest on damages before judgment would risk penalizing the defendant.

However, the court found no such risk of double compensation in awarding indemnity costs and interest on those costs, which are intended to compensate the claimant for the shortfall in recoverable costs and the cost of money before judgment. The court therefore ordered indemnity costs from the date the offer could have been accepted and interest on those costs at 4% above base rate, running from the date the costs were incurred until judgment.

The court further held that CPR 36.21 does not empower it to vary statutory post-judgment interest rates on damages or costs, which are governed by the Judgments Act 1838 and related legislation.

Finally, the court agreed with the view that the costs of the principal appeal should be paid by the defendants on an indemnity basis, reflecting the nature of the appeal and the administration of justice.

Holding and Implications

The court ALLOWED THE CLAIMANT'S CROSS-APPEAL to the extent that it set aside the judge’s refusal to make orders under CPR 36.21(2) and (3). It directed that the claimant is entitled to indemnity costs from 12 January 2000 and interest on those costs at 4% above base rate from the date the costs were incurred until the date of judgment (30 March 2000). Interest on damages and costs after judgment will be payable at the statutory judgment rate under the Judgments Act 1838.

The court rejected the notion that indemnity costs orders under CPR 36.21 are punitive or stigmatic and clarified that such orders are intended to achieve fairness for claimants who beat their own Part 36 offers. The decision emphasizes the incentive function of Part 36 offers in encouraging settlement and confirms the court’s discretion to refuse orders only where it would be unjust, applying a principled approach to the circumstances of each case.

No new precedent was established beyond the application and clarification of existing principles, particularly those elucidated in the Petrotrade case. The ruling underscores the careful balancing of interests in defamation litigation and the proper use of CPR 36.21 to promote settlement without penalizing defendants unfairly.