McPHILEMY v TIMES NEWSPAPERS LTD (2) LIAM CLARKE and (3) ANDREW NEIL [2001] EWCA Civ 933

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
(MR JUSTICE EADY)
[2001] EWCA Civ 933Case No Case No: A2/2000/2395Venue Royal Courts of Justice, Strand, London, WC2A 2LL, Wednesday 20th June 2001
Between
McPHILEMYRespondentTIMES NEWSPAPERS LTD (2) LIAM CLARKE and (3) ANDREW NEILAppellants
Before
Lord Justice Simon BrownLord Justice ChadwickLord Justice LongmoreMr Andrew Caldecott QC and Ms Caroline Addy (instructed by H2O Henry Hepworths of London WC1N 2HH for the Appellants)Mr James Price QC & Mr Matthew Nicklin (instructed by Bindman & Partners of London WC1X 8QF for the Respondent)Date 20 June 2001
[1]CHADWICK LJ: The underlying facts which have given rise to these proceedings are set out in the judgment of Lord Justice Simon Brown on the principal appeal. It is unnecessary for me to rehearse them. For the reasons which we gave on 12 June 2001, we dismissed the appeal of Times Newspapers Limited and others (to whom, for convenience, I will refer in this judgment collectively as "The Times" or "the defendants") against the order made by Mr Justice Eady on 31 March 2000. We have now heard argument on the claimant's cross appeal against so much of that order as dismissed his application under CPR 36.21. It is to that cross appeal that the judgment which I now give relates.[2]Part 36 of the Civil Procedure Rules 1998 contains rules about offers to settle and the consequences – in particular, the consequences in relation to costs – where an offer to settle is made in accordance with its provisions. CPR 36.21 is in these terms:
"(1) This rule applies where at trial – (a) a defendant is held liable for more; or (b) the judgment against a defendant is more advantageous to the claimant, than the proposals contained in a claimant's Part 36 offer. (2) The court may order interest on the whole or part of any sum of money (excluding interest) awarded to a claimant at a rate not exceeding 10% above base rate for some or all of the period starting with the latest date on which the defendant could have accepted the offer without needing the permission of the court. (3) The court may also order that the claimant is entitled to – (a) his costs on the indemnity basis from the latest date when the defendant could have accepted the offer without needing the permission of the court; and (b) interest on those costs at a rate not exceeding 10% above base rate. (4) Where this rule applies, the court will make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so. (5) In considering whether it would be unjust to make the orders referred to in (2) and (3) above, the court will take into account all the circumstances of the case including - (a) the terms of any Part 36 offer; (b) the stage in the proceedings when any Part 36 offer or Part 36 payment was made; (c) the information available to the parties at the time when the Part 36 offer or Part 36 payment was made; and (d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer or payment into court to be evaluated. (6) Where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest may not exceed 10% above base rate."
In that context - and for the purposes of paragraphs (2) and (3) of the rule - "the latest date [on which/when] the defendant could have accepted the offer without needing the permission of the court" is prescribed by CPR 36.12. Where the offer is made not less than 21 days before the start of the trial, it means the date not later than 21 days after the offer was made.[3]It follows that, in a case where the claimant who has made a Part 36 offer (which has not been accepted) is successful at trial, the court is required to consider whether the defendant has been held liable for more than the amount for which the claimant has offered to settle, or whether the judgment against the defendant is more advantageous to the claimant than the proposals contained in the offer to settle. If the outcome of the trial is that – to adopt the phrase commonly used in this context – the claimant has 'beaten' his own Part 36 offer, then CPR 36.21 applies and the court is required to make an order for the payment of interest under paragraph (2), and for the payment of costs under paragraph (3), unless it considers it unjust to do so – see paragraph (4).[4]The offer relied upon by the claimant in the present case is contained in a letter dated 21 December 1999 which was sent by his solicitors to the solicitors acting for The Times. The terms of settlement proposed in that letter were as follows:
"1. A payment of £50,000 damages to our client for the hurt and distress caused by the article; 2. damages for the financial losses incurred by our client to be assessed if not agreed; 3. a retraction and apology to be placed prominently in the pages of the Sunday Times in appropriate terms to be agreed with us on our client's behalf; 4. a statement in open court; 5. an undertaking not to repeat the libel; 6. all costs incurred up to the date of receipt of notice of acceptance of the offer as per rule 36.14."
The letter concluded with a statement that those proposals were intended as a Part 36 offer; that the offer would remain open for acceptance for a period of 21 days; and that the offer related to the whole of the claim in the action. The period of 21 days from 21 December 1999 came to an end on 11 January 2000.[5]CPR 36.5 sets out the requirements, as to form and content, which must be satisfied if proposals are to be treated as comprised in a Part 36 offer for the purposes, inter alia of CPR 36.21. It was not suggested before the judge - and it has not been submitted in this Court – that those requirements were not satisfied. Nor has it been suggested that the other requirements in paragraph (1) of CPR 36.21 were not satisfied. It is accepted that the fact that the claimant was awarded £145,000 by the jury in respect of general damages – as against the amount (£50,000) which he had offered to accept in the letter of 21 December 1999 – suffices to satisfy sub-paragraph (a) of that paragraph. It is unnecessary, therefore, to consider whether the judgment was more advantageous to the claimant than, for example, the lesser amount of general damages coupled with a retraction and an apology would have been. This is not a case in which it is said that sub-paragraph (b) of paragraph (1) of CPR 36.21 has any relevance.[6]It follows, therefore, that the judge was required to make orders under paragraphs (2) and (3) of CPR 36.21 unless satisfied that it was unjust to do so. The judge was satisfied that it would be unjust to make an order under paragraph (2) for the payment of interest on the general damages awarded by the jury. He explained why he took that view in a short passage at page 6, lines 19-28, of the judgment which he gave on 30 March 2000:
"It is traditionally the case that the jury's award in libel takes account of everything down to the moment of their verdict, including any aggravation caused by the defendant's conduct of the trial. Accordingly, it has never been the case that damages for libel carry interest. It seems to me that it would be unjust to award interest on the sums fixed by the jury, whether from 13th January or at all. Special damages might well be treated differently in this respect, but that does not arise today."
He was satisfied, also, that it would be unjust to make an order under paragraph (3) of CPR 36.21 for indemnity costs. He referred to "the unique circumstances of this case". He expressed doubt whether, as a matter of construction, there was power under sub-paragraph (b) of paragraph (3) to make an order for the payment of interest on costs unless the costs themselves were the subject of an order under sub-paragraph (a) of that paragraph. But, if there were power to do so - that is to say, power to order the payment of interest on costs which were to be assessed on the standard basis - he did not think it appropriate to exercise that power.[7]There is no doubt that the question whether or not it was unjust to make orders under paragraphs (2) and (3) of CPR 36.21 was a question for the judge to determine in the exercise of his discretion. In exercising that discretion he was obliged to take into account all the circumstances of the case; including, in particular, the specific matters referred to in paragraph (5) of the rule. If the judge took into account the matters which he ought to have taken into account, and left out of account matters which ought not to have taken into account, it would be wrong in principle for this Court to interfere with his decision. It could only do so if satisfied that the decision was so perverse that the judge must have fallen into error. This Court must respect the judge's exercise of the discretion which has been entrusted to him. The Court must resist the temptation to substitute its own view for that of the judge unless satisfied that his discretion has been exercised on a basis which is wrong in law; or that the conclusion which he has reached is so plainly wrong that his exercise of the discretion entrusted to him must be regarded as flawed.[8]I turn, then to examine the basis upon which the judge reached his conclusion that it would be unjust to make any order under paragraphs (2) and (3) of CPR 36.21. He identified four reasons which may be summarised as follows:(i) the proximity of the trial when the offer was made;(ii) the fact that the defendants were funding the preparations for trial of the claimant's action - in particular, in connection with the compilation and copying of the trial bundles;(iii) what the judge described as "an unusual public interest element" - in that the defendants were taking on the burden of proving that the committee of alleged conspirators did not exist; and(iv) the fact, described by the judge as being "of great significance", that the Part 36 offer, contained in the letter of 21 December 1999, required the defendants to publish a retraction and apology in their newspaper and also to join in a statement in open court. But, having identified, and elaborated upon, those reasons, the judge said this, at page 5 line 26 to page 6 line 3 in the transcript of his judgment:
"The question is whether in these unusual circumstances I consider that it would be unjust to follow the modern presumption in favour of indemnity costs, which still carries something of a stigma and is bound to be interpreted as an indication of the court's disapproval of the defendant's conduct."
That passage reflected an observation earlier in the judgment, at page 1 lines 11-12, that an order for indemnity costs "might be thought to carry punitive overtones."[9]In my view the judge was wrong to take into account - as, plainly, he did - his belief that an order for the payment of costs on the indemnity basis made under CPR 36.21(3) implied disapproval by the court of a defendant's conduct; carried some stigma; or could properly be regarded as punitive. It is, to my mind, clear from the structure and language of CPR 36.21 - and, in particular, from paragraph (4) of that rule - that an order for the payment of costs on an indemnity basis (from the latest date when the defendant could have accepted the offer without needing the permission of the court) is the order which the court can be expected to make in a case where a claimant who has made a Part 36 offer is, nevertheless, obliged to proceed to trial - because the defendant does not accept the offer - and then beats his own offer at trial. In those circumstances, it is only where the court considers that such an order would be unjust that it is permitted to refuse an order for the payment of costs on an indemnity basis. To make the order carries no implied disapproval of the defendant's conduct; nor any stigma. Properly understood, the making of such an order in a case to which CPR 36.21 applies indicates only that the court, when addressing the task which it is set by that rule, has not considered it unjust to make the order for indemnity costs for which the rule provides.[10]In Petrotrade Incorporated v Texaco Limited (unreported, 23 May 2000) this Court explained why an order for the payment of indemnity costs, made under CPR 36.21, should not be regarded as penal. Lord Woolf, Master of the Rolls, with whom the other members of the Court (Lord

Justice Clarke and Lord Justice Latham) agreed said this, at paragraphs 62 to 64 of his judgment:

"62. However, it would be wrong to regard the rule as producing penal consequences. An order for indemnity costs does not enable a claimant to receive more costs than he has incurred. Its practical effect is to avoid his costs being assessed at a lesser figure. When assessing costs on the standard basis the court will only allow costs "which are proportionate to the matters in issue" and [will] "resolve any doubt which it may have as to whether costs were reasonably incurred or reasonably proportionate in amount in favour of the paying party"
. On the other hand, where the costs are assessed on an indemnity basis, the issue of proportionality does not have to be considered. The court only considers whether the costs were unreasonably incurred or for an unreasonable amount. The court will then resolve any doubt in favour of the receiving party. Even on an indemnity basis, however, the receiving party is restricted to recovering only the amount of costs which have been incurred (see Part 44.4 and Part 44.5) 63 The ability of the court to award costs on an indemnity basis and interest at an enhanced rate should not be regarded as penal because orders for costs, even when made on an indemnity basis, never actually compensate a claimant for having to come to court to bring proceedings. The very process of being involved in court proceedings inevitably has an impact on a claimant, whether he is a private individual or a multi-national corporation. A claimant would be better off had he not become involved in court proceedings. Part of the culture of the CPR is to encourage parties to avoid proceedings unless it is unreasonable for them to do otherwise. In the case of an individual proceedings necessarily involve inconvenience and frequently involve anxiety and distress. These are not taken into account when assessing costs on the normal basis. In the case of a corporation, corporation senior officials and other staff inevitably will be diverted from their normal duties as a consequence of the proceedings. The disruption this causes to a corporation is not recoverable under an order for costs. 64. The power to order indemnity costs or higher rate interest is a means of achieving a fairer result for a claimant. If a defendant involves a claimant in proceedings after an offer has been made, and in the event, the result is no more favourable to the defendant than that which would have been achieved if the claimant's offer had been accepted without the need for those proceedings, the message of Part 36.21 is that, prima facie, it is just to make an indemnity order for costs and for interest at an enhanced rate to be awarded. However, the indemnity order need not be for the entire proceedings nor, as I have already indicated, need the award of interest be for a particular period or at a particular rate. It must not however exceed the figure of 10 per cent referred to in Part 36." The guidance contained in those paragraphs was not available until the end of May 2000; in particular, it was not available to Mr Justice Eady on 30 March 2000, when he made his order in the present case.[11]It follows that this is a case in which the basis on which the judge exercised his discretion can now be seen to have been flawed. The judge thought, wrongly, that the order for indemnity costs which he was invited to make under CPR 36.21 was punitive in nature; and would be seen as indicating some measure of disapproval of the defendants' conduct which he did not regard as merited and which he did not intend. Those considerations were unfounded and should have been left out of account. This, then, is a case in which this Court is entitled – indeed, bound – to set aside the view reached by the judge; and to form its own view on the question whether it would be unjust to make the orders for which paragraphs (2) and (3) of CPR 36.21 provide.[12]The Times - as respondents to this cross-appeal – rely on the factors identified by the judge and to which I have already referred. First, it is said that the Part 36 offer was made at a very late stage in the proceedings. It was, in fact, made just 21 days before the trial was due to begin (on 11 January 2000); although, in the event, the commencement of the trial was postponed, for other reasons, until 25 January 2000. It is plain that the stage of the proceedings at which a Part 36 offer is made is a factor which a court must take into account – see paragraph (5)(b) of CPR 36.21. But, as it seems to me, the fact that the offer is made in the month before the trial cannot, of itself and without more, be a reason for holding that it is unjust to make orders under paragraphs (2) and (3) of that rule. It is important to keep in mind that the orders for which those paragraphs provide have effect only from the latest date when the defendant could have accepted the offer without needing the permission of the court. So, in a case (such as the present) where the Part 36 offer is made more than 21 days before the start of the trial, orders under paragraphs (2) and (3) cannot relate to costs incurred or interest accruing before 12 January 2000. They cannot relate to any period before the offer was made; and they allow, necessarily, for a period of at least 21 days following the offer, during which The Times had the opportunity to consider whether or not accept the offer or to seek clarification of its terms. It is not difficult to imagine circumstances in which it would be unjust to make orders under paragraphs (2) and (3) of CPR 36.21 because the offer was made so late that a defendant had no proper opportunity to consider it; but, making due allowance for the intervention of the Christmas holidays and millennium celebrations, I am not persuaded that that was the position in the present case. Nor is it difficult to imagine circumstances in which it might be unjust to make orders under those paragraphs because the offer was made so late that the costs already incurred were (in proportion to the costs yet to be incurred) such that there was little to be saved by bringing the proceedings to an end at that stage. But, again, that is not this case. In my view, the fact that the offer was made at a late stage in the proceedings – although a factor which the court must take into account – does not support the conclusion, in the present case, that it would be unjust to make orders under paragraphs (2) and (3) of CPR 36.21.[13]Second, it is said that it was unjust to make orders under CPR 36.21 in the circumstances that the defendants' solicitors had taken upon themselves the burden of preparing the bundles for trial. For my part – although we were told that there was a limited concession below that the point had some relevance - I find that submission difficult to understand. It was not pressed in argument before us; and I need say little about it. It is sufficient, I think, to point out that, because the defendants' solicitors took upon themselves the burden of preparing bundles for trial, there can be little or no element in the claimant's costs (whether assessed on the standard or on the indemnity basis) which can relate to the preparation of bundles; and that, if the defendants' solicitors had not taken that burden upon themselves, then an amount equivalent to the costs which they incurred in carrying out that exercise would have been incurred by the claimant's solicitors and would have been recoverable from the defendants under an order for costs in the event (which happened) that the claimant succeeded in the action. The most that can be said, as it seems to me, is that The Times have had to pay their own solicitors, sooner and on an "own client" basis, for work for which they would otherwise have had to reimburse the claimant, later and on a standard basis. I cannot think that that factor should lead to the conclusion that it would be unjust to make orders under paragraphs (2) and (3) of CPR 36.21.[14]Third, The Times rely upon what they describe as " public interest and the problems of acceptance". Their submissions elide what the judge regarded as distinct points:(a) that there was an unusual public interest element in the sense that the Times were taking on the burden of proving that the supposed committee of conspirators referred to in the programme and in the claimant's book did not exist and(b) that the offer in the letter of 21 December 1999 required The Times to publish a retraction and apology, and to join in a statement in open court. In relation to those points

the judge said this (at page 5 lines 8-17 of his judgment):

"Had the defendants accepted the offer suddenly put before them on 21 st December the overwhelming inference to be drawn from that by interested observers would be . . . that the supposed members of the committee did not have the resolve to come to court and face their accuser. That might have been reasonably thought by the Sunday Times to be unfair to the individuals concerned and also to be contrary to public interest in having a full and open resolution of these issues. Fourthly, and of great significance, the offer of 21 st December required the defendants to publish a retraction and apology in their newspaper and also to join in a statement in open court. In the light of the defendants' strongly held views about the programme and the evidence to be adduced at trial from the alleged committee members, it is inconceivable that they would have consented to take those steps."
[15]It is necessary to have in mind that the Part 36 offer was made at a time when the claimant was seeking – by means of the Part 14 notice which was served on the same day – to litigate his defamation claim on the basis that he did not challenge the assertion, in paragraph 10A of The Times' particulars of justification, that the supposed committee did not exist. At the pre-trial review on 21 December 1999 the claimant sought an order that the alleged members of the committee should not be called to give evidence; on the basis that there was no longer an issue to which their evidence could relate. In those circumstances, as it seems to me, the claimant could not have insisted on any published retraction or apology, or on any statement in open court, which did not, in terms, make it clear that – far from the supposed members of the committee being unwilling to face their accuser (as the judge put it) – it was the claimant who did not wish to challenge the evidence which they were expected to give. I accept, of course, that if the claimant had sought to insist on a retraction and apology – or on a statement in open court - which did not make that clear, then it might well have been unjust to make orders under paragraphs (2) and (3) of Part 36.21 on the basis that the offer was one which (with hindsight) should have been accepted. But the terms of the retraction and apology which the claimant sought, or would have been prepared to accept, were never explored. Those matters were never explored because The Times chose not to respond to the offer letter of 21 December 1999. It was unreal to expect that Mr McPhilemy would, himself, make a statement withdrawing the allegations which he had made; and, in those circumstances, The Times was determined to have a decision on the question whether or not the supposed committee did exist. Had the terms of the retraction and apology which the claimant would have been prepared to accept (or could have been prevailed upon to accept) in order to settle these proceedings been explored, the position might now appear in a different light. But the opportunity to expose the offer as one which The Times could not, in fairness to the alleged members of the committee, accept was not taken; and, in those circumstances, I am not persuaded that the compromise of this defamation action which was on offer on 21 December 1999 could not have been presented to interested and informed observers in such a way as to make it clear that any inference that the alleged committee members were unwilling to face the claimant in court would be wholly unfounded.[16]Nor am I persuaded that there was any public interest to be served in insisting on a trial in order to have "a full and open resolution of these issues". To take the view that a defamation action between a journalist and a newspaper, in which the real issue was whether the journalist had acted honestly and responsibly on the basis of the information which he claimed to have received from his sources, and to which the alleged committee members were not parties, was a suitable vehicle for "a full and open resolution" of the question whether there was, in Northern Ireland at the relevant time, something approaching an institutional conspiracy amongst so-called loyalists to assassinate republicans was, as it seems to me, misconceived from the outset. In making that observation I intend no criticism of the decision to permit the issue to be raised by The Times as an element in the defence of justification. I do no more than point out that, whatever decision the jury reached if the issue was left to them, it was never likely that there would have been "a full and open resolution", of matters which were never capable of being fully resolved in private litigation of this nature.[17]There is, however, force in the final point advanced on behalf of The Times; that is to say, that it is established practice, in defamation cases, for the court to refuse to direct the payment of interest, in respect of any period prior to the date of the award, on the amount of the jury's award. The justification for that practice is that the amount of the jury's award takes account of everything down to the date of the award, including, in particular, the strain and distress caused to the claimant by the conduct of the trial and the fact that the claimant has had to wait for payment of the compensation to which he has ultimately been held entitled. It is said that it would be unjust to order the payment of interest, under paragraph (2) of CPR 36.21, on any part of the jury's award in the present case – at least in respect of any period prior to the date of the award – because it has to be assumed:(i) that the award itself includes an element which reflects the loss to the claimant equivalent to the actual or notional cost of being kept out of the monetary compensation, which (on the hypothesis that the libel had been established) he should have had immediately after the libel was published, by the delay occasioned by legal proceedings and a trial; and(ii) that the award itself takes account of the anxiety and distress of the proceedings and trial to which Lord Woolf, Master of the Rolls, referred in the Petrotrade case. To order the payment of interest under paragraph (2) – in respect of any period prior to the date of the award – would involve double compensation.[18]I find that final point persuasive. In order to explain why, it is necessary, I think, to return to an examination of the purposes for which the powers in paragraphs (2) and (3) of CPR 36.21 have been conferred.[19]It is plain, as Lord Woolf, Master of the Rolls, pointed out in the Petrotrade case, that paragraphs (2) and (3) of CPR 36.21 – in conjunction with paragraph (4) – are intended to provide an incentive to a claimant to make a Part 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. Conversely, a defendant who refuses a Part 36 offer made by a claimant and who fails to beat that offer at trial is at risk of being ordered to pay more than he would have been ordered to pay if the offer had not been made. But those incentives have to be set in the context that, as this Court emphasised in the Petrotrade case, CPR 36.21 is not to be regarded as producing penal consequences. The powers conferred by the rule – to order indemnity costs or a higher rate of interest – are intended to provide "a means of achieving a fairer result for a claimant" (see paragraph 64 in Lord Woolf's judgment, to which I have already referred). Exercise of the powers cannot achieve "a fairer result" if it leads to the claimant receiving more than can properly be regarded as a full and complete recompense for having to resort to, to pursue and to endure the strain and anxiety of, legal proceedings. An exercise of the powers which led to the claimant receiving more than could properly be regarded as compensation, in that enlarged sense, would, necessarily in my view, be penal in nature. It could only be supported on the basis that there was a need to punish the defendant by requiring him to pay an amount which went beyond any amount needed to compensate the claimant. But, subject to the limitation that the powers are intended to be used in order to achieve a fairer result for the claimant and not to punish the defendant, it is plain that they are to be used in order to redress elements, otherwise inherent in the legal process, which can properly be regarded as unfair.[20]Two of those elements, which many would regard as obviously unfair, were identified by Lord Woolf, Master of the Rolls, in the Petrotrade case. First, an award of costs on the standard basis will, almost invariably, lead to the successful claimant recovering less than the costs which he has to pay to his solicitor. So, although he has been successful, he is out of pocket. Costs on an indemnity basis should avoid that element of unfairness. Second, neither costs on an indemnity basis nor interest awarded under section 35A of the Supreme Court Act 1981 will compensate the successful claimant for the inconvenience, anxiety and distress of proceedings or (where the claimant is a corporation) the disruption caused by the diversion of senior management from their normal duties. Interest at an enhanced rate – that is to say at a rate which is higher than the rate which would otherwise be ordered, under section 35A of the 1981 Act – may redress that element of unfairness. It is pertinent to note that paragraph (6) of CPR 36.21 expressly recognises that the court may make an order for the payment of interest under paragraph (2) notwithstanding that it also orders the payment of interest on the same sum and for the same period under some other power – of which the power under section 35A of the 1981 Act is an obvious example. Paragraph (6) imposes an overall limit of 10% above base rate.[21]I conclude, therefore, that the power to award interest under paragraph (2) of CPR 36.21 at an enhanced rate – that is to say, at a rate higher than the rate (if any) which would otherwise be chosen under section 35A of the 1981 Act – is conferred in order to enable the court, in a case to which CPR 36.21 applies, to redress the element of perceived unfairness, otherwise inherent in the legal process, which arises from the fact that damages, costs (even costs on an indemnity basis) and statutory interest will not compensate the successful claimant for the inconvenience, anxiety and distress of having to resort to and pursue proceedings which he had sought to avoid by an offer to settle on terms which (as events turned out) were less advantageous to him than the judgment which he achieved. But, if that is the purpose for which the power has been conferred, then it should not be used to award interest in a case where it must be assumed that the anxiety, inconvenience and distress of defamation proceedings have already been taken into account by the jury in reaching their award. To order the payment of interest on the amount of the award – in respect of any period prior to the date of the award – would be to risk introducing an element of double compensation. It would be to risk crossing the boundary which separates compensation from punishment.[22]An order, under paragraph (3) of CPR 36.21, for the payment of costs on an indemnity basis does not give rise to a risk of double compensation. The purpose for which the power to order the payment of costs on an indemnity basis is conferred, as it seems to me, is to enable the court, in a case to which CPR 36.21 applies, to address the element of perceived unfairness which arises from the fact that an award of costs on the standard basis will, almost invariably, lead to the successful claimant recovering less than the costs which he has to pay to his solicitor. The jury, in reaching their award of damages, are not concerned with costs; and there is no reason to think that their award takes any account of the probable shortfall if costs are subsequently ordered on the standard basis. In my view, therefore, there is no injustice in making an order, under paragraph (3)(a) of CPR 36.21, that the claimant is entitled to his costs on the indemnity basis from the latest date when The Times could have accepted his Part 36 offer without needing the permission of the court. In the present case that date is 11 January 2000.[23]Nor do I see any injustice, in principle, in an order under paragraph (3)(b) of CPR 36.21 for the payment of interest on the costs which are the subject of the order which I would make under paragraph (3)(a). The purpose for which the power to order interest on costs under that paragraph is conferred is, I think, plain. It is to redress, in a case to which CPR 36.21 applies, the element of perceived unfairness which arises from the general rule that interest is not allowed on costs paid before judgment – see Hunt vRM Douglas (Roofing) Ltd [1990] 1 AC 398, 415F. So, in the ordinary case, the successful claimant who has made payments to his own solicitor on account of costs in advance of the trial will be out of pocket even if he obtains, at the trial, an order for costs on an indemnity basis. He will get interest on his costs from the date of the order (whether he has actually paid them or not); but he will get nothing to compensate him for the cost of money (or the loss of the use of money) which he has had to bear before trial in relation to payments which he has made on account of costs. An order under paragraph (3)(b) of CPR 36.21 enables the court to achieve a fairer result in that respect. But, having regard to the point which, as it seems to me, paragraph (3)(b) is intended to meet, I would order payment of interest at a rate which reflects (albeit generously) the cost of money – say, 4% over base rate; and I would direct that interest runs, on the costs to which the order applies, from the date upon which the work was done or liability for disbursements was incurred.[24]I have not yet addressed the question whether it would be right to order interest after judgment, either(i) under paragraph (2) of CPR 36.21, on the award of damages or(ii) under paragraph (3)(b) of the rule, on the costs which I would make the subject of an order under paragraph (3)(a). In my view paragraphs (2) and (3)(b) of CPR 36.21 are not intended to confer on the court powers to vary the rate at which interest is payable on a judgment debt pursuant to section 17 of the Judgments Act 1838. An order for costs is a judgment debt for the purposes of the 1838 Act – see Thomas v Bunn [1991] 1 AC 362. The power to fix the rate at which interest is payable on judgment debts has been conferred on the Lord Chancellor by section 44 of the Administration of Justice Act 1970 and is exercisable by him with the concurrence of the Treasury. I can see no reason why Parliament should have intended to confer on the courts, indirectly through rules made by the Civil Procedure Rule Committee under section 1(1) of the Civil Procedure Act 1997, power to vary in individual cases a rate fixed under the 1970 Act; nor any reason why a power to fix the rate at which interest is payable on judgment debts could be required for the purpose of "securing that the civil justice system is accessible, fair and efficient." – see section 1(3) of the 1997 Act. Nor can I see why a party who fails to pay a judgment debt – which ( ex hypothesi ) the court has ordered that he should pay – should pay more, or less, interest on that debt because, in the litigation which has led to that order, the other party has, or has not, made an offer to which CPR 36.21 applies. The point was not addressed at any length in the argument on the cross-appeal; but, for my part, I am not persuaded that the Court has power to make an order under paragraph (2) of CPR 36.21 for the payment of interest on the amount of the jury's award in respect of any period after judgment; or to make an order under paragraph (3)(b) for the payment of interest on costs in respect of any period after judgment.[25]It follows, therefore, that I would allow the cross-appeal to the extent which I have indicated. I would direct that the claimant is entitled to his costs on the indemnity basis from 12 January 2000 (which is the date for which he contends); and to interest on those costs at the rate of 4% above base rate from the date upon which the work was done or liability for a disbursement was incurred until the 30 March 2000 – that being the date of judgment. Interest thereafter, on damages and costs, will be payable at the judgment rate, under section 17 of the Judgments Act 1838, in the ordinary course.[26]I should add that I have had the advantage of reading, in advance, the judgment which Lord Justice Simon Brown is to hand down. I agree with him, for the reason which he gives, that the costs of the principal appeal should be paid by The Times on the indemnity basis. LORD JUSTICE LONGMORE:[27]I agree with the judgments of both the other members of the Court.

LORD JUSTICE SIMON BROWN:

[28]I agree with all that Chadwick LJ has said with regard to the respondent's cross-appeal and with the order he proposes. The Judge below, without the benefit of this Court's judgment in Petrotrade Incorporated v Texaco Limited (unreported, 23 May 2000), 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 have 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 the respects set out in the rule. Given that in a defamation action it would generally be unjust to award interest on the damages, let alone at an enhanced rate, it becomes even more important that a Part 36.21 order is made as to costs, irrespective of whether or not the claimant is represented under a conditional fee arrangement. Otherwise the rule will simply become ineffective in this area of litigation, an area where to my mind it should play a prominent part.[29]When dismissing the principal appeal, we left over for decision whether The Times should pay the respondent's costs of that appeal on a standard or an indemnity basis. Clearly rather more of a stigma attaches to an indemnity costs order made in this context than in the context of a Part 36.21 offer – although even then no moral condemnation of the appellants' lawyers is necessarily implied – see Wall v Lefever [1998] 1 FCR 605, 617. In my judgment, however, an indemnity costs order is certainly appropriate in the circumstances of The Times' appeal here: as our judgments on that appeal make plain, to have permitted the appellants to argue their case on perversity must inevitably have brought the administration of judgment into disrepute among right thinking people. I understand My Lords to agree with this view. We accordingly dismiss the principal appeal with costs on an indemnity basis.

ORDER

The appellant's appeal be dismissed. The appellant to pay the respondent's costs of the appeal on the indemnity basis, to be assessed if not agreed. The respond's cross appeal be allowed in part, and the order below modified as follows: The appellants shall pay the respondent's costs below on the indemnity basis from 12 January 2000, to be assessed if not agreed. The appellants shall pay interest on those costs incurred by the respondent below before 30 March 2000 at a rate of 4 per cent above the base rate then pertaining (namely at a rate of 9.75 per cent) from the date upon which the work was done (or the liability for disbursements was incurred). The appellants shall pay the costs of the respondent's cross appeal, to be assessed on the standard basis if not agreed. (Order does not form part of approved Judgment)

Cited in 48 later judgments

and 39 more of the most senior