Part 36 of the Civil Procedure Rules: will the Phone Hacking Litigation justify a review?

“See you in court” is a famous cliché when parties have fallen out badly and failed to resolve their differences by other means. However, a more accurate expression would be ‘won’t see you in court’ because in reality in civil litigation, only a tiny proportion of issued cases actually end up before a trial judge. Most are settled.

There are two principal reasons why cases settle. The first is that the parties themselves wish to reach a solution they can all live with without the stress and expense of going to trial. The second is that the Civil Procedure Rules 1998 (CPR) contain canny mechanisms to compel parties to 'think settlement' before they can go anywhere near the doors of the court. The best known of these is CPR Part 36, and the actor Hugh Grant’s decision on 17 April to settle his action for misuse of private information against News Group Newspapers (NGN), has brought the fairness of the rule into sharp focus.

Until the settlement, Hugh Grant was a claimant in the Mobile Telephone Voicemail Interception Litigation (better known as ‘Phone Hacking’). Along with hundreds of other celebrities, he brought privacy claims against NGN as publishers of the Sun and News of the World newspapers, alleging unlawful information gathering (phone hacking and landline tapping), as well as the alleged concealment and destruction by NGN, of relevant evidence connected to that unlawful information gathering. According to NGN, over 1000 such claims have now been settled, many under Part 36, with the remaining 40 or so, to be tried by Mr Justice Fancourt in January.

Hugh Grant gave his reasons for settling his own claim using the social media platform X. He wrote that although NGN had offered him an “enormous sum”, and that he had wanted to see “all the allegations that they [NGN] deny, tested in court”, NGN had used Part 36 to place him in a perilous position. If he rejected the offer and the trial judge “…were to award me a penny less than the settlement," he would have to pay the legal costs of both sides, "…. something approaching £10 million."

Was Hugh Grant correct, since the inference to be drawn from what he has said is that his claim has been bought off, in order to prevent NGN’s witnesses from giving evidence in January, which might lead to findings being made by Mr Justice Fancourt that they had not been telling the truth about phone hacking and the concealment of relevant evidence? If so, should the Ministry of Justice be instructing the Civil Procedure Rule Committee to draft amendments to Part 36, so that individuals such as Hugh Grant who are in litigation with a company or a person of limitless wealth, do not find themselves compelled to settle, rather than being able to say to their opponent “See you in court?”

How Part 36 is supposed to operate

The purpose of Part 36 is to encourage parties to compromise so that actions can be settled on a full and final basis without any need to trouble a trial judge. Stripped back to its basic form, Part 36 has predictable consequences dependent upon when offers are made, accepted, rejected, or beaten at trial.

Reduced to its simplest:

• A claimant can make a Part 36 offer to settle: if accepted within the 'relevant period,' usually 21 days, the defendant pays the costs to the date of acceptance. (see CPR 36.13(1)).
• If rejected and the trial judge makes an award that is more advantageous than the offer, an extra 10 per cent of the damages is payable, limited £75,000, plus enhanced interest and indemnity basis costs from the date the offer should have been accepted (see CPR 36.17(4))
• A defendant can make a Part 36 offer. If accepted within the relevant period, the defendant pays the costs unless the court decides it is unjust to do so (see CPR 36.13(1). If rejected and the trial judge awards a lower sum, the claimant pays the defendant’s costs from the last date on which the offer should have been accepted. Usually, but not automatically, a winning claimant will recover costs up to that date: if there is no agreement, the court will decide (see CPR 36.13.(4))

Where the case goes to trial, the judge is not told of the offers until judgment has been given and the court is considering who should pay the costs of the action as a whole.

Is Part 36 operating as the rule makers intended?

The answer to that is that the intended simplicity of Part 36 has been lost through tactical manipulation of the rule, albeit wholly legitimate manipulation.

Consider the following scenarios:

• Where a defendant deliberately accepts a Part 36 offer outside the 'relevant period' by a single day, the claimant has no automatic entitlement to the costs, as would be the case had acceptance been the preceding day under CPR 36.13(1). That way, it is open to the defendant to argue under CPR 36.13(4) that the claimant should be deprived of costs - see Pallett v. MGN Ltd [2021] Costs LR 69, where it was the Mirror Group Newspaper’s submission that the claimant should have no costs from the date of service of the defence due to her refusal to engage in settlement negotiations.
• Whether a claimant’s offer is a genuine offer, rather than an unashamed tactic to secure the additional benefits conferred by CPR 36.17(4). The authorities go both ways, thereby generating a healthy industry of satellite litigation: in Yieldpoint Stable Value Fund LP v Kimura Commodity Trade Finance Fund Ltd [2023] Costs LR 989, an offer to accept 96 per cent of the claim (without factoring in the interest) was not a genuine offer so the rule was disapplied, whereas in Rawbank SA v Travelex Banknotes Ltd [2020] Costs LR 781, a contrary view was reached, where the offer to accept 99.7 per cent of the claim was held to be genuine.
• Where the defendant makes an offer before the claimant has been able properly to assess the merits of the case. In such circumstances, should the consequences of Part 36 operate where acceptance is made much later, and only after the claimant has had a reasonable opportunity to have those merits assessed? (See SG v Hewitt [2012] 5 Costs LR 937 and Briggs v CEF Holdings Ltd [2018] 1 Costs LO 23).
• Where, as it has been suggested has happened in the phone hacking litigation, claimants have felt compelled to accept offers that they cannot refuse, without the risk that, if they go on to trial, they will face financial ruin even if they win.

These scenarios illustrate how Part 36 can be skilfully deployed in a way that was not anticipated when the rule was introduced in 1998 and the CPR came into force. In using Part 36 in these ways, the result has been satellite litigation of the type deprecated by successive governments and the senior judiciary. However, on the basis that tinkering with the CPR simply provides skilled advocates with additional scope to exploit loopholes in the rules, there is, despite these problems, and with one exception, a strong argument for leaving Part 36 alone.

The one exception; back to Hugh Grant and Phone Hacking

Although it is hard to see how Hugh Grant could ever be liable to pay costs to NGN of £10m or anything like it (after all, on a win, he would recover damages plus, in all likelihood, his costs up to the date when he should have accepted NGN’s Part 36 offer), he has a point in so far as he is saying that through a combination of his opponent’s open cheque book and its opportunistic use of Part 36, he has been deprived of the opportunity to prove his claims in court.

A solution might be this. Where the case is a group action with a public interest, (here, the most striking and well-known example being Alan Bates v the Post Office), there should be a rule change to suspend the operation of Part 36 in order to prevent claims being bought off, as Hugh Grant has suggested was the case in his action against NGN. Such a rule change would benefit claimants such as Hugh Grant and the hundreds of claimants who settled their privacy claims for fear of the costs consequences if they did not do so.

Should such a rule change be made, entities such as NGN, which, ‘in the public interest,’ have published articles about the private lives of celebrities such as Hugh Grant, could scarcely have any complaint. After all, if it was in the public interest to publish the articles, it must also be in the public interest if those same celebrities who wish to bring their claims to trial, can do so without fear of being on the wrong side of a potentially ruinous Part 36 offer.

Such a rule change would address the situation in which Hugh Grant might have found himself, had he won damages at trial, only to find that the sum awarded to him by Mr Justice Fancourt, had been pipped by a pound under Part 36, leaving him as the winner of the case but as the net loser of the costs. An amendment permitting the court to suspend Part 36 in public interest cases would bring about a rebalancing of the rule to a situation where it works as intended, and not as a vehicle for a defendant with a deep pocket to make use of, in order to prevent claims to which there may be no defence, from being tried in open court.