No.HQ04X03315
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION

Royal Courts of Justice
Monday, 16th July 2007

Before:

MR. JUSTICE EADY
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B E T W E E N :

PAUL McKENNA
Claimant

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MGN LTD.
Defendant

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MR. D. BROWNE QC and MR. M. BARCA  (instructed by Swan Turton)  appeared on behalf of the Claimant.

MISS A. PAGE QC and MISS C. EVANS  (instructed by Davenport Lyons)  appeared on behalf of the Defendant.
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J U D G M E N T
MR. JUSTICE EADY:  

1	The trial of this libel action took place a year ago and the issues are fully canvassed in the judgment I handed down on 28th July 2006.  There is thus no need to rehearse the background.  I have now to resolve the question of costs on which the parties have reached an impasse.

2	I heard two days of submissions concluding at 4.50 p.m. on Friday.  It was not therefore practical for me to give my rulings at that stage and I now do so.  Everything in this litigation has been hard fought.  As it was on liability, so it has been on costs.  There has been little room for give and take.  As I observed in the course of the submissions, neither side could at any point be accused of understating its case.

3	It is nearly four years since the defamatory words were published but, unfortunately, at the end of a very long tunnel neither party can be judged by the standards of the overriding objective to have emerged smelling of roses.  That fact has to be reflected somehow in the order for costs.

4	Submissions have been addressed under various hearings, although in no particular sequence.  I propose to address, first, the claimant’s plea which has been variously described by Miss Page QC for the defendant as “malice” and by Mr. Browne QC for the claimant as “aggravation of damages”.  That is one issue I need not resolve, since the terminology matters not.

5	It was essentially an attack on the author of the article in question, Mr. Victor Lewis-Smith and, in particular, for what was described as a campaign which dragged on for some six years about Mr. McKenna’s doctorate which he thought apparently to be “bogus”.  Later in the course of the trial, an attempt was made to raise a please of malice against the former editor of the newspaper as well, but that proved to be short lived.

6	Mr. Lewis-Smith was never joined as a party to the litigation and therefore its relevance depended on the claimant being able to prove either that the defendant corporation MGN Ltd. was vicariously responsible for 
	Mr. Lewis-Smith’s state of mind and his allegedly malicious campaign,
	or that the corporate defendant, through some other human being or beings, was in cahoots with him in the conduct of that campaign.

7	Neither was made to stand up.  Mr. Lewis-Smith was an independent contractor and no cogent legal basis was put forward to establish vicarious liability in those circumstances;  nor was any co-conspirator identified.  

	Ultimately the plea was abandoned in the middle of November 2006, 
	i.e. nearly four months after the issue of liability was resolved.

8	It is said by Miss Page that I would have been in a position to resolve the issue of compensation at the end of the trial 12 months ago had it not been for the allegation of malice which remained outstanding, purely because 
	Mr. Lewis-Smith was not available in the course of the trial for genuine personal reasons.

9	If I was to determine the allegations of bad faith against him, obviously he had to be given a chance to deal with them and to be cross-examined about them.  The need to put that matter back for future resolution meant that further costs would inevitably be incurred.  An argument to which I shall need to return shortly, therefore, is whether the claimant should bear all the subsequent costs arising from the need to postpone.

10	For present purposes I am concerned with the more specific issue of the costs attributable to the issue of malice whether incurred before or after 
	28th July 2006.  In many cases I see allegations of malice pleaded routinely
	and formulaically.  Such pleas are sometimes merely optimistic, sometimes ingenious and creative, but few ever result in a finding of malice.  Such findings are very rare.  It is reasonable to suppose that the majority of such pleas are introduced for tactical reasons as a bargaining counter or perhaps as a means of pressing for wider ranging disclosure.  Some are struck out and some are not.  It needs to be recognised, however, that if such a tactic ultimately fails or the plea of malice is abandoned, as here, there may be costs consequences.  The global approach is frequently appropriate for dealing with costs at the end of a case.  There are other cases, on the other hand, where an issues based analysis is the right one to apply.  In my judgment, tactical pleas of malice provide a good example where there is or may be room for an issues based approach.

11	There are numerous examples of libel actions in which the fact that malice has been pleaded causes delay and increased cost out of all proportion to its ultimate utility in furthering the overriding objective or arriving at a just result.  There need to be available, therefore, in the modern era of civil litigation, suitable disciplinary mechanisms for discouraging unrealistic or tactical pleas of malice.  People need to think carefully before alleging bad faith against journalists, newspaper groups or any other defendant just for the sake of it.  
	If such allegations lead to additional cost, but ultimately do not stand up to scrutiny, it is quite right that this should be reflected in determining who should pay.

12	I am not persuaded that there was here any legal basis on which to attribute vicarious liability to MGN Ltd. for any malice on Mr. Lewis-Smith’s part.  Passing reference was made to the case of Gros v. Cook [1969] 113 S.J. 408, but no report of the case was introduced, nor was the argument further developed.  Moreover, no particulars were ever given of any other employee or agent of MGN Ltd. being involved in a dishonest conspiracy with
	Mr. Lewis-Smith.  Indeed, even if Mr. Lewis-Smith had been a party to this litigation, I see nothing pleaded to show that he did not honestly believe the message he was conveying to readers about the claimant’s La Salle doctorate, although it turned out that a particular conversation with La Salle University about the fees charged never actually took place.  That in itself is capable no doubt of various explanations.  The matter was not in the end resolved.

13	I found that the claimant was not dishonest and that he himself valued his degree, but Mr. Lewis-Smith suspected that it was of little value and the claimant’s unwillingness over the years to reveal the nature of the work done to earn the award merely served to confirm his suspicions.  Cross-examination might conceivably have caused him to change his view, yet the fact remains that he was not a party.  Inevitably, therefore, in the end the allegation was dropped, just as the allegation against the former editor, Piers Morgan, was also dropped, albeit more promptly.  I cannot see any reason why the defendant should bear the claimant’s costs of pursuing that chimera, nor indeed do I see why they should have to bear their own.  The claimant must, therefore, pay the costs which the costs judge finds attributable to the issue of malice in support of aggravated damages.

14	Next I turn to the issue of indemnity costs.  Mr. Browne QC asks for the claimant to have his costs of the action on the indemnity basis.  This seems to me, on the facts of this case, to be wholly unsustainable for a number of reasons.  Mr. Browne placed most of his eggs in the CPR Part 36 basket, but some were left over for the court’s general discretion under CPR Part 44 and the principles explained in Excelsior Commercial & Industrial Holdings Ltd.
	v. Salisbury, Hammer, Aspden & Johnson (a Firm) & Ors. [2002] EWCA Civ. 879.  Although not pressed with the utmost vigour, this secondary argument was based on what was said to be MGN’s “abnormal and intransigent conduct”.  For reasons which will emerge later, I see nothing in that argument and I shall, first, concentrate on the Part 36 argument.

15	The first point to make is that the rule applicable is that operative in 2006 rather than the newly worded rule which came into effect in April 2007.  
	I need not perhaps debate the extent to which the changed wording makes any difference.  I shall focus on the rule as it stood.  The primary submission made by Miss Page QC for the defendant is that Part 36 simply has no application to these facts.  The former Rule 36.21(1) only applied where “at trial” a defendant was held liable for more, or the judgment against him was held more advantageous to the claimant than the proposals contained in the claimant’s Part 36 offer.

16	It is obvious here that the sum paid to the claimant of £25,000 was reached by way of negotiated settlement last December and not “at trial”.  For all I know, if the issue had been fought out the claimant might have recovered considerably less.  One can only speculate because the arguments were not heard.  It seems to me that the words “at trial” must be taken to mean what they say:  see e.g. the comments of Lord Woolf in Petrotrade Inc. v. Texaco Ltd. [2002] 1 WLR 947 at para.85 and those of Jacob J. (as he then was) in Dyson Appliances Ltd. v. Hoover Ltd. (No.3) [2003] FSR 21 394 at para.15 in particular.  I would therefore accede to Miss Page’s primary submission and rule that Part 36 has no application.  In case I am wrong, however, I will proceed to address the other arguments.

17	It is necessary to have well in mind the Part 36 offer relied upon.  In April 2005 the claimant asked for £5,000.  Yet, as the recent case of Jones v. Associated Newspapers Ltd. [2007] EWHC 1489 (QB) demonstrates, in defamation proceedings it is often unrealistic to judge the value of a Part 36 offer in monetary terms alone.  In this case the claimant was always pressing for an unqualified apology, not only in respect of his own honesty but also in respect of the quality of his doctorate, and that simply was not warranted.  In all discussions before trial, the claimant was unforthcoming about the work on which the degree was based.  Such information as he gave was evasive, obscure and in some respects contradictory.  Although a fuller picture emerged at trial, it is not possible to conclude that it was even then a complete one.  Before that stage, however, he was not prepared to supply the defendant with enough information to justify the unqualified apology he was seeking.  Had he confined himself to asking for an acknowledgement that he had not been dishonest, that would be one thing, but he was in effect pressing for his La Salle doctorate and its quality to be given a puff which was on any view quite unjustified.  Even a year later, through a solicitor’s letter of 16th May 2006, the defendant was being asked (a) to accept that Mr. Lewis-Smith’s allegations were malicious and (b) that the degree was “…earned from genuine institutions following years of study and appropriate academic procedures”.  
	I do not need to repeat what is set out in the judgment, but from its contents it is clear why it was quite unrealistic to expect the defendant to swallow that.  Incidentally, by that stage the claimant wanted £50,000 rather than a mere £5,000.

18	If these circumstances fell within the wording of CPR 36.21 I would certainly have held that it would be unjust to award costs on the indemnity basis, especially having regard to the terms of CPR 36.21(5)(c).  In April 2005 the claimant was simply not revealing sufficient information to enable the defendant to make a rational decision to accept or reject what was being demanded in the Part 36 offer.  That is contrary to the spirit of the modern approach to civil litigation, which requires cards to be placed face up on the table.  More specifically, it is an obligation expressed in the pre-action protocol that sufficient information needs to be provided to evaluate the various options available and, in particular, to encourage settlements.

19	A further consideration in assessing the justice of an indemnity costs order is that it would effectively shift the burden and discourage close scrutiny of what is by any standards a very large bill.  I am told that it is well over £800,000 plus VAT up to February 2007.  I said in the first paragraph of my judgment that this is a case in which it is necessary to scrutinise very closely what has been spent in arriving at the outcome with an eye to proportionality. It seems that nearly £1.5 million altogether has been expended in legal costs over a case in which the claimant ultimately accepted an offer of £25,000.  That is a fact which would raise eyebrows in many quarters.  One has only to compare the level of costs incurred in clinical negligence cases which actually lead to compensation measured in millions of pounds.  Although in Adam Musa King v. Telegraph Group Ltd. Brooke LJ. recognised that libel actions were not about money alone, he made it quite clear that in assessing what was worth spending in such cases, the level of compensation should certainly not be left out of account.  As I say, therefore, I would have thought it unjust to award indemnity costs with all the consequences entailed by such an order, even if Part 36 had applied.  It follows that I am not prepared to make a special order for interest to be paid on the costs or damages as contemplated by the Part 36 regime.

20	The next issue I address is that of the PTR on 10th May 2006, where I awarded the claimant 50 per cent. of his costs.  I had heard arguments at some length touching mainly upon amendments to the defence and had come to the tentative conclusion that this met the justice of the case.  The transcript shows that I put that figure forward for consideration by Mr. Kelsey-Fry QC, then representing the defendant and Mr. Browne QC.  That was the time to make submissions to the contrary.  Mr. Browne, who now argues that he should have 100 per cent. of the costs, did not develop any such argument on that occasion.  Neither counsel sought to persuade me from my first impression and so that was the order made.

21	An argument has now been raised not only that I should have awarded 100 per cent. of the claimant’s costs, but that the order actually made should be construed as meaning that the claimant was to have the comfort of knowing that he would recover 50 per cent. in any event, but that the balance of 50 per cent. should abide the outcome of the trial.  In other words, it was to be regarded as costs it in the case.  That is not what I said, nor is it a natural interpretation.  It would be a most unusual order to make in my experience, and it would be reasonable, if that were the intention of the court, for it to be made express rather than left to implication.  I do not propose to reopen the matter now.

22	Next I turn to what Miss Page called “the minutiae”, that is to say, the costs (so far not provided for) of orders made without oral hearings on 7th and 15th June 2006.  These related to last minute case management issues and it seems to me that a neutral outcome is called for.  I shall say no order for costs.

23	Further costs were incurred in June 2006 in the run up to the trial, this time involving a further case management conference or pre-trial review on 
	26th June of that year.  It concerned a dispute as to how to introduce evidence from a Mr. Arabie who was unwilling to come to court in person for fear of bringing back memories of the fraudulent Mr. Kirk, whose activities are detailed briefly in the judgment.  Mr. Arabie’s evidence seems to have been of marginal significance and not even to have achieved a mention in the judgment.  Another issue canvassed was the legitimate scope of the defendant’s expert evidence.  Again, it seems to me that it would be appropriate to make no order.

24	Next, there falls to be considered the issue raised by the claimant’s conduct which Miss Page relies upon to support her submission that he should suffer a significant percentage reduction in the costs to be recovered on the standard basis and that, in any event, certain items should be disallowed as wasteful and unnecessary.  

25	It is entirely appropriate nowadays to scrutinise the cost of litigation and to encourage its efficient, prompt and economical disposal.  It is no longer regarded as legitimate for parties and advisers to sit in opposite towers spending money and not attempting to engage in sensible discussions sharing their wisdom and experience.  In clinical negligence cases, to which 
	I refer again, round table meetings take place and realistic solutions are generally achieved, thanks to the skill and expertise of the counsel and solicitors in this specialist field.  One rarely encounters the macho tactics adopted in this case.  It would be inconceivable to encounter a hospital trust telling a severely disabled claimant to get lost because he had picked the wrong fight with the wrong hospital.  It would be relatively unusual also to find a brain damaged claimant hiding the nature of his injuries and his expenditure past and future.

26	This case resulted in Mr. McKenna having it acknowledged that he had not been dishonest in his claims, but that he had been hoodwinked along with many others by a crook in the United States, who pretended to be running an accredited institution which was nothing of the kind.  It was, however, equally true that his degree could not be described by any stretch of the imagination as complying “with rigorous academic standards” or as representing “years of study”, as had been claimed from time to time.  A round table meeting could have established these facts within a month of publication and, if he wanted it, no doubt a correction could have been published to the same effect as the judgment.  The quality of the claimant’s degree was a legitimate matter for comment and inquiry, since in various public statements the claimant did from time to time make reference to it and it was also referred to in commercial products.

27	On the other hand, the claimant was entitled to have recognised the fact that he was not dishonest.  In not accepting that the words conveyed that sting, the defendant was, as I indicated at the time, intransigent itself.  This narrow dispute could hardly justify the expenditure of a total of £1.4 million plus VAT in legal costs.  As I said, the claimant’s responses were obscure, evasive and misleading when asked what he did to achieve his degree.  To hide a thesis or dissertation from scrutiny and comment is contrary to the traditions of scholarship.  To expect the newspaper to pay tribute to the academic quality of this unaccredited degree without being allowed to see the dissertation was wholly unreasonable:  see the observations, for example, of Sir Igor Judge in Ford v. GKN [2001] 1 WLR at 1400 H and Lord Woolf at 1403B;  and also the observations of Waller LJ in the Factortame case [2002] 1 WLR 2438 at para.23.  Correspondingly, it is unreasonable to expect the defendant to pay the whole of the costs incurred despite their own intransigence over the imputation of dishonesty. 

28	I should make clear that the costs of the exercise of surveying the United States universities should be disallowed.  It was nothing to the point.  All that mattered was how acceptable it was, or how customary it was, to allow so called “prior learning” to be taken into account for a doctorate.  That expenditure achieved nothing and there is no reason for the defendant to pay for it.

29	I am now concerned with the balance of the costs to be paid on the standard basis after the malice issue is taken out of the equation and the university survey in the United States is also taken out of the equation . What deduction is appropriate, having regard to the defendant’s own aggressive and intransigent approach?  I need also in that context to remember that the conversation with La Salle University, on which the allegation appeared primarily to be based, never took place.  Something should be deducted because of the long running evasiveness and the claimant’s wish to achieve vindication for the doctorate as well as in respect of his character.  I think in the end 15 per cent. would be appropriate.  That is not as high a percentage as Miss Page was seeking, but it needs to be seen in the context of the other costs which are being disallowed.  That will apply to the costs incurred up to 
	28th July 2006.

30	Thereafter the persistence in claiming indemnity costs and in pressing the aggravated damages claim held up the process.  Had it not been for the need to deal with that issue, damages could have been assessed by me at the end of the trial.  The defendant is to have the costs thereafter, save insofar as there have been agreements reached to the contrary.  I am fortified in this conclusion by the contents of the open letter of 2nd August 2006 in which the defendant offered £25,000 and a generous proportion of the claimant’s standard costs.  That represents almost a year later the ultimate outcome and, indeed, may have been somewhat more generous;  since it was never quantified, it is hard to say.  I do not accept the argument that a reduction in costs would represent double penalisation of the claimant, since his evasiveness must have already been taken into account when the defendant offered £25,000 by way of damages.  Costs and damages give rise to different considerations and the way the case was conducted legitimately impacts on both. Those are my rulings.

 MR. BROWNE:  Could we just have 15 minutes to consider the impact of that?

MR. JUSTICE EADY:  Yes.

(Adjourned for a short time)

(For proceedings after judgment, see separate transcript)