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Personal Injury Update

Published September 2014

Part 36 offers: pitfalls for defendants

A shrewdly judged Part 36 offer is one of the most important weapons in a defendant's armoury when faced with a claim. It can prompt a speedy resolution of the matter, or provide costs protection at trial.

However, more than most parts of the CPR, Part 36 contains traps for the unwary. In this article barrister, Peter Houghton of Crown Office Chambers provides an overview of some of the most common problems that defendants face. These are encountered when making an offer that complies or, crucially, one that is meant to, but does not comply with Part 36.

For our purposes, the most important parts of Section I of the Rule are 36.1, 36.2 and 36.3 which appear that the end of this article.

Rejecting and withdrawing offers

Imagine this scenario:

The defendant makes a Part 36 offer to settle the claimant's claim for £25,000. The claimant rejects the offer. The defendant's position improves with exchange of witness statements and expert evidence such that £25,000 would represent significant overcompensation. Six months later the claimant serves a notice of acceptance.

Whilst first instincts might suggest that the claimant cannot do this and that his rejection of the Part 36 offer has made it incapable of acceptance, in the absence of the defendant serving written notice of withdrawal the claimant is perfectly entitled to accept late in this fashion, despite his previous rejection: see Gibbon v. Manchester City Council [2010] EWCA Civ 726. Although general contractual principles would hold that a rejection 'kills' an offer so that it can no longer be accepted thereafter, Part 36 is a "self-contained code" not subject to all of the general law of contract.

Multiple Part 36 offers

Take the scenario above but with a twist. After lay and expert evidence has been served, the defendant makes a further, lower Part 36 offer of £15,000. Is the effect of that to put the original £25,000 offer beyond acceptance?

Again, as explained in Gibbon, the answer is 'no': if the £25,000 offer has not been withdrawn by the defendant at any point since it was made then it remains open for acceptance.

Global offers

Let us take another scenario:

The defendant is faced with a relatively low value claim (say £10,000) in which costs are escalating rapidly and becoming disproportionate (more than £40,000). Can it make a Part 36 offer of, say, £30,000 inclusive of costs?

This is not possible: see Mitchell v. James [2002] EWCA Civ 997. There is nothing to stop a party making a global (i.e. costs inclusive) offer at any stage. However, that offer cannot be made pursuant to Part 36. (In any event, it is questionable how much costs protection that kind of offer can provide in most cases, since the trial judge will usually not be in a position straight after trial to determine whether it has been beaten.)

Formal requirements

As set out below, rule 36.2(2)(a)-(e) sets out five formal requirements for any offer if it is to be made as a Part 36 offer.

Consider this situation:

You act for a defendant, having taken over the file from a colleague. On reviewing the file you notice that your colleague made an offer to settle some time ago. However, setting it against CPR 36.2 that offer does not seem to comply with all the requirements. Can you still rely upon it during costs arguments after trial?

The short answer is 'yes'. Under rule 44.2(4) the court must have regard to, amongst other things, "any admissible offer to settle made by a party which is drawn to the court's attention, and which is not an offer to which costs consequences under Part 36 apply". Rule 36.1(2) makes the same point.

But what if the question were, "Can you still rely upon it during costs arguments after trial to seek normal Part 36 costs consequences?"

That is more difficult and indeed there is no hard-and-fast answer. In F&C Alternative Investments (Holdings) Ltd v. Barthelemy (no.3) [2012] EWCA Civ 843 Davis, L.J. held that where an offer was not made under Part 36 it would generally be surprising if Part 36 costs consequences could be attached to it.

The regime of Part 36 ought not to be invoked "by analogy". This was because Part 36 costs sanctions, which were "deliberately swingeing", represented a departure from otherwise established costs practice. "[T]here is no reason, in my view, for indirectly extending Part 36 beyond its expressed ambit. Indeed to do so would tend to undermine the requirements of Part 36 and the repeated insistence of the courts that intended Part 36 offers should be very carefully drafted so as to comply with the requirements…".

However, there might (depending upon all the particular circumstances) be an argument that where the non-compliance is extremely trivial the court can order Part 36 costs consequences in any event.

Huntley v. Simmons [2009] EWHC 406 (QB) was such a case. A defendant's Part 36 offer did not comply with all of requirements of rule 36.5(4) in three respects. But Underhill, J. felt two of the non-compliances were the purest technicalities. Whilst the third was a formal defect, it "caused no real uncertainty or other prejudice to the claimant or his advisers". Indeed, the judge noted that the claimant had described the offer in question as a 'Part 36 offer' in correspondence. There was no suggestion whatever that the claimant was concerned about the non-compliance. (Another useful case in this regard is Hertsmere Primary Care Trust v. Estate of Rabindra-Anandh [2005] EWHC 320 (Ch)).

In F&C Alternative Investments Davis. L.J. did not doubt the result in Huntley. He did say that it could be "justified on the special facts" and added, "Perhaps there can be de minimis errors or obvious slips which mislead no one".

Time-limited offers

Imagine this situation:

A defendant wishes to make a time-limited offer to a claimant, open for acceptance only for 21 days. Can that be made under Part 36?

The answer is straightforward: 'no'. That was made clear in C v. D [2011] EWCA Civ 646.

What about a more subtle problem?

A defendant sends what purports to be a Part 36 offer to a claimant. For instance, it describes itself as such, it refers to Part 36 costs consequences and 'the relevant period'. However, it expresses thus: 'This offer will be open for 21 days as from the date of this letter (the 'relevant period')'.

The difficulty is, perhaps, not immediately obvious. But rule 36.2(2)(c) requires that a Part 36 offer must, "specify a period of not less than 21 days within which the defendant will be liable for the claimant's costs in accordance with rule 36.10 if the offer is accepted", not that it must express itself as 'open for 21 days'. And, as we know, a time-limited offer cannot be a Part 36 offer.

It now appears that provided there is sufficient reference to Part 36, and to the mechanics and language of that Part, an offer said to be "open for 21 days" will be treating as a Part 36 offer. The key phrase can be interpreted as meaning that the offer will not be withdrawn for at least 21 days, rather than that it will automatically lapse and be unavailable for acceptance after 21 days.

That was the decision of the Court of Appeal in C v. D (also useful in this regard is Onay v. Brown [2009] EWCA Civ 775). Rix, L.J. explained that the question was one of construction of the particular document in question. But passages of his judgment (at [45]-[56]) are of general application, in particular the ideas that: a document should so far as possible be construed so as to bring rational sense and consistency to the whole; a court should be slow to find inconsistency between parts of a document; in the context of Part 36 it was entirely feasible and reasonable to read 'open for 21 days' as meaning 'will not be withdrawn within those 21 days'; words should be understood so as to give efficacy to a document; and guidance might be had from references to the language and operation of Part 36 in other parts of the offer letter. Stanley Burnton, L.J. also provided a helpful dictum: "Any ambiguity in an offer purporting to be a Part 36 offer should be construed so far as reasonably possible as complying with Part 36".

The offeror's position in Epsom College v. Pierse Contracting Southern Ltd [2011] EWCA Civ 1449 was weaker than in C v. D. The offer in question stated that it would "remain open for acceptance for 21 days… We … diarise expiry as… 3 April 2009". The offer did, however, refer to Part 36 and state it would carry Part 36 costs consequences. Rix, L.J. decided that this was close enough to the language used in C v. D to hold that the offer was one under Part 36. He cited and relied upon what Stanley Burton, L.J. had said in that case (see above).

Thus, on this particular issue it seems the courts will grant some latitude to a defendant who has made a slight mess of wording his Part 36 offer. That latitude is not unbounded, though. In Phi Group Ltd v. Robert West Consulting Ltd [2012] EWCA Civ 588 the offer in issue, whilst expressing itself to be made pursuant to Part 36, did not specify a period of not less than 21 days or, indeed, any period at all in compliance with rule 36.2(2)(c). This was too far from the offers in Epsom College, C and Onay to be clothed with Part 36 costs consequences, according to Lloyd, L.J. Notably the other two members of the Court of Appeal in Phi were Rix, L.J. and Stanley Burton, L.J., who had decided C v. D and who entirely agreed with Lloyd, L.J. Thus there is no argument that Phi and C are in conflict with one another.

Conclusion

This article is only a brief survey of some of the voluminous case law on a difficult subject. However, the following key points emerge:

a. Part 36 is its own self-contained code. General principles of contract law do not necessarily apply, especially with regard to rejection, counter-offers and withdrawal.

b. Getting the formal requirements right is not easy. But it is extremely important. (It might be helpful to note that there is a Court Service Form that can be used to make Part 36 offers – N242A.) You would be unwise to assume without more that you can claim Part 36 costs consequences based on a defective offer.

c. It might transpire that what you thought was an offer complying with all of the Part 36 requirements was not. Do not panic and do not be too ready to accede to claimants' solicitors' arguments that your offer will be disregarded by the court. There is some ammunition in the case law cited above that ought to allow you to argue the point and at least achieve a satisfactory negotiated settlement.

Relevant parts of CPR Part 36

36.1

(2) Nothing in this Section prevents a party making an offer to settle in whatever way he chooses, but if the offer is not made in accordance with rule 36.2, it will not have the consequences specified in rules 36.10, 36.11 and 36.14.

36.2

(1) An offer to settle which is made in accordance with this rule is called a Part 36 offer.

(2) A Part 36 offer must –

(a) be in writing;

(b) state on its face that it is intended to have the consequences of Section I of Part 36;

(c) specify a period of not less than 21 days within which the defendant will be liable for the claimant's costs in accordance with rule 36.10 if the offer is accepted;

(d) state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue; and

(e) state whether it takes into account any counterclaim.

(3) Rule 36.2(2)(c)does not apply if the offer is made less than 21 days before the start of the trial.

(4) In appropriate cases, a Part 36 offer must contain such further information as is required by rule 36.5 (personal injury claims for future pecuniary loss), rule 36.6 (offer to settle a claim for provisional damages), and rule 36.15 (deduction of benefits).

36.3

(1) In this part –

(c) 'the relevant period' means –

(i) in the case of an offer made not less than 21 days before trial, the period stated under rule 36.2(2)(c) or such longer period as the parties agree…

(5) Before expiry of the relevant period, a Part 36 offer may be withdrawn or its terms changed to be less advantageous to the offeree, only if the court gives permission.

(6) After expiry of the relevant period and provided that the offeree has not previously served notice of acceptance, the offeror may withdraw the offer or change its terms to be less advantageous to the offeree without the permission of the court.

(7) The offeror does so by serving written notice of the withdrawal or change of terms on the offeree.



OTHER ARTICLES IN THIS ISSUE

Mesothelioma Act 2014 update

The Maritime Labour Convention 2006: one year on and is the pressure building for PSC?

Part 36 offers: pitfalls for defendants

Recent personal injury cases / incidents /regulatory developments and prosecutions






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