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Part 36: Offers and Pitfalls

Part 36 offers are an important aspect of litigation, over and above any negotiations to settle which take place outside Part 36. The Court of Appeal and the High Court have recently grappled with what constitutes valid Part 36 offers as well as the extent to which offerors may rely upon Common Law rules to argue that such offers were withdrawn.

Background

Briefly, under rule 36.2, offers must comply with the form and content requirements set down to take advantage of the Part 36 procedure. If the offer is valid, the consequences set out in rules 36.10, 36.11 and 36.14 shall apply. Of course, parties are free to make any offers they wish, and in any form, and these are governed by the Common Law rules of contract.

However, Part 36 sets out its own particular scheme which aims to provide certainty of costs for the parties.

Crucially, for the offeror, rule 36.2(9) provides that the offeree may at any time accept the offer made unless the offer has been withdrawn. Under rule 36.3(7) an offer may only be withdrawn by the service of a written notice after the period for which it is open. If the offeror seeks to withdraw the offer within the period given (which must be at least 21 days), permission from the court is needed: CPR 36.3(5) and (6).

Withdrawal of a Part 36 offer

In Gibbon v Manchester City Council [2010] EWCA Civ 726, a Part 36 offer had been followed by rejection and a subsequent revised offer. Moore-Bick LJ held that while the Part 36 offer had been superseded by both events at Common Law, this could not be imported into
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the procedural code of Part 36. Accordingly, the offeror having his offer rejected or moving on to considering a further offer did not impliedly withdraw the Part 36 offer he made. The judge specifically rejected any room for arguing that a Part 36 offer could be withdrawn by implication. In doing so, the court approved Sampla v Rushmoor Borough Council [2008] EWHC 2616 (TCC), in which Coulson J held that the words at any time in rule 36.2(9) allow an offeree to reject and subsequently accept a Part 36 offer yet to be properly withdrawn. In Sampla, the Judge specifically held that the offerees counter offer would not kill the original Part 36 offer as it would at Common Law.

C v D and time-limited offers

Gibbon was approved by the Court of Appeal in the latest authority of C v D [2011] EWCA Civ 646. In C v D, the issue was whether an offer headed as an offer to settle under CPR Part 36 but open for 21 days lapsed after that period and became incapable of acceptance. While Part 36 is silent on what happens to rejected offers, in the above authorities and in the appellate authority of Rolf v De Guerin [2011] EWCA Civ 78, an offer was not regarded as lapsing at the end of 21 days.

At first instance in C v D, Warren J held that the offer open for 21 days was not an offer subject to the rules of Part 36 as it came to an end by its own terms rather than pursuant to rule 36.9(2). The Judge considered that open for 21 days only had one interpretation which resulted in the offer being time-limited and not an offer to settle under CPR Part 36 as stated.

In the Court of Appeal, Rix LJ agreed with Warren J that a time-limited offer could not fit into the Part 36 scheme (at 44):

the claimants offer must be construed in the context of a Part 36 scheme which does not permit an offer within the scheme to be time limited.

And at 45:

there is a necessary inconsistency with between an offer being both time limited and a Part 36 offer. An offer may be one or the other, it cannot be both.

Critically, it was agreed that the offer made was intended to be a Part 36 offer and it was headed as an offer to settle under CPR Part 36. The dispute concerned whether the words open for 21 days amounted to the offer in fact being a time-limited offer and therefore falling outside of Part 36. Rix LJ considered that the express words denoting that the letter was a Part 36 offer and the time limiting clause were inconsistent. His Lordship recognised that the court was obliged to consider an interpretation which would harmonise inconsistent terms and held that open for 21 days could be so constructed.

Therefore, the contentious words were interpreted to mean that the offer would not be withdrawn within 21 days rather than meaning the offer was withdrawn after 21 days. The basis for this was that Part 36 offers may be withdrawn within 21 days with leave and the adopted construction was more reasonable in this context rather than being a purported withdrawal, making it a time-limited offer and falling outside of Part 36. His Lordship also drew upon the legal maxim ut res magis valeat quam pereat, which expresses that a court should prefer a construction which validates an agreement rather than one which frustrates it.

Rimer LJ in his separate judgement agreed that the words open for 21 days could be construed to make the offer a valid Part 36 offer rather than a time-limited offer. Stanley Burton LJ also agreed and went further stating (at 83-84):
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I am left with the uncomfortable suspicion that when the offer letter was sent and received neither of the parties to these proceedings appreciated that a time-limited offer is not a Part 36 offer 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. Once it is accepted that a time-limited offer does not comply with Part 36, one must approach the interpretation of the offer in this case on the basis that the party making the offer, and the party receiving it, appreciated that fact.

Compliance with formal requirements

However, the Court of Appeal adopting an interpretation which allows the offer to be valid under Part 36, should not be seen as a get out of jail card for an unambiguous failure to comply with rule 36.2. In Carillion JM Ltd v Phi Group Ltd [2011] EWHC 1581 (TCC), Akenhead J held that an offer which failed to specify a period of not less than 21 days within which the defendant would be liable for the claimant's costs, as required by CPR 36.2(c), should not be treated as a Part 36 offer. Even though the offer was described as a Part 36 offer, intended to have Part 36 consequences and the minimum period could be implied, the failure was fatal. The Judge suggested that courts should be cautious about applying purely contractual interpretation principles when determining whether an offer complies with Part 36 and should apply the statutory criteria carefully.

Similarly, it was held in Mitchell v James [2002] EWCA Civ 997 that an offer proposing cost consequences inconsistent with rule 36.10 could not stand as a valid Part 36 offer.

Conclusions

These cases clearly show the risks faced by legal advisors in failing to properly frame or withdraw offers under Part 36. When considering an offer, some thought should be given to whether the kind of offer contemplated can properly be made under Part 36 and whether the advantages of the cost consequences of a Part 36 offer outweigh the lost opportunity of making an offer completely on ones own terms.

A time-limited offer is not valid under Part 36 unless it lends itself to a compatible construction. The litigation risk involved with a judge constructing the offer one way or the other is plainly best avoided.

In the heat of correspondence and litigation, parties move forward on to counter-offer and indeed counter counter-offer without the offeror considering his exposure to the original Part 36 offer if it is later accepted. Clearly, Part 36 offers must be reviewed regularly as their advantageousness may change given disclosure, evidence and progress towards trial.

If an offer is intended to be made under Part 36 but the offeror wishes it to be valid for 21 days only, it should be withdrawn formally after 21 days rather than making the actual offer time-limited (and therefore an offer outside of Part 36).

It should be borne in mind that while an offer may fall outside of Part 36, it still may be considered for the purposes of assessing costs under CPR 44.3.

IQBAL MOHAMMED