UK: Part 36 Offers - Life After The Court Of Appeal’s Decision In C v D

Last Updated: 6 December 2012
Article by Michael Axe

Eighteen months after Rawlison Butler LLP won its application in the leading Court of Appeal case of C v D, Michael Axe from our Commercial Disputes Team looks at how the Court of Appeal's decision has been applied to other cases involving Part 36 Offers and what the future may hold.

The Court of Appeal's decision in C v D [2011] EWCA Civ 646 (27 May 2011) was arguably the most important case dealing with Part 36 Offers in recent years (see our earlier article, Part 36 offers - Rawlison Butler wins important Court of Appeal decision, for more details).  Perhaps unsurprisingly therefore, in the eighteen months since the Court of Appeal delivered its judgment, its decision has been cited in a number of other cases that have considered the interpretation of the rules governing "Part 36" settlement offers.

Giving effect to the Offeror's intentions

For example, in the case of Howell & others v Lees-Millais & others, the Court of Appeal applied the principles from C v D to confirm that, wherever possible, a settlement offer which is clearly intended to be a Part 36 Offer should be interpreted in such a way as to give effect to that intention.  This approach was also followed by the Court of Appeal in the later case of Epsom College v Pierce Contracting Southern Ltd.

The decision in Howell & others v Lees-Millais & others arguably went even further than the decision in C v D by suggesting that, where it is impossible for the offeror to frame its offer in such a way as to fully comply with all of the technical requirements for a Part 36 Offer (as was the case in Howell), it may still be appropriate if the offer is expressed to be a Part 36 Offer and it otherwise complies with the requirements of a Part 36 Offer, and in the absence of any good reason to the contrary, to give the offer "substantially the same effect" as if it had been a valid Part 36 Offer.

No sympathy for unjustified technical breaches

However, it is important not to become complacent about the need to comply with the formal requirements of a Part 36 Offer.  For example, in the 2012 case of Thewlis v Groupama Insurance Company Ltd, an offer which was expressly stated to be "made pursuant to Part 36 of the CPR" was nevertheless held not to be a valid Part 36 Offer because it had not complied with the technical requirement to "state on its face that it is intended to have the consequences of Section I of Part 36".

Equally, in the recent case of PHI Group Ltd v Robert West Consulting Ltd, the Court of Appeal confirmed that an offer which failed to comply with the requirement to "specify a period of not less than 21 days" in relation to the defendant's liability to pay the claimant's costs was not a valid Part 36 Offer, even though the offer included the wording "This offer is made under Part 36 of the Civil Procedure Rules and the offer is intended to have the consequences of Part 36 of the Civil Procedure Rules".

These two cases differ from the others because there was no excuse for the offeror failing to comply with the technical requirements of the Part 36 rules, whereas C v D related to the interpretation of an ambiguous phrase, and Howell referred to a scenario where it was "impossible" to fully comply with all of the technical requirements.

Pre-Action Costs

The question of whether or not an offeror can obtain the beneficial Part 36 cost consequences in circumstances where its pre-action Part 36 Offer is accepted before any Court proceedings are commenced has also now finally been clarified.  There had been a lot of confusion over the treatment of pre-action Part 36 Offer, as the Part 36 rules refer to the "costs of the proceedings", and so it was argued that when an offer was accepted before proceedings were commenced, there were no costs of "the proceedings".

However, the Court of Appeal in Solomon v Cromwell Group plc and Oliver v Doughty has confirmed (expanding upon the earlier High Court decision in KT & others v Bruce) that where a pre-action Part 36 Offer is accepted prior to proceedings being issued at Court, the reference in the Part 36 rules to the "costs of the proceedings" will include the costs incurred in relation to the steps taken in contemplation of the proposed proceedings.  This decision has provided some much needed clarity on this issue.  It may nevertheless still be advisable to word any pre-action Part 36 offer letters carefully to maximise the prospects of recovery and avoid potential future disputes over entitlement to pre-action costs.

Every case hinges on its own facts...

It is always important to bear in mind when talking about Part 36 costs consequences that the Court has the ability to depart from the normal rules if "it considers it unjust" to apply the usual Part 36 costs consequences.

For example, in PGF II SA v OMFS Company & another, the High Court did not order the "beneficial" Part 36 costs consequences to the offeror because the offeror had unreasonably refused to mediate.  In the recent case of SG (a minor) v Hewitt, the Court of Appeal did not penalise the claimant in costs for its late acceptance of the defendant's Part 36 Offer (despite taking over two years to accept the offer), because the claimant had needed that time to carry out further medical investigations to assess the extent of the claimant's head injury.

Equally, the courts have discretion to award costs as they consider is appropriate even when the Part 36 cost consequences do not apply.  In the recent case of Beechwood House Publishing Ltd v Guardian Products Ltd & another, the Court ordered the defendants to pay 90% of the claimant's costs up to the date of the split-trial on liability (which the claimant had won), even though the Part 36 costs consequences did not yet apply because the parties had then settled the case before the trial on quantum (to conclude the case) was heard.

The Road Ahead

Given the highly beneficial nature of the costs consequences which an offeror can obtain under the Part 36 rules, it is not surprising that Part 36 Offers are an integral part of litigation and dispute resolution today.  As long as this continues to be the case, and as long as the Part 36 rules continue to require strict adherence to their formal requirements where possible, it is unlikely that the flow of cases regarding the interpretation of the Part 36 rules will cease any time soon

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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