The recent decision in O'Grady v B15 Group Limited [2022] EWHC 67 (QB) clarifies that the common law doctrine of mistake is applicable to offers made under CPR Part 36. Surprisingly, this issue had not been addressed directly by the courts or the Rules Committee. In O'Grady, Master Thornett held that nothing about Part 36 being a self-contained code, or existing authority excluded the applicability of mistake where obvious errors had been made.

The legal conundrum

The primary issue in O'Grady is the question as to whether the common law principle of unilateral mistake is consistent with CPR Part 36.  The doctrine of unilateral mistake arises where one party is mistaken and the other party knows (or ought to have known) of the mistake. If the mistake is fundamental to the contract, the contract can be voided.

Hartog v Colin & Shields [1939] 3 All ER 566 is an example of the principle and is part of the “snapping up” line of case law. In Hartog  the defendants mistakenly offered Argentine hare skins at price per pound, rather than per piece; it was held that as previous negotiations between the parties (as was customary) were based on price per piece, the mistaken offer did not represent the defendants' true intentions and was therefore void.

In O'Grady, the offeror sought to rely upon this common law doctrine and argued that it can be imported into CPR Part 36; if a party inadvertently makes a Part 36 offer for an incorrect sum, and that offer is snapped up by the offeree, the offeror should be entitled to renege pursuant to CPR 36.10.

The self-contained nature of the Part 36 costs regime was expressly enshrined in CPR 36.1(1), which codified Flynn v Scougall [2004] EWCA Civ 873; [2004] 1 W.L.R. 3069 whereby it was stated that Part 36 payments, and therefore offers, were not contractual, but procedural.

Gibbon v Manchester City Council [2010] EWCA Civ 726 involved combined appeals concerning the interpretation of CPR Part 36, and specifically, the question of whether Part 36 embodies a self-contained code or whether it engages the usual principles of offer and acceptance. It was established that whilst basic concepts of offer and acceptance underpin Part 36, this is inevitable because contracts form part of the landscape of everyday life; however, Part 36 is “to be read and understood according to its terms without importing other rules from general law, save where that was clearly identified”.

Similarly, Mr Peter Prescott QC's judgment in Orton v Collins and others [2007] EWHC 803 (Ch) captures the sui generis  nature of the Part 36 procedural code: “I interpret Part 36 in the light of the Overriding Objective (CPR 1) […] I therefore hold that it need not be a contract that is being enforced and that the regime of Part 36, while it may well give rise to a contract under the general law touching offer and acceptance, does not depend upon contract law”.

The key issue is whether a mistake may constitute a “change of circumstances”  and therefore engaging the withdrawal provisions under CPR 36.10.

The legal position before O'Grady

  The impact of common law mistake on Part 36 offers was uncertain before this most recent decision.

In Atiba-Davies v William Hill Organisation Limited (Clerkenwell and Shoreditch County Court, 2019, Deputy District Judge Smith, unreported) the defendant's paralegal mistakenly made a Part 36 Offer of £15,000, even though the claim form had been amended to state that the value of the claim was £5,000. The defendant claimed that the offer was meant to have been for £5,000.

DDJ Smith applied OT Africa Line Ltd v Vickers Plc [1996] C.L.C 722, in which it was stated that:

“the test, in relation to whether a person ought to have realised that a mistake had been made, was not what the actual intentions of each party were but what each party was entitled to conclude from the other”.

Whilst DDJ Smith did find that unilateral mistake could be a “change of circumstances”  under CPR 36.10, the defendant was not permitted to withdraw the offer: it could reasonably have been assumed that the defendant wanted to dispose of the matter. It was held that unless the mistake was obvious, a party's mistake would not – of itself – permit them to withdraw their offer.

In SPF v Sykes Seafoods Limited and Subsidiary Co [2020] (Liverpool County Court, 2020, District Judge Metcalf, unreported) the claimant mistakenly made a Part 36 offer to settle for the sum of £0, which the defendant accepted. It was held that, whilst the settlement terms contained within the offer may have come as a surprise to the defendant, there may have been legitimate grounds for the claimant to make such an offer and there was no onus on the defendant to investigate the reasons for this.

DJ Metcalf considered the wording of CPR 36.1 and its explicit reference to procedural self-containment. The defendant relied upon Draper v Newport (Birkinhead County Court, 2014, District Judge Barker, unreported), which held that the doctrine of mistake could not be utilised in an MOJ low-value protocol case because the personal injury portal constituted a self-contained and idiosyncratic procedural scheme. In Sykes Seafoods it was therefore held that Part 36, much like the portal in Draper, was a highly prescriptive regime. DJ Metcalf concluded that, if unilateral mistake principles were applied to Part 36, there would be a risk of satellite litigation, and therefore legal uncertainty.

The decision in O'Grady

Master Thornett's decision in O'Grady has provided clarity. The underlying litigation was an action under the Law Reform (Miscellaneous Provisions) Act 1934 and the Fatal Accidents Act 1976. In April 2020 the defendant's solicitors made a Part 36 offer apportioning liability on a 60/40 basis in the claimant's favour. There was no formal admission in relation to primary liability. The claimant did not accept the offer, but the defendant did not withdraw it. Ten months later, the defendant formally conceded primary liability but stated that contributory negligence was a live issue. On 11 February 2021 the Claim was issued; on 23 February 2021 the claimant made an offer that stated:

“The Claimant offers to resolve the issue of liability of on 80/20 basis. For the avoidance of doubt if the Defendant accepts this offer it will only be required to pay 20& of the Claimant's damages.”

  The defendant's solicitor accepted the offer promptly the following morning at 10:02. The claimant replied by email at 10:12 to clarify that the email had intended to state an 80/20 split in their favour. On 2 March 2021 the claimant issued an application for permission to withdraw her offer or to change its terms under CPR 36.10(2)(b).

At the hearing, the claimant contended that the mistake was obvious as the offer made no sense. The claimant did not however submit that any  mistake by a party making an offer under Part 36 should result in an agreement being void. The defendant on the other hand argued that Part 36 is a self-contained code and therefore there can be no basis for importing unilateral mistake principles in the absence of clear intention in the drafting of that part of the CPR. The defendant made comparisons with cases concerning the Low Value Personal Injury Portal as an example of a self-contained scheme (much like the arguments in Sykes Seafoods), but Master Thornett considered that the operation, application, and effect of Part 36 was different from the RTA Protocol or the Fixed Costs regime.

Master Thornett held that the common law doctrine of mistake can apply in cases where an obvious, clear mistake has been made and this is appreciated by the Part 36 offeree at the point of acceptance. He considered that Part 36 is not as “hermetically sealed” as some lawyers contend. It was implausible that the claimant truly intended to compromise her claim for 20% of its value especially since the defendant had previously made an offer of 60:40 in her favour. Master Thornett relied on Flynn  with its emphasis on CPR r1.1. Nothing about Part 36 being self-contained excluded the application of mistake, but in fact, CPR Part 36 was “entirely compatible with a procedural code that is intended to have clear and binding effect but not at the expense of obvious injustice […] the Overriding Objective still has application”.

Practical implications

O'Grady is an important decision on CPR Part 36 because it finally crystallises the legal conundrum regarding mistake and provides a useful precedent for parties looking to retreat from unfortunate errors. The test for what constitutes an “obvious” mistake remains the same as in OT Africa Line Ltd. What is an “obvious” mistake is always going to be a subjective judgement and – as Sykes  illustrates, what the court considers to be an obvious mistake, is difficult to predict.

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.