Kerry Underwood

PART 36: OFFER INCLUDING TERMS AS TO COSTS IS NOT A VALID PART 36 OFFER

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The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

In

Knight & Anor v Knight & Ors (Costs) [2019] EWHC 1545 (Ch) (17 June 2019)

the Chancery Division of the High Court held that a purported Part 36 offer which attempted to limit costs was not a valid Part 36 offer.

The court set out the terms of the offer in paragraph 3 of its judgment:

The offer

3.The letter of 27 July 2017 is headed “Part 36 Offer: Without Prejudice Save As to Costs”. The substance of the letter reads as follows:

“Following Monday’s failed mediation (in respect of which privilege is not waived) we are instructed to make the following offer.

The offer is made pursuant to CPR Part 36. As such, if it is not accepted within the relevant period (see below) but is (without having been withdrawn) later accepted then your client will be liable to our clients’ costs. If Administrators succeed in obtaining a greater sum at trial then your clients will be liable to our clients costs on the indemnity basis and with interest thereon at a rate not exceeding 10% above base rate together with the additional sum set out in CPR 36.17(4)(d).

The offer is to pay, from the net proceeds of sale of Close Court, the sum of £35,000. This sum is inclusive of your clients’ costs, which we understand to be under £20,000. The offer also excludes any payment by your client of our clients’ costs, which as you also know are around £30,000.

The remainder of the net proceeds will be paid to our client as the administrators of Steven Knight’s estate.

 Pursuant to CPR Part 36:

  • The relevant period means a period of not less than 21 days from the date of this offer.
  • The offer is made in respect of the whole claim over the net proceeds of Close Court

This offer will remain open until it is expressly withdrawn but the court’s permission will be required to accept it where any of 36.11(3) applies.””

The defendants’ solicitors responded to that letter, also marked “Without Prejudice Save As to Costs” saying that the offer “does not make sense in accordance with Part 36, as it refers to the sum of £35,000 being inclusive of our clients’ costs…”

This exchange took place before proceedings were issued and therefore before the form of the future proceedings, if any, was known, and before it was known who would be the claimant and who would be the defendant.

For example, the claimant could have been a stakeholder under CPR Part 86, brought by the conveyancing solicitors in whose client account the funds were still sitting or, as in fact it turned out to be, a claim brought by one set of claimants to the fund against the other and in those circumstances who was the claimant and who was defendant depended upon who initiated the claim.

At trial the judge decided that the net sale proceeds of £204,000 belonged beneficially to the claimant, who had thus clearly beaten its own offer and the issue now concerned the costs consequences of that set of facts.

The defendants argued that the offer was not a valid Part 36 offer, as it contained terms as to costs.

The defendants relied on the decisions of the Court of Appeal in

 

Mitchell v James [2004] 1 WLR 158,

and

French v Groupama Insurance Co Ltd [2011] 4 Costs LO 547, [2012] CP Rep 2 .

 

In Mitchell the claimants offered to settle proceedings on the basis that each party bear its own costs and the Court of Appeal held that that could not be capable of being a Part 36 offer.

In the French case the defendant relied on offers made before proceedings were issued to cover the entirety of the claimant’s claims, “inclusive of interest and costs”.

The court there also held that such an offer, inclusive of costs, could not be a Part 36 offer.

The claimants held that notwithstanding these authorities a person making a Part 36 offer may still include terms in the offer which limit payment of its own costs by the paying party.

The claimant relied on the decision of the High Court in

Proctor & Gamble Co v Svenska Celluslosa AB SCA [2013] 1 WLR 1464 .

In that case the claimant made a Part 36 offer including the terms that the claimant would be liable for the defendants’ costs up to the date of acceptance and the judge held that it was open to a claimant making a Part 36 offer to agree to forsake its entitlement to costs on acceptance of the offer and instead to pay the defendant its costs, and therefore the claimant’s offer was complied with Part 36.

Here, the High Court held that even if Proctor & Gamble applied on the facts, the court could not follow it as it contradicted the Court of Appeal authority in Mitchell and French and indeed the claimant’s offer here was “ materially indistinguishable” to that in French.

In the Proctor & Gamble case the judge considered the decision of the Court of Appeal in

F & C Alternative Investments (Holdings) Ltd v Barthelemy (No 3) [2013] 1 WLR 548 .

The F&C case involved an offer to settle which had been deliberately and expressly stated to be “outside the terms of Part 36”.

Nevertheless, the successful party sought to apply Part 36 by analogy to get the consequences that flow from a Part 36 offer, and Part 36 itself says that the court must take into account any non-Part 36 offer.

In F & C the Court of Appeal held that there was no reason or justification for extending Part 36 beyond its express ambit and said:

“[63] … in my view it is not permissible wholly to discount a number of failures to comply with the requirements of CPR Part 36 as the merest technicality. Perhaps there can be de minimis errors or obvious slips which mislead no one: but the general rule, in my opinion, is that for an offer to be a Part 36 offer it must strictly comply with the requirements.”

The court when on to say here

“It is, however, to be noted that Mitchell v James was not cited to the Court of Appeal in F & C Alternative Investments nor to Hildyard J in Proctor & Gamble. On the other hand, French v Groupama was briefly discussed, albeit in a different connection, by Davis LJ (at [65]) in the Court of Appeal in F & C Alternative Investments (but was not cited to Hildyard J in Proctor & Gamble).”

In Proctor & Gamble the court said:

“47. In my view, the issue in the F & C case was really whether an offer accepted not to be within Part 36 could be given, by analogy, the same consequences as would have followed if it had been compliant and intended to be so. Here, the issue is whether CPR 36.2(2), and thus the gateway to CPR 36.10 and 36.14, is to be so strictly construed that it requires (by rule 36.2(2)(c)) the offer made to provide for the defendant to be liable for the claimant’s costs even if the claimant expresses his offer to be a Part 36 offer, but as part of that offer, agrees to forsake that entitlement and instead pay the defendant his costs. Put another way, I do not accept that it is impossible for a claimant to comply with Part 36 unless he requires to be paid his costs and such payment to be made within a period of not less than 21 days.

48. As it seems to me, such a strict construction would tend to undermine a central objective of Part 36, identified by Davis LJ himself as being to encourage claimants to make sensible offers and provide an inducement to defendants to accept them lest otherwise they be exposed to the consequences provided. That objective would be advanced, not undermined, by reading CPR36.2(2)(c) as requiring a claimant who seeks his costs to specify a period of not less than 21 days within which the defendant will be liable to pay them, but not as mandating that the claimant must seek costs and make payment of them a condition of his offer.

49. I do not myself see why such a purposive approach to construction should not be available in the context of Part 36, as it is in the context of statutes and contracts and other instruments (subject, of course, to well-known limitations). Nor do I see that such an approach is precluded by the judgment of Davis LJ in F & C: this is not a matter of applying Part 36 by analogy; and the strict compliance required is of the statutory provision properly, and, if appropriate, purposively, construed.”

Here the court said that it understood the court in Proctor & Gamble to be saying that it is still possible to comply with Part 36 by including in the offer a terms as to costs, provided that that term reduced the burden on the paying party that would otherwise be imposed as a consequence of accepting the Part 36 offer, rather than increasing it.

In other words if the person making the offer was giving a concession to the paying party, then that did not invalidate the Part 36 offer.

The court here held that that was an incorrect statement of the law and was inconsistent with the decisions of the Court of Appeal in both the  Mitchell and French cases and “Accordingly, I hold that this offer is not a Part 36 offer, and therefore does not have the costs consequences of such an offer.”

Here, obiter, the court rejected the defendant’s argument that the claimant’s offer was not compliant with Part 36 in any event, because when made, the format of the future proceedings was unknown and it was uncertain whether the party making the offer would be the claimant or defendant.

The court said that once proceedings were issued, then whether a party was the claimant or the defendant would affect the consequences flowing from the offer, as Part 36 provided for different consequences depending on whether the person making the offer was the claimant or the defendant.

The court when on to say, obiter, that had Part 36 applied, then the claimants would have got the costs consequences under CPR 36 as the judgment which the claimants obtained was more advantageous to the claimants than the proposals contained in their offer.

However, the sum of £204,000 being the net proceeds of the sale of the property held by the conveyancing solicitors, was not a “sum of money awarded” in CPR 36.17(4)(a) nor a “sum awarded to the claimant by the court” as per CPR 36.17(4)(d).

Rather, what the court had ordered was that the ownership of an asset belonged to the claimant and this was based on trustee – beneficiary relationship and not a debtor – creditor one.

Consequently, had Part 36 applied, enhanced interest under CPR 36.17(4)(a) would not have been awarded and the additional amount under CPR 36.17(4)(d) would have been calculated by reference to the costs awarded to the claimant, and not by the value of the property of £204,000.

That followed from the terms of CPR 36.17(4)(d) which states in part:

“… an amount which is

(i) the sum awarded to the claimant by the court; or

(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs…”

Thus, here, the court found that there was no “monetary award”.

The court also rejected the claimants’ argument that the defendants’ failure to accept a non-Part 36, but reasonable, offer should mean that the claimants should get indemnity costs as though they had made a valid Part 36 offer.

“31. …A mere failure to accept a reasonable offer is not enough. That happens every day of the week, with both parties acting reasonably and in accordance with the advice that they are receiving from their professional advisers. So if the matter is to be taken “out of the norm” there must be something more, something which prompts the court to visit the paying party with a special mark of condemnation. I see nothing of that kind here. In my judgment it is appropriate to order the defendants to pay the claimant’s costs on the standard basis.”

 

Comment

This decision, correct in every respect in my view, is another illustration of the complexity of Part 36.

It also reinforces the point that part is making and what they think of Part 36 offers should use the standard form N242A and never depart from it.

I see a huge number of apparently Part 36 offers made in emails, which are simply not compliant with Part 36.

When it comes to Part 36, reinventing the wheel is a very dangerous thing to do.

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Written by kerryunderwood

July 2, 2019 at 9:15 am

Posted in Uncategorized

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