The Perils of Part 36 of the Civil Procedure Rules

In recent years the Courts in England and Wales have sought for ways to encourage litigants to resolve their disputes more quickly and cheaply than would be the case if the disputes were allowed to go to a contested trial before a judge. To this end, two particular methods have been adopted. Firstly, the Courts encourage litigants to attempt alternative dispute resolution, typically mediation, to try to achieve a commercial compromise, saving costs and eliminating risks. Secondly, there has been the mechanism of offers to settle made pursuant to the Civil Procedure Rules, Part 36.

In principle, offers made to settle pursuant to CPR Part 36 are “a good thing”. The rule enables Claimants to make offers to settle claims (previously, this was not done). Also, there are incentives to the parties to try to settle proceedings on the basis that, pursuant to CPR 36.14, if a Claimant fails to obtain a judgment at trial more advantageous than a Defendant’s Part 36 offer, or if a judgment against the Defendant is at least as advantageous to the Claimant as proposals contained in the Claimant’s Part 36 offer, serious financial consequences may result. The paying party may be obliged to pay interest at a rate not exceeding 10% above base rate on all or part of any sum of money awarded by the judgment. The successful party may recover costs on the indemnity basis (i.e., recoverable 100% in full) from a date three weeks after the making of the Part 36 offer which has been “beaten” at the trial.

Unfortunately, the wording of Part 36, which has changed on a number of occasions since it was first introduced, is not readily comprehensible. There have been a number of cases related to questions such as:

  • Has a Part 36 offer “expired” so that it is no longer capable of acceptance?
  • Can a party delay accepting a Part 36 offer for many months and then, to the surprise of the offeror, accept the offer in circumstances where the offeror’s view in the matter was that the Part 36 offer was no longer capable of being accepted?

In the interesting Court of Appeal case of CvD, [2011] EWCA Civ 646, Lord Justice Rix wrestled with the interesting question of what a purported CPR Part 36 offer that was expressed to be “open for 21 days” should be taken by the Court as meaning. To the reasonably intelligent lay person, an offer that is “open for 21 days” means that after a period of 21 days from the date of its being made, it is no longer available to be accepted by the offeree. However, this was not the construction placed on the phrase by the learned judge. He pointed out that by CPR 36.2 (2)(c), the offeror must “specify a period of no less than 21 days within which the Defendant would be liable for the Claimant’s costs in accordance with rule 36.10 if the offer is accepted;…”

The judge pointed out (echoing the words of MoorevBick LJ in another case) that Part 36 is a carefully structured and highly prescriptive set of rules dealing with offers to settle proceedings and that there are specific consequences in relation to costs where the offer is not accepted and the offeree fails to do better after a trial.

He said that it was important not to mix up common law concepts of offer and acceptance (by which a rejected offer cannot subsequently be accepted by the offeree) with the complex structure of Part 36. In short, rejecting a Part 36 Offer does not mean that the offeree cannot change his mind and accept it subsequently should he decide to do so. This may have profound and unexpected consequences for the offeror.

If an offeror does not wish to run the risk that his Part 36 Offer might be accepted, he must give notice in writing to the offeree that the Part 36 Offer is withdrawn. Until the offer is withdrawn, it remains open for acceptance at any time by the offeree.

In the CvD case the Claimant made an offer in writing on 10 December 2009. The offer was put in two ways, one of which was that the Claimant would accept a payment of £2 million to settle the claim. Since it was expressed to be “open for 21 days”, the Claimant’s solicitors presumably were proceeding on the basis that in the absence of acceptance by the offeree, the offer would automatically lapse on or about 31 December 2009. There was an email exchange between the solicitors towards the end of December 2009 but, in the short term, no agreement was made.

However, on 5 November 2010, only three and a half weeks before the date fixed for trial, the Defendant accepted the Claimant’s offer made 11 months previously. The acceptance probably came as a surprise to the Claimant and his solicitors. Nevertheless, by an interesting 68 paragraph dissertation, and the invocation of the maxim of construction, “verba ita sunt intelligenda ut res magis valeat quam pereat” (words should be understood in such a way that the meaning given to them is effective rather than ineffective), Rix, LJ, decided that the Part 36 Offer could be accepted albeit nearly 11 months after it was made.

Postscript:

Although the other two Lords Justice in the Court of Appeal agreed with the decision of LJ Rix, it is clear that both of them had some trouble squeezing the phrase “open for 21 days” into the construction adopted by him. In the court below, Mr Justice Warren suggested that an offer “open for 21 days” must be a time limited offer. He said, “What else, it might be asked, could those words mean?” In the Court of Appeal, Stanley Burnton, L J remarked that “my suspicion [is] that he [Warren J.] may well have correctly identified the objective intention of the Respondent”.


Disclaimer

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