PART 36: A Round Up of Recent Developments by Rachel Baker

I often explain to clients that, contrary to popular opinion, much of a lawyer’s time is spent advising people on how to keep out of court rather than encouraging them into it.  If nothing else, and as any lawyer worth their fee knows, the courts have in recent years placed increasing emphasis on dispute resolution away from the courtroom and parties are expected to demonstrate active attempts to negotiate and resolve their differences.

Part 36 of the Civil Procedure Rules, introduced as just one part of the sweeping civil justice Woolf Reforms of 1999, is one of the most important tools at the courts’ disposal to get parties to settle disputes at an early stage of proceedings (and even before).  A self-contained set of rules, Part 36 has since the early days of the CPR become increasingly complex and, some might say, wieldy.  Indeed, the costs incurred by parties arguing over the interpretation and application of Part 36 in some cases has eclipsed the value of the initial claim.

As with much of the CPR, Part 36 has been amended and expanded a number of times and this, coupled with the number of reported cases on the subject, means that it is crucial for practitioners to keep abreast of developments.  Whilst dispute resolution is the aim, a badly timed or drafted Part 36 offer can spell disaster for a client and add a new layer of litigation to a case.

There have in just the past few months been some important decisions from the courts regarding Part 36 Offers and yet further amendment is imminent.  In this article I will discuss three recent cases as well as summarising the latest update to Part 36.

Pallett v MGN:  Can Late Acceptance of an Offer Benefit the Offeree?

In January, Mr Justice Mann delivered an important judgment regarding the cost consequences of late acceptance of Part 36 offers.  In Pallet v MGN Limited [2021] EWHC 76 (Ch), the Defendant sought to exploit an apparent lacuna in the rules and argued that by doing so its cost liability to the Claimant was minimised.

The claim was one of the slew of “phone-hacking” cases that the High Court has seen in recent years.  The actress Claimant made a Part 36 offer of £99,500 on 20th October 2020, ahead of the libel trial listed in January 2021.  Pursuant to Part 36 the “relevant period” for acceptance was stated to be 21 days and in accordance with Rule 36.13(1) had the offer been accepted within that relevant period, the Defendant would have been liable for Ms Pallet’s costs up to the date of acceptance.

In a deliberate tactical move the Defendant accepted the offer on the 22nd day and argued that because of the late acceptance the costs, rather than being automatically awarded to the Claimant  under Rule 36.13(1), fell to be determined by the court in the absence of agreement (Rule 36.13(4)(b)).  Not only that but it was, said the Defendant, open to it to argue that it was “unjust” to award the Claimant her costs up to the date of acceptance and to seek a different costs order under Rule 36.13(5).  In essence, by accepting the offer outside of the relevant period the Defendant sought to utilise costs arguments that would not have been available had acceptance been just one day earlier.

The Defendant’s position was that the Claimant should not be entitled to any of her costs over the preceding 18 months, in part because of her alleged failure to engage in negotiation prior to October 2020.  The Defendant argued that this was one of the circumstances of the case which the court was obliged to take into account when considering whether it would be “unjust” to make it pay the Claimant’s costs (Rule 36.17(5)).

The Claimant argued that the mechanism of offer and acceptance was akin to a contractual agreement and that by accepting her offer the Defendant had implicitly accepted its liability to pay her costs.

The court rejected the Claimant’s argument.  Reiterating that Part 36 is a self-contained procedural code, the court determined that the Defendant was entitled to seek to take advantage of its provisions.  However, the Defendant was ultimately unsuccessful in its arguments because, so the court found, it was simply unable to discharge the “heavy burden” placed upon it to persuade the court that anything other than the usual costs consequences should apply.

Nevertheless the court was clear in its decision that

The one thing that an offeror would not expect is that the offeree can wait until the relevant period…has passed, accept the offer (and thus bind the offeror) and then seek to avoid the costs by asking the court to determine them.  The offeror will usually not think that that is an appealing option to have forced on him or her…Yet that seems to be the effect of CPR 36.13(4)…”

Whilst Mr Justice Mann, in his judgment, emphasised that parties should continue to enter into early negotiation and discussion the fact is that this case does confirm a potential loophole that parties might wish to exploit, and one that introduces an element of uncertainty into a procedural code that is intended, one assumes, to encourage settlement by providing certainty within the numerous mechanisms set out within Part 36.

If, however, a party is indeed able to respond tactically to offers to settle, and in doing so argue that their cost liability is less than it would be had they accepted the offer earlier, then parties may well be inclined to delay acceptance and chance their arm before the courts.  This seems a somewhat surprising consequence of the rules and one which may be revisited in the near future by way of amendment if not new caselaw.

Seabrook v Adam:  When Will a Liability Only Part 36 Offer be Effective?

In March, the Court of Appeal gave judgment in the case of Seabrook v Adam [2021] EWCA Civ 382 which arose from a road traffic accident and was a low value personal injury claim.  In a case where the costs involved in arguing about the costs will have far exceeded the value of the claim itself (only £1,574.50 was awarded in damages) the Court of Appeal considered the situation where a Part 36 offer on liability is made in a claim where causation is in dispute.

The Claimant had alleged that the Defendant had caused him both neck and back injuries and £10,000 in damages was sought.  Whilst fault for the accident was accepted causation was not and the Defence specifically stated that liability was in issue and that judgment could not be entered.  The Claimant made a Part 36 offer to accept 90% of the damages.  At trial, the Judge found that only the neck injury had been caused by the accident.

The Claimant argued that he had bettered his Part 36 offer because he had obtained 100% of the damages awarded to him (which of course all related to his neck injuries), as opposed to the 90% he had offered (for both the back and neck injuries).  The trial judge disagreed and found that the Defendant was not subject to the Part 36 cost consequences because overall it was the Defendant who had done better at trial.  The Court of Appeal agreed and also found that in practical terms the Part 36 offer had been incapable of acceptance because the Defendant would then have been prevented from arguing issues of causation.

Lady Justice Asplin determined that

“…[acceptance] would have meant that he had admitted liability for both the neck and the back injuries and he would not have been able to argue, subsequently, that he had not caused the back injury at all.  It follows that as he was only found liable in relation to the neck injury, he bettered [the offer]”.

The Judge also commented (at paragraph 29) that the offer appeared to have been an attempt on the part of the Claimant to be able to enter judgment against the Defendant despite the express denial in the Defence that such a step was available to the Claimant.  If, she determined, the Claimant’s argument was correct then

in any case where the Defendant was seeking to contest causation of an injury, the Claimant will be in a position to make an offer to effectively discount any damages that might otherwise be awarded in order to ensure that liability was entered and that causation could no longer be argued.

In helpful guidance to practitioners, Asplin LJ went on to state (at paragraph 22 of the judgment) that

“Cases of this kind turn, inevitably, on the precise wording of the pleadings and the particular terms of the Part 36 offer.  In order to avoid the kind of dispute which has arisen here, especially in a low value claim, it is important to make express reference in the Part 36 offer to whether the offer relates to the whole claim or part of it and/or the precise issue to which it relates…In particular, if the issue to be settled is “liability”, it would be sensible to make clear whether the Defendant is being invited only to admit a breach of duty, or if the admission is intended to go further, what damage the Defendant is being invited to accept was caused by the breach of duty”.

This case serves as a further reminder to practitioners of the need to draft Part 36 offers carefully and to avoid ambiguity, particularly where the offer does not take monetary form.

Kings Security Systems Ltd v King & Another:  Does Ambiguity Always Lead to Ineffectiveness?

In another case from March, the High Court was tasked with considering the terms of reference of a Part 36 offer in a case where a staggering £2 million was spent pursuing a judgment worth only £40,666.47.  In Kings Security Systems Limited v King & Another [2021] EWC 653 (Ch) the Claimant had at trial, bettered its Part 36 offer of £30,000 but was then faced with the Defendant’s argument that the offer had been invalid due to an ambiguity in its drafting.

Kings Security (KSSL) had brought proceedings against one of its former Directors, alleging breach of duty.  The Defendant counterclaimed on grounds that KSSL had committed the tort of abuse of process in bringing an action for an improper purpose (the improper purpose being the intent to pressurise the Defendant into selling his shareholding in KSSL).

After success at trial, KSSL relied on a letter sent by email to the Defendant’s solicitor on 27th June 2019.  KSSL asserted that the letter was a Part 36 offer for £30,000 and that it took account of both the claim and counterclaim.  The offer referred to the usual 21-day “relevant period” but stated that “…if your client accepts this Offer within 21 days (the relevant period), being by 4pm on 19 July 2019 or any time thereafter, your client will be liable for our client’s costs, in accordance with CPR 36.13…

The Defendant, in arguing that the offer was not Part 36-compliant relied on two key points:  (1) the inclusion of the words “or any time thereafter” meant that the offer did not in fact specify a period and so did not comply with the requirement in Rule 36.5(1)(c) and (2) the offer had been sent by email on 27th June 2019 but, as the Defendant’s solicitor had never agreed to accept service by email, service was not effective until it was then received by DX on 1st July 2019 meaning that the “relevant period” expired on 22 July and not 19 July 2019.

The Judge rejected this argument and found, at paragraph 27, that

“…a reasonable recipient of the letter, knowing that the intention was to send a Part 36 offer, would have realised that the reference to 19 July was mistaken and that it was intended to refer to a 21-day period ending on 22 July.  The additional words “or at any time thereafter” did not deprive the Part 36 offer of its intended effect.  There is no requirement in Part 36 that acceptance of the offer must be time-limited.”

Interestingly the Judge also commented that had it been necessary to do so, he would have accepted the Claimant’s argument that the fact that the Defendant’s solicitor had acknowledged receipt of the 27 June 2019 email and asked for details of KSSL’s costs estopped the Defendant from subsequently arguing that service had not been affected on 27 June 2019.

Despite a relatively recent High Court ruling from Pepperall J in ECC v UBB Waste (Essex) Limited (No 3) [2020] EWHC 2387 that, to introduce arguments of estoppel into the sphere of Part 36 CPR would be to subvert the principle that it is a self-contained procedural code, in Kings Security the Judge held that in fact an estoppel argument could be raised on the service point as that did not offend the decision in ECC v UBB Waste “that rules of estoppel should not be introduced into the operation of the Part 36 regime”.

As can be seen therefore, in this case an arguable ambiguity in the Part 36 offer did not prevent the Claimant from taking advantage of the cost consequences available to it, but not without yet further expenditure on costs not to mention uncertainty for both parties.

Rule Changes in April 2021:  A New Rule 36.5(5)

The Civil Procedure (Amendment) Rules 2021 bring with them a new Rule 36.5(5) which will enable the offeror to include provision for interest to accrue after the end of the “relevant period”.

The new rule, which comes into force on 6th April 2021, will read as follows:

A Part 36 offer to accept a sum of money may make provision for accrual of interest on such sum after the date specified in paragraph [36.5(4)].  If such an offer does not make any such provision, it shall be treated as inclusive of all interest up to the date of acceptance if it is later accepted

What this effectively means is that an offer that makes no reference to interest will be taken to include interest up to the date it is eventually accepted and not just within the usual 21-day “relevant period”.  Parties wishing to make a Part 36 offer to accept a sum of money should therefore include specific provision, within the offer, for interest to accrue if the offer is accepted late or risk losing potentially large sums in interest as time goes on.

As can be see in this brief overview of some of the latest Part 36 developments, the potential pitfalls are numerous and the consequences potentially serious for both clients and their lawyers.  If assistance and advice is required, the civil team at 1COR Brighton are on hand both to advise on the drafting of Part 36 offers and to represent clients at contested costs hearings.

Rachel specialises in civil law and has a deserved reputation for her friendly and warm personality and excellent client care. Get to know her here.

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