Costs News

01 August 2018
go back

Part 36 offer invalid for referring to additional claim mooted but not approved by court

A purported part 36 offer did not comply with the rule because it referred to an additional claim which had been mooted but not approved by the court, the Court of Appeal has decided.

In Hertel and Anor v Saunders and Anor [2018] EWCA Civ 1831, the original claim form sought a declaration that there was a partnership or joint venture between Mr Hertel and Mr Saunders, which was denied by the defendants.

The claimants indicated that they wished to serve amended particulars of claim, which added a new claim for a declaration that there was an agreement between the pair under which the defendants were to account to the claimants in relation to certain matters.

In a letter on 30 July 2014, the defendants did not object to this amendment, while saying the claim was denied. A few months later, they made a part 36 offer, which was predicated on its contention that the original claim would fail.

The claimants accepted the offer on the basis that it settled the proposed additional claim, and said they would abandon the rest of it.

Before Deputy Master Lloyd, the claimants said that, pursuant to part 36, they were entitled to the costs of the new claim and of the original claims that had been abandoned. The defendants said the claimants should pay their costs because the agreement which was the subject of the proposed amendment had never been denied, while the costs of the proceedings had been incurred in respect of those claims which had been abandoned by the claimants.

The deputy master ruled that the defendants did not have to pay the claimants' costs of the proposed amendment. But, because the claimants had accepted the part 36 offer, he said rule 36.10(2) (as was) entitled the claimants to their costs of the abandoned claims to the date of acceptance.

On appeal, Mr Justice Morgan upheld the defendants’ argument that the offer was not compliant with part 36. He read the July 2014 letter as saying the defendants did not consent to the additional claim but that the question of permission to make the amendment was to be the subject of a court hearing.

Therefore, the additional claim was not part of the claim at the time the offer was made. He set aside the order of the deputy master and ordered that, as the defendants were the successful party, the claimants should pay their costs of the abandoned claims.

On second appeal, the key issue was the meaning of the words “claim or part of [a claim] or an issue” in part 36.

Lord Justice Coulson – giving the unanimous ruling of the Court of Appeal – said the claimants’ strongest argument was around the fact that a part 36 offer could be made at any time, including before the commencement of the proceedings. So they argued that 'claim', 'part of a claim' or 'issue' should not be construed by reference to the pleadings after commencement either.

The judge said: “I consider that there are two flaws in that argument. First, the position pre-commencement is inevitably different to that which exists after commencement of proceedings. Once proceedings have started, there are pleadings and procedural rules designed to regulate the proceedings in a fair and efficient way.

“In a dispute like this, about the application of part 36 after commencement, it would be wrong in principle to construe the rules in a way that ignored the certainty and clarity which they provide, and to approach the words in rule 36.10(2) as if the proceedings had not yet begun.

“In effect, the claimants' argument assumes that there may be no or little clarity pre-commencement, so that at that stage a claim/part/issue might be referable to any kind of communication, and then seeks to say that the same must apply after commencement as well. In this way, any certainty and clarity imposed post-commencement by the CPR (particularly by the pleadings) would be lost. In my view, that cannot be right as a matter of principle.

“Secondly, I do not accept the assumption (that there will be a lack of clarity pre-commencement about the claims being made) in any event. These days, in respect of most kinds of claim, the pre-commencement period will be taken up with the pre-action protocol process… In this way, claims/parts/issues are therefore not nearly so difficult to identify before commencement of proceedings as the submission presupposed.”

Coulson LJ went on to construe the words 'claim', 'part of a claim'; and 'issue' as referring to pleaded claims, parts of claims or issues only, and “not other claims or issues which may have been intimated in some way but never pleaded”.

It did not matter that the defendants' solicitors had indicated that they would not oppose the amendment, he continued. “It could not be a claim within the rule until the amendment was allowed: that was doubtless part of the reason why the claimants were seeking to amend the particulars of claim in the first place… There is plainly a difference between consenting to an amendment, on the one hand, and indicating a future intention not to oppose an application to amend, on the other.”

Coulson LJ added: “More widely, it seems to me that this approach to interpretation is consistent with the particular status of part 36. It is a prescriptive regime which can have draconian consequences for those who fail to comply with it. That tends to suggest that the court should be wary of liberally construing the rules within part 36 simply to achieve what might appear, at first glance, to be a pragmatic answer on the facts of a particular case.”

He also said that, even if he had found that the offer had complied with part 36, it would have made no difference to the outcome. “Under [the old] rule 36.10(2), there is a gentle steer that the appellants should recover their costs of the proceedings but… the court had a wide discretion to order otherwise. In my view, the reasoning set out by Morgan J, in which he explains in detail why the defendants are the successful party, is unassailable. It applies whether or not the part 36 offer was legitimate.”

Mark Smith (instructed under the Direct Access Scheme) for the appellants. The respondents did not appear and were not represented.

 

 

Comments

There are no comments. Why not be the first?

Add your comment

 
go back