Changing the effect

Litigators beware – open conduct in litigation could change the effect of a Part 36 offer, warns Alan Tunkel

Can an offer made under Part 36 of the Civil Procedure Rules be impliedly withdrawn or impliedly changed to become less advantageous to the offeree?

Part 36 is a statutory code and r.36.9(2) requires that written notice of any withdrawal or change of terms of the offer must be served on the offeree. Since the Court of Appeal decision in Gibbon v Manchester City Council and LG Blower Specialist Bricklayer Ltd v Reeves and another [2010] EWCA Civ 726, [2010] 1 WLR 2081, litigators have understood that Part 36 leaves no room for the concept of implied withdrawal; it requires service of express notice in writing in terms which bring home to the offeree that the offer has been withdrawn. And the same should apply regarding a change of terms. Accordingly, events which occur during the conduct of a case that might strengthen or weaken, enlarge or diminish a party’s claim or defence would not operate impliedly to withdraw or change the terms of a Part 36 offer. However, this understanding may now have to change following the recent decision of the Court of Appeal in Littlestone and others v MacLeish [2016] EWCA Civ 127. Although the facts of Littlestone were indistinguishable from those of Blower, the Court of Appeal reached an opposite conclusion.

Both cases involved multi-item debt claims. In Blower, C was a builder claiming payment for works. In Littlestone, C was a landlord claiming the cost of remedying dilapidations. In both cases, D made a Part 36 offer of a sum in full and final settlement of the claim (‘the offer sum’) and subsequently openly admitted part of the claim and paid C in respect of those admissions (‘the admissions payment’). In neither case did D serve notice withdrawing or changing his Part 36 offer, therefore leaving it open for acceptance by C. In such a situation, should one say that the Part 36 offer remained open for acceptance by C in the offer sum, so that if subsequently accepted, C would receive the offer sum, in addition to the admissions payment previously made? Or should one say that the admissions payment is to be treated as a part payment of the offer sum, so that if C subsequently accepted the Part 36 offer he would receive only the offer sum minus the admissions payment, in addition to the admissions payment previously made?

Blower: offer cannot be changed

In Blower the district judge had held that the admissions payment should be treated as a part payment of the offer sum, thereby reducing the value of the Part 36 offer if subsequently accepted. However, on appeal the Court of Appeal held that the district judge had been wrong. Moore-Bick LJ, who delivered the leading judgment and was at the time a member of the Civil Procedure Rule Committee and Deputy Head of Civil Justice, said that the admissions payment had left the offer sum under Part 36 unchanged and thereby made it more attractive, since it was the value of the claim that had been reduced by the admissions payment. In his own words:

‘Since the plumbing bill was still outstanding when the May [Part 36] offer was made, the district judge was wrong to deduct it when considering the value of that offer. The effect of paying the plumbing bill was to reduce the value of the claim against Mr and Mrs Reeves by £649.36 and to that extent it made the May offer, which they left open for acceptance, more attractive.’

Although strictly this part of his judgment was obiter, since C had beaten the offer sum plus the admissions payment in any event, it was an application of the guiding principles he had set out earlier in his judgment which formed part of the ratio of the case.

Littlestone: offer can be changed

However, in Littlestone the Court of Appeal has now ruled that the district judge in Blower had been correct after all and that it had been Moore-Bick LJ (and his fellow LJJ Carnwath LJ and Sir Anthony May P) whose obiter dicta had been wrong. Briggs LJ, with whom Black and Gloster LJJ agreed, held that the admissions payment should be regarded as a part payment of the defendants’ Part 36 offer sum. This was most unfortunate for the defendants in Littlestone, who had relied on Blower and thought they had given themselves costs protection equal to the admissions payment plus the offer sum by: (i) making a Part 36 offer of the offer sum in full and final settlement; (ii) making the admissions payment during the ‘relevant period’ for the claims they openly admitted; (iii) leaving their Part 36 offer open for acceptance with no suggestion that the offer sum had been changed or withdrawn; and (iv) some months later (promptly after the issue had been raised by the claimant) and well before the trial, writing to the claimant making it clear that the Part 36 offer remained unchanged and open for acceptance in the offer sum. At trial, the claimant had been awarded less than the admissions payment plus the offer sum but more than the offer sum. If Blower were correct, the defendants would have been entitled to all their costs from the end of the relevant period. But Littlestone held that Blower was wrong and accordingly that it was the claimant who was entitled to all his costs from the defendants.

In Littlestone, Briggs LJ said:

‘For my part, I cannot see what was wrong with the district judge’s approach. The plumbing item formed part of the claim which Mr and Mrs Reeves offered to settle by their May offer. If the claimant builder had accepted that offer after payment of the plumbing item, he would in my view have been obliged, and Mr and Mrs Reeves entitled, to take the payment of the plumbing amount into account. Since the district judge deducted the plumbing amount from the amount for which he would otherwise have given judgment, I find it difficult to fault his view that the value of the Part 36 offer should have been similarly discounted, when comparing it with the value of the judgment.’

Whilst this analysis was entirely logical, its effect was to change the terms of the Part 36 offer by implication, so they became less advantageous to the claimant without any written notice having been served on the claimant in compliance with (the then) r.36.3(6) and (7).

Fundamental difference in principle

This illustrates the fundamental difference in principle between the Courts of Appeal in Blower and in Littlestone. According to Blower, the Part 36 offer cannot be withdrawn or changed save in accordance with the statutory code, which requires express written notice and, during the ‘relevant period’ permission from the court, (then r.36.3(5)-(7), now r.36.9 and 36.10). Whereas according to Littlestone it can be changed, without any notice, by events in the conduct of the litigation. In Littlestone that event was the defendants’ admissions payment. However, there are other events that could occur that could produce similar consequences (see list, below).

These are just a few examples of the many situations where events in the conduct of the litigation could change the effect of a Part 36 offer – if the reasoning applied by Briggs LJ in Littlestone were applied equally elsewhere and the certainty desired by Moore-Bick LJ were lost. How the courts will deal with such situations remains to be seen but in the meantime, litigators should be astute to the possibility that events in the litigation might have changed the effect of a Part 36 offer and should be prepared to write to the other party giving or seeking clarification.

Contributor Alan Tunkel, 3 Stone Buildings 

Effect-CHANGING events: FIVE SCENARIOS

  1. Suppose that after D had made a Part 36 offer of £50,000 in full and final settlement of the claim, C amends his claim to withdraw part of it valued at £10,000. Is D’s costs protection subsequently £50,000 or £40,000? So if C subsequently decides to accept the Part 36 offer, would he be entitled to receive £50,000 or just £40,000?
  2. After C had made a Part 36 offer to accept £50,000 in full and final settlement of the claim, C amends his claim to withdraw part of it valued at £10,000. Is C’s costs protection subsequently £50,000 or £40,000?
  3. There are two defendants, D1 and D2. After D1 had made a Part 36 offer of £50,000 in full and final settlement of the claim, D2 admits liability and settles C’s claim against him alone for £10,000. Is D1’s costs protection thereafter £50,000 or £40,000?
  4. Suppose that the order of events in Blower and Littlestone were reversed, so that D admitted and paid C £10,000 before making a Part 36 offer of £50,000 in full and final settlement of the claim. Would D’s costs protection thereafter be £40,000 or £50,000?
  5. After D had made a Part 36 offer of £50,000 in full and final settlement of C’s claim, C amends his Particulars of Claim to add a specific new claim for an extra £10,000. Does D’s Part 36 offer cover both the old and the new claims or does it cover only the old claim, so that D would need to make a further Part 36 offer in respect of the new claim?

 

PART 36: IN A NUTSHELL

Part 36 of the Civil Procedure Rules has largely replaced payments into court, Calderbank offers, and many offers made ‘without prejudice save as to costs’. 

In the words of Moore-Bick LJ in Gibbon and Blower: ‘Part 36 is drafted as a self-contained code. It prescribes in some detail the manner in which an offer may be made and the consequences that flow from accepting or failing to accept it.’ One of the rules in this code was that the offeror could withdraw the offer or change its terms to be less advantageous to the offeree only by serving written notice on the offeree and, if this were during the ‘relevant period’, this required the court’s permission. Later in his judgment, Moore-Bick LJ explained that Part 36 ‘leaves no room for the concept of implied withdrawal; it requires express notice in writing in terms which bring home to the offeree that the offer has been withdrawn. If justification for that requirement is sought, it can be found once again in the need for clarity and certainty in the operation of the Part 36 procedure.’ 

Accordingly, litigants following this guidance could be reassured that matters arising in the conduct of the litigation, whether in correspondence, in statements of case or in court, would not be treated as impliedly withdrawing or changing a Part 36 offer. To hold otherwise would, as Moore-Bick LJ explained, be ‘inconsistent with the concepts underlying Part 36, which proceeds on the footing that the offer is on the table and available for acceptance until the offeror himself chooses to withdraw it. There are good reasons for that. An offer which appears unattractive when made, and which is therefore rejected, may become more attractive as the proceedings progress and the parties reassess the strength of their respective cases. A defendant who chooses to leave his offer on the table may tempt the claimant into accepting it, with the benefit to himself of the consequences for costs of an offer made at an early stage.’ 

Part 36 was amended with effect from 6 April 2015 by the Civil Procedure Rule Committee. Notably, neither leading counsel nor Briggs LJ had suggested in argument in Littlestone that Moore-Bick LJ in Blower had been wrong. Although the decision in Littlestone was based on the old Part 36, similar provisions can now be found in r.36.9 and r.36.10 of the current Part 36.

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Alan Tunkel

Alan is a barrister in the commercial chancery chambers of John McDonnell QC at Three Stone, 3 Stone Buildings