CPR 36 offers: the validity of service and the determination of whether the 99% Claimant Part 36 offer was genuine (London Trocadero (2015) LLP v Picturehouse Cinemas Ltd & Ors)

Background

A cinema has been told that it cannot defend a claim for payment of rent arrears and service charges on the basis that it was required by law to close during the Covid pandemic.

The first defendant was the current tenant and the claimant was the current landlord under two leases. The second defendant was the original tenant under the first lease and the third defendant was the guarantor under both leases. The landlords, London Trocadero, brought a claim against the current tenant, the original tenant and the guarantor for £2.9m in unpaid rent and service charges on a cinema, which had not been paid since 2020.

As a result of the pandemic regulations, the cinema was forced to close down and therefore they suffered a loss of trade and income. The cinema remained closed for long periods of time and when it eventually reopened, the takings were only a fraction of their pre-pandemic income.

Defective Part 36

During the case, the Claimant made a Part 36 offer amounting to 99% of the claimed damages, in a genuine attempt to settle. The Claimant also believed that there was no realistic prospect of the claim being successfully defended. The defence centred around the unforeseeable and unprecedented nature of the pandemic and the impact to the interpretation of any lease.

The Claimant obtained a Judgment which was as advantageous as the terms of the Part 36 offer. Although this was not disputed, the Defendants argued defective service of the Part 36 which therefore rendered the offer invalid. It was argued the Claimant had not verified that the Defendants’ solicitors  were willing to accept service by email, as required by Practice Direction 6A. The counter argument was this did not render the offer invalid under the provisions of CPR r. 3.10, which provides that;

“where there has been an error of procedure such as a failure to comply with a rule or practice direction –

(a) the error does not invalidate any step taken in the proceedings unless the court so orders; and

(b) the court may make an order to remedy the error”.

Outcome & Costs Consequences

At the trial the Judge agreed that the Part 36 offer could be treated as effective and relied upon Philips v Symes (also known as Philips v Nussberger) [2008] 1 WLR 180. The Judge accepted that failure to comply with rules of service in CPR 6 should not be taken lightly and further, there was “no reason […] put forward by the claimant as to why the rules were not followed” but “It was clear the defendants’ solicitors received the Part 36 offer”.

The judge further commented that the defendants had suffered no prejudice and further that no complaint had been raised regarding service until shortly before the hearing on 3 November, long since the offer expired. In conclusion, the Judge cited that to invalidate the Part 36 offer, it would be a “triumph of form over substance”.

With the Court ruling that the Part 36 was not defective, the consequences of CPR. 36.17(4) must be considered. The claimant would be entitled to interest together with indemnity costs, however how would the Court consider the circumstances and how would the factors of CPR 36.17(5) (“whether the offer was a genuine attempt to settle the proceedings”) influence the decision?

The Defendant had offered to pay the outstanding rent & service charges owed, however they disputed the interest of around £8,000 (this was on the eve of a further lockdown and when many landlords were already agreeing to waive or defer unpaid rent). They argued that the Claimant’s offer “was not a genuine attempt at settlement” as it represented a total of 99% of their claim.

The Judge agreed with the Claimant’s submissions, in that they offered to accept an amount for the rent owed but without interest. The Claimant argued either the “rent was due in full, or it was not”. The claimant had conceded interest for the Part 36 offer which it was deemed there was a certainty of obtaining, so the offer was a “genuine attempt to settle”. It was quite clear “the defendants were able to pay the rent but had simply chosen not to do so in order to preserve liquidity”.

With that being determined and the Judge also not invoking CPR Rule 3.10 in that the Part 36 offer had not been validly made, it was “unjust to award the claimant the maximum available under CPR Rule 36.17”. In reaching a decision, the Judge relied on two factors regarding what costs should be awarded. The first was whether the consequences set out in CPR 36.17 should apply to the entire sum awarded to the claimant and to the entirety of the costs, or whether these should be applied to the part of the claim to which the Part 36 offer related. The second was whether it would be unjust to award the sum of £75,000.00 provided under CPR 36.17(4)(d) as “all or nothing”, or whether the Court could award a lesser amount. After considering these points further and listening to arguments from leading counsel for the Claimant and Defendant, on the first point he awarded the Claimant their costs on an indemnity basis from the expiry of their offer. On the second point, he expressed his view that the Court does not have the power to order the Defendant to pay a lesser amount – rather only having a choice to award the full amount or nothing at all.

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Published 17.02.22