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Making a Part 36 Offer or intending on challenging its compliance?

In the high stakes world of litigation, a good and genuine Part 36 offer is a royal flush. Unlike the generality of litigation remedies in England and Wales, Part 36 offers are designed to be deliberately punitive and biased in favour of the Claimant, although there is some benefit for the Defendant too.

In order to get the benefits that flow from Part 36 offers, the party making the offer must get the offer right. The Honourable Mr Justice Pepperall considered the ‘rightness’ and ‘wrongness’ of Part 36 offers, among other important issues, in Essex County Council v UBB Waste (Essex) Limited [2020] EWHC 2387 (TCC), and what to do when reality clashes with a literal interpretation of the Rules. The judgment deserves a series of articles and it is a recommended read, however, anyone making a Part 36 offer or intending on challenging its compliance should read this article.

In the Essex County Council case, it wasn’t clear whether the Council’s offer complied with CPR 36.5(1)(c), which is the requirement to allow a period of validity for the offer of not less than 21 days which is known as the “relevant period”. The offer was contained in a letter dated 07 March 2019 and stated that if the offer was accepted within 21 days of the date of the letter the Defendant would be liable for the Claimant’s costs up to the date of acceptance. The offer was sent by email on 07 March 2019 at 16:54, which was considered to be out of office hours, so it was deemed to have been served on 08 March 2019.

The offer otherwise complied with all other requirements in CPR 36.5(1).

The Defendant submitted that the offer did not comply with CPR 36.5(1)(c) because it did not allow the Defendant 21 days. It was the Defendant’s position that the 21 days ran from the date of the letter, i.e. 07 March 2019, and because it was only served on the Defendant on 08 March 2019, the Defendant was only allowed 20 days. Accordingly, the Defendant argued that the offer was not a valid Part 36 offer.

The Claimant submitted that the offer should be construed so that the 21 days ran from the date of deemed service. Citing C v D [2011] EWCA  Civ 646, the Claimant submitted that when faced with two reasonable constructions of an offer, the Court should favour the construction which is compatible with Part 36.

Mr Justice Pepperall applied C v D and concluded that the offer was a valid Part 36 offer. There are 3 things we can take away from his decision.

First, when considering the nature of an offer, it must be considered holistically. In C v D at [49], Rix LJ relied on the principle that the Court should read a document as a whole and should seek to bring rational sense and consistency to that whole. In the Essex case, the offer was, objectively, intended to be a Part 36 offer. It complied with the requirements of CPR 36.5(1), including providing for a period of 21 days. A reasonable Defendant, viewing the offer objectively, would have understood that the party making the offer intended to make a Part 36 offer. So, unless the nature of the offer is entirely unclear, it should be possible to determine whether the offer was intended as a Part 36 offer or not.

Second, it is inappropriate to rely on an isolated passage or word of an offer to try to establish non-compliance with CPR 36.5(1). In Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at [392A], Lord Hoffman cautioned against considering the meaning of a critical passage of a document in isolation from the rest of the document, and then working backwards to see whether that meaning was somehow displaced. In Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, Lord Hoffman explained that it was necessary to consider a document and any relevant background together, to avoid confusion where everyday words and syntaxes are used. The offer in the Essex case did provide for a period of 21 days as required by CPR 36.5(1)(c). What was at issue was when the 21 days began, and that was a matter of construction. A literal interpretation to the reference to the date of the letter was removed from the realities of litigation, where documents are often served after the date stated in the document and time begins to run from the date of service. Accordingly, the 21 days was construed to run from the date of service of the letter. A party should therefore be wary of basing its whole challenge to the validity of a Part 36 offer on phraseology which is open to construction.

Finally, a defective Part 36 offer cannot be saved by construction. In Thewlis v Groupama Insurance Co. Ltd [2012] 5 Costs LO 560, Judge Behrens held that wording which is inconsistent with the provisions of Part 36 could not be ignored as surplusage. In Shaw v Merthyr Tydfil County Borough [2014] EWCA Civ 1678, the Court of Appeal endorsed Judge Behrens’ reasoning and added that compliance with all of the provisions of CPR 36.5(1) was necessary in order to engage in a construction exercise. Because the offer in the Essex case provided a 21 day period, it fulfilled the requirement of CPR 36.5(1)(c). It was common ground between the parties that the offer complied with the remaining provisions of CPR 36.5(1). The Court was therefore able to consider the narrow issue of when the 21 days began, and construe the offer accordingly. If, for example, the offer neglected to provide for a relevant period or explicitly provided for a period of less than 21 days, then it would not have complied with the requirements of CPR 36.5(1) and the Court would not have been able to carry out a construction exercise. Therefore, in order for the Court to exercise its discretion and construe an offer as a valid Part 36 offer, the offer must comply with all of the provisions in CPR 36.5(1)(a) to (e).

In short, considering a Part 36 offer, or indeed any offer, is not a clinical exercise which can be divorced from the background and circumstances of the litigation, and it is not a game of semantics either. A poker face is not going to be enough to bluff a successful party out of its winnings.

At A&M Bacon Limited, our Costs Lawyers are specialists in all areas of litigation costs. We are able to expertly consider, advise upon and make Part 36 offers. Please contact us on 01733 350 880 to see how we can help you.

Cindy Treble-Breame, Costs Lawyer

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