Part 36 offers. Perhaps not a topic that stokes a fire in your belly or gets you out of bed in the morning.
However, I encourage you to spare a few minutes and plough on. Although I cannot promise you scandal, intrigue or even excitement, a recent extension in the law concerning Part 36 offers is nonetheless worthy of your attention. In the course of this blog, I will explain how this change allows parties greater flexibility in making such offers as well as touching on some other general considerations to bear in mind when utilising Part 36.
The crux of the TCC’s decision in Jockey Club Racecourse Ltd v Willmott Dixon Construction Ltd is that Part 36 offers can now reflect outcomes that are not available in litigation. This clears the way for Part 36 offers to be made on purely commercial grounds. Previous decisions had only gone as far as providing that Part 36 offers could reflect outcomes that were theoretically possible, even if extremely unlikely, to arise out of the litigation.
For those of you still with me, I will now explain the court’s reasoning and consider the practical impact the judgment has on parties making Part 36 offers.
The case centres around the new covered grandstand at Epsom racecourse that the Jockey Club engaged Willmott Dixon to design and build.
You won’t be surprised to hear that things didn’t go exactly as planned. Following the completion of the works, the roof of the grandstand sustained damage in successive bouts of high wind during 2012 and 2013. The Jockey Club brought proceedings against Willmott Dixon. Significantly in the context of this case, the Jockey Club made a Part 36 offer to settle the dispute on the basis that Willmott Dixon would:
“…accept liability to pay 95% of [the Jockey Club’s] claim for damages to be assessed.”
Willmott Dixon did not respond to the offer.
Challenging the Part 36 offer
Willmott Dixon eventually conceded full liability for the damage but, at a pre-trial review, challenged the validity of the offer. It did so in an attempt to avoid having to pay any uplift on the award and costs of litigation (including interest, indemnity costs and an uplift on damages), which accrue to a claimant who equals or betters a Part 36 offer that a defendant does not accept. It sought to persuade Edwards-Stuart J that established judicial precedent only supported Part 36 offers that reflected a possible outcome of the trial, however unlikely that outcome was.
In this case, the Part 36 offer was made in circumstances where there was no question of any contributory negligence on the part of the Jockey Club. Therefore, there were only two possible outcomes on the issue of liability:
- Willmott Dixon was wholly liable for the damage to the roof that it designed and constructed.
- Willmott Dixon was not liable at all.
There was no possibility that the court would find that Willmott Dixon was responsible for 95% of the damage and that the Jockey Club was responsible for 5%.
However, the court found that the Jockey Club’s offer was valid and, in doing so, clarified that Part 36 offers do not have to reflect an available outcome of litigation.
Why did the court conclude that the Part 36 offer was valid?
The foundation of the court’s decision is the recognition that commercial considerations and the desire to protect from the risk of litigation frequently play a part in the decision to make a Part 36 offer. Part 36 offers are rarely made exclusively on the basis of apportioning parties’ legal responsibility for the claim.
That conclusion rings true. It is not controversial to suggest that claimants with “sure” legal cases make offers to defendants that represent a discount on the claimed sums to avoid the inconvenience and jeopardy of taking a case to court. It routinely occurs in both commercial settlements and settlements under Part 36.
This was also the position in which the Jockey Club found itself. It recognised that it was not responsible for the damage to the roof, but it was prepared to sacrifice 5% of its damages to truncate the dispute and to avoid the uncertainty of trial.
Having acknowledged the commercial incentive to settle, Edwards-Stuart J found that the principle in Huck v Robson, where a Part 36 offer that reflected an unlikely, but theoretically possible, outcome of litigation was valid, could be extended to Part 36 offers that represented an impossible outcome of litigation.
The court reasoned that, in light of the commercial nature of Part 36 offers in general, it would be a blinkered approach to hold that Part 36 offers could reflect highly unlikely, but theoretically possible, outcomes of litigation but not impossible scenarios.
On that basis, the Part 36 offer was valid, and indemnity costs were awarded to the Jockey Club, with interest to be decided at a subsequent trial on the issue of quantum.
The widening of the scope of valid offers does not change the fact that Part 36 offers must comply with the broader requirements of the CPR and established case law.
The judgment focused in particular on whether the Jockey Club’s offer involved a genuine element of concession. Edwards-Stuart J referred to AB v CD, which decided that a Part 36 offer cannot require total capitulation on the part of the offeree. There must be some concession on the part of the offeror.
In this case, the court concluded that although the 5% discount the Jockey Club offered was modest (it offered a discount of £20,000 in the context of a £400,000 claim), which was not so small as to be considered derisory or to have been made on a purely tactical basis to secure the benefits of a successful Part 36 offer.
The clarification provided in this case is helpful to those of us considering making offers under Part 36. The court’s recognition of the commercial nature of settlement offers will strike a chord with legal practitioners and members of the construction industry.
The judgment also provides a timely reminder that a Part 36 offer must be a genuine attempt to settle the proceedings, and should not be made on purely tactical grounds. The court was clear that parties making cynical offers should not benefit from the advantages Part 36 provides.
Those making a Part 36 offer should therefore consider whether the concession being made to the other party provides them with some meaningful financial benefit for settling. A claimant’s offer to accept 99% liability is unlikely to provide this.