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When is a door not a door? When it is ajar!

With Christmas fast approaching (along with terrible cracker jokes – I’m sorry, and thank you for reading on), you might be forgiven for missing the costs decision in Van Oord UK Ltd and Sicim Roadbridge Ltd v Allseas UK Ltd (OSR and AUK respectively). However, it provides a useful consideration of whether, and if so when, a defendant’s Part 36 offer can amount to a claimant’s Part 36 offer (with the attendant cost enhancements).

The Part 36 cost consequences

It is clear that both a claimant and defendant can make a Part 36 offer (see CPR 36.2, 36.5 and 36.6). CPR 36.2(3) states that offers can be made in respect of counterclaims and refers to CPR 20.3 and 20.3, which provide that a counterclaim “shall be treated as if it were a claim for the purpose of these Rules”.

Where a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer, CPR 36.17(3) sets out the defendant’s entitlements:

“…the court must, unless it considers it unjust to do so, order that the defendant is entitled to –

(a) costs (including any recoverable pre-action costs) from the date on which the relevant period expired; and

(b) interest on those costs.”

In contrast, where judgment against the defendant is at least as advantageous to the proposals contained in a claimant’s Part 36 offer, the claimant is entitled to a raft of “enhancements” set out in CPR 36.17(4):

“…the court must, unless it considers it unjust to do so, order that the claimant is entitled to –

(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;

(c) interest on those costs at a rate not exceeding 10% above base rate; and

(d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount which shall not exceed £75,000.”

Therefore, at the time an offer is made, it is clearly important that a party knows the likely risks of rejecting the offer.

AUK’s Part 36 offer

On 13 January 2014, prior to the commencement of any proceedings, AUK made an offer to settle OSR’s claims for £3.8 million including interest, less sums already paid on account (which AUK contended to be £3,540,839), resulting in an offer of payment of £259,161. Both parties accepted that this complied with the requirements in CPR 36.5(1) and, as such, could be treated as a Part 36 offer. However, they disagreed as to whether the offer ought to be treated as a claimant’s or defendant’s offer for the purpose of CPR 36.

AUK contended that, as counter-claimant, it should be treated in the same way as a claimant. The offer should have the same consequences as if AUK had issued proceedings first (relying on CPR 20.2(1)(a) and 20.2(2)(a)). Therefore, AUK claimed it was entitled to the cost “enhancements” set out in CPR 36.17(4).

OSR relied on Lloyd LJ’s judgment in the Court of Appeal  in AF v BG, where he stated that whether a Part 36 offer is “properly” a claimant’s offer “depends on a construction of the offer as a whole”. OSR contended that, on an objective reading, AUK’s offer was intended to be treated as a defendant’s Part 36 offer:

  • It was an offer to pay money to OSR as a defendant.
  • It was not expressed to be a “claimant’s Part 36 offer”.
  • As of January 2014 (when AUK made its offer), AUK had not indicated that it had any counterclaim.
  • In its offer, AUK expressly identified only the cost consequences in respect of a defendant’s Part 36 offer (and not the enhancements in CPR 36.17(4)).

The decision

Coulson J rejected AUK’s suggestion that because AUK’s offer was a valid Part 36 offer, it did not matter (as a matter of construction) whether it was a claimant’s or defendant’s offer. The CPR expressly differentiates between the consequences of not accepting a claimant’s or defendant’s offer, so “it plainly matters”, as the Court of Appeal in AF v BG also thought.

As a matter of “common sense”, Coulson J stated that it was important a recipient of an offer knew what sort of offer it was:

“Because there is such a significant difference in the consequences of non-acceptance, depending on the proper construction of the letter, it is vital that a party making a Part 36 offer spells out, in terms which are unequivocal and free from ambiguity, the nature of the offer being made and the consequences which it says will flow from its non-acceptance by the recipient. The recipient needs to be in no doubt as to what may happen if the offer is turned down.”

Therefore, the fact that a defendant with a counterclaim is treated as a claimant in accordance with CPR 36.2(3) does not mean that its offer is automatically to be regarded as a claimant’s offer. That must always depend on its terms.

On reviewing AUK’s offer, Coulson J was “entirely satisfied” that the offer was not a claimant’s Part 36 offer. Not only did it offer to pay the other side’s costs but, unlike the offer letter in AF v BG,it did not:

  • Expressly say it was a claimant’s offer.
  • Offer to accept a sum of money in settlement of the claim and counterclaim.
  • Spell out the enhanced consequences of non-acceptance that are set out in CPR 36.17(4).

Consequently, Coulson J held that AUK’s offer had “all the hallmarks of a defendant’s Part 36 offer”. It was difficult to see how or why OSR could have reached any other conclusion on receipt of the letter. Thus, AUK’s offer should be treated as a defendant’s offer (despite its counterclaim), which attracted the costs consequences in CPR 36.17(3).

Points to note

The message to take away from this case is relatively simple. Defendants who make a counterclaim should be abundantly clear about the nature and intended consequences of their offer and claimants should be aware of the risk that the Part 36 enhancements may apply.

In particular, both this case and AF v BG suggest a defendant who also has a counterclaim may be able to take advantage of the Part 36 cost enhancements available to a claimant under CPR 36.17(4) by:

  • Making the offer after the counterclaim has been formulated.
  • Offering a liquidated sum in respect of the counterclaim.
  • Clearly expressing the offer to be “a claimant’s offer”.
  • Setting out the cost enhancements in CPR 36.17(4) (as opposed to those in CPR 36.17(3)).

So, when is a defendant’s Part 36 offer not a defendant’s Part 36 offer? When:

  • The defendant is a counter-claimant; and
  • On a proper construction of the offer, it spells out in terms that are unequivocal and free from ambiguity that the offer is a claimant’s offer and that the cost enhancements in CPR 36.17(4) apply.

We wish you a Happy Christmas (and better cracker jokes than mine!).

Keating Chambers Jennie Wild

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