REUTERS | Navesh Chitrakar

When is an offer to settle a Part 36 offer?

A Part 36 offer is an important tactical weapon that can be used by either party to encourage the other side to settle a dispute. That is because a Part 36 offeror may be entitled to substantial costs benefits if successful at trial. However, in order to benefit an offeror must comply with the rules set out in CPR Part 36.

This post looks at Pepperall J’s judgment in Essex County Council v UBB Waste (Essex) Ltd, where he held that if a Part 36 offer could be construed in one of two ways (one giving it effect and the other not), the construction giving it effect should prevail. Obiter, he also commented that minor defects in a purported Part 36 offer cannot be overlooked, and that principles of estoppel do not apply to the Part 36 regime.

Essex County Council v UBB Waste (Essex) Ltd (No 3)

The dispute concerned a defective biological waste treatment plant in Basildon, Essex. At trial, the claimant employer was successful against the defendant contractor (UBB) in seeking substantial damages as well as a declaration (among others) that it had lawfully terminated the parties’ contract.

Following trial, the parties disputed whether the employer had made a valid Part 36 offer entitling it to a more favourable costs order.

The disputed offer was dated 7 March 2019. It stated:

“If the Defendant accepts the offer within 21 days of the date of this letter (the ‘Relevant Period’), the Defendant will be liable for the Claimant’s costs of the Proceedings (including pre-action costs) up to the date on which written notice of acceptance of this Offer is received by the claimant, in accordance with CPR 36.13.”

The offer was served (and therefore “made” for the purposes of Part 36) on 8 March 2019.

The question for the court was whether the offer complied with the requirements of CPR Rule 36.5(1)(c). That rule provides an offer must:

“… specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs in accordance with rule 36.13 or 36.20 if the offer is accepted.”

UBB argued because the offer was made on 8 March, and not 7 March, it failed to specify a relevant period of not less than 21 days and accordingly was not a valid Part 36 offer.

The court should construe an offer so as to give it effect where possible

The judge considered “21 days of the date of this letter” could feasibly and reasonably be construed in one of two ways:

  • It could mean 21 days from the date stated on the face of the letter (here 7 March 2019), in which case the offer did not comply with Rule 36.5(1)(c).
  • Alternatively, it could mean 21 days from the date when the offer was made (here 8 March 2019), in which case the offer complied with Rule 36.5(1)(c).

The judge preferred the second interpretation because it was consistent with the employer’s clear intention to make a Part 36 offer and ensured that the offer was effective rather than ineffective.

In reaching this conclusion, the judge applied C v D. That case was decided under the old (pre-April 2015) Part 36 rules, but nevertheless remains authority for the principle that the court should prefer a construction that allows a contractual instrument to be effective over one which would render it void, ineffective or meaningless.

De minimis defects will not be overlooked if the requirement is mandatory

The employer raised two alternative arguments. First, the court could properly overlook minor defects that misled no one. If its offer was found to be non-compliant with Part 36, the error was de minimis in that regard.

The judge disagreed. In obiter comments he concluded that where non-compliance was a failure to comply with one of the mandatory requirements set out in rule 36.5, the offer would be ineffective as a Part 36 offer. In particular, he relied on Rule 36.2(2), which provides:

“Nothing in this Section prevents a party making an offer to settle in whatever way that party chooses, but if the offer is not made in accordance with rule 36.5, it will not have the consequences specified in this section.”

(Rule 44.2 requires the court to consider an offer to settle that does not have the costs consequences set out in this Section in deciding what order to make about costs.)

The judge went on to say that under rule 44.2, the court cannot treat an offer that is a “near miss” as if it were a compliant Part 36 offer.

The judge followed F&C Alternative Investments (Holdings) Ltd v Barthelemy (No. 3) in which Davis LJ said:

“… it is not permissible wholly to discount a number of failures to comply with the requirements of Part 36 as the merest technicality. Perhaps there can be de minimis errors or obvious slips which mislead no one: but the general rule … is that for an offer to be a Part 36 offer it must strictly comply with the requirements.”

Estoppel plays no part in the Part 36 regime

The employer’s second alternative argument was that UBB was estopped from taking the technical point under rule 36.5(1)(c) because it had represented it was a Part 36 offer and the employer acted to its detriment by relying on such representation.

The judge rejected this argument.

Obiter, the judge concluded estoppel should play no part in the Part 36 regime. He gave five reasons for reaching this conclusion:

  • Part 36 is a self-contained procedural code. Introducing the rules of estoppel would breach this core principle.
  • The parties are not bound to follow the rules. However, if parties want the substantial benefits that flow from Part 36 they must follow them in every respect. This is clear from the wording of Rule 36.2(2).
  • While basic concepts of offer and acceptance underpin Part 36, it does not follow that it incorporates all the rules of law governing the formation of contracts (including estoppel). Such rules can add uncertainty and complexity contrary to the operation of the Part 36 regime.
  • If an offer is not made in accordance with Part 36, the parties cannot agree otherwise. It follows that a party cannot then be estopped from taking a point about a defect in the offer.
  • As a matter of policy, the responsibility for ensuring that an offer is compliant with Part 36 should lie squarely upon the offeror and their lawyers.

Thus, the judge concluded that if he was wrong in his construction of the offer then the employer could not obtain the advantages of Part 36 by its alternative arguments.

Conclusion

A renowned litigation lawyer once said “Perfection is the enemy of perfectly adequate“.

I appreciate that statement on many levels.

However, when it comes to Part 36 offers, as is clear from this case, perfection is a lawyer’s best friend. If, in the circumstances, it is feasible and reasonable to do so, the court may construe an offer as a Part 36 offer. However, strict compliance with Part 36 is required if a party wishes to benefit from the regime.

As the judge in this case pointed out, parties may avoid much of the difficulty if they used the form N242A to make their offers.

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