District Judge Chris Lethem examines part 36 of the Civil Procedure Rules and offers

The drive to achieve a genuine dialogue between the parties with a view to settlement is at the heart of part 36 of the Civil Procedure Rules 1998 (CPR).

However, although guidance from the Court of Appeal over the past 18 months will help practitioners avoid some pitfalls, other areas are surrounded by uncertainty.

Contents of the offer

In Mitchell and others v James and others [2003] 2 All ER 1064, the claimants began tiring after 14 years of litigation, and so made a part 36 offer which included a provision that each party should bear their own costs.

The claimants were substantially successful at trial and submitted that they should be entitled to costs on an indemnity basis, pursuant to part 36.21.

Under their offer, they would have borne their own costs before the date of the offer.

One can safely assume that after all these years of hard litigation, these costs were significant.

In a closely worded judgment, the Court of Appeal considered that part 36.14 (which provides that a claimant whose offer is accepted will be entitled to their costs on a standard basis) and PD36.7.2 and 7.5 (which refer back to parts 36.13 and 14) made it clear that the draftsman did not intend that terms as to costs should be included in part 36 offers.

On 17 June 2003, the appeal court came to a similar conclusion when considering a claimant's part 36 offer, which made a concession in relation to interest.

In Ali Reza-Delta Transport Co Ltd v United Arab Shipping Co [2003] EWCA Civ 811, 147 Sol Jo LB 753, it was held that the part 36 draftsman could not have contemplated that uplift interest should be any part of the offer to be taken into account in determining the applicability of the rule.

So, the inclusion of matters such as costs and interest, being sanctions under part 36, are unlikely to improve a part 36 offer.

Traditionally, the courts have been fairly clear that an offer must be in proper form to be effective (see Amber v Stacey [2001] 2 All ER 88 and Hardy v David Sunderland [2001] EWCA Civ 976).

What happens if the offer itself is defective? In Neave v Neave (No 2) [2003] EWCA Civ 325, the requirements of CPR 36.5(6)(b) that a part 36 offer had to provide that after 21 days it might only be accepted if the parties agreed liability as to costs, or the court gave permission, were breached.

Despite the arguments of the defendant that this was not a bona fide part 36 offer, the court ruled the defect to be technical under CPR 36.5(6)(b), and that it was appropriate to exercise discretion over what was a minor defect, and allowed the offer to have the full part 36 effect.

Service of the offer

In Neave v Neave (No 2) (supra), both parties made offers open for '21 days from today'.

Taking into account CPR36.5(6) and the purpose of the rule, it was decided that the phrase, 'from today' meant time ran from the date of receipt of the offer, not the date of posting.

The court went on to say that where the offer was faxed, then the date would be the same.

In Charles v NTL Group Ltd [2002] EWCA Civ 2004, it was decided that there is no requirement for there to be formal service of an offer for it to be an effective offer under part 36.

The rule talks of a party 'making' and not 'serving' an offer.

It follows that a part 36 offer is effected once received by the offeree and strict compliance with part 6 is not required.

The whole concept of offer and acceptance falls to be decided within the confines of contract law without further intervention from the court.

The effect of the offer

What happens when a party beats a part 36 offer but loses on a significant issue? In Quorum v Schramm (No.2) [2002] 1 All ER (Comm) 179, the claimant made an offer to settle at $3.6 million while the defendant paid into court $600,000.

At trial, the claimant was awarded $1.4 million.

Although the claimant had beaten the payment into court, the defendant still sought to mitigate the effect of part 36 by inviting the court to focus on the claimant's conduct and a consideration of overall success, the claimant having lost on a major aspect of the case.

The defendant further argued that the final award was nearer to their part 36 payment than to the part 36 offer of the claimant.

The court held that it was not necessary to go into the reasonableness of the claimant's offer, which would require the need for extensive enquiry and would create uncertainty.

The part 36 offer or payment should be regarded as the limit that a party was expected to go to.

If it was beaten, then that should be the end of the case.

However in Kastor Navigation Co Ltd v AGF MAT (No 2) [2003] EWHC 472 (Comm), the court found that the conduct of the claimant 'had substantially lengthened and increased the costs both of the action and of the trial'.

It would be difficult to believe that the part 36 consequences arose 'irrespective of the issue upon which they had been expended and of the relative success of the parties on that issue'.

The order was that the defendant should pay to the claimant 15% of its costs, and the claimant should pay to the defendant 85% of its costs.

It is suggested that the more general approach will be that found in the Quorum decision.

Courts are unlikely to wish to involve themselves in additional far-reaching enquires once the issues have been litigated.

However where it would be clearly inequitable to ignore conduct, then the court is empowered by part 44.3(4) to take it into account and will do so even if that means that the part 36 consequences will alter.

To obtain the benefits of the part 36 offer, the party has to make a genuine offer as opposed to a tactical device.

In Huck v Robinson [2003] 1WLR 1340, the claimant made an offer pre-action to settle on a 95-5% split of liability.

The defendant was found 100% liable and the claimant sought indemnity costs.

The defendant said that this was a tactical offer, courts do not find 95% liability, it was derisory and meaningless.

This argument was upheld at first instance but reversed on appeal, where it was held that there was a real opportunity to settle.

District Judge Chris Lethem sits at Tunbridge Wells County Court