The Court of Appeal recently gave a useful reminder of the purpose of Part 36 of the English Civil Procedural Rules (CPR) in the case of Walsh v Singh[1], when Lady Justice Arden commented that “the court must bear in mind the purpose of CPR 36 which is to motivate parties to make, and to accept, appropriate offers of settlement”. [2]
There is no doubt that a well-judged Part 36 offer can be a useful litigation device with which to apply pressure to an opponent to settle a case while, to some extent, at the same time protecting the party making that offer from exposure to the recoverable costs of the other party.
The procedure for making a valid Part 36 offer, and the consequences of doing so, are set out in the Civil Procedure Rules (“CPR”). In proceedings governed by the Arbitration Act 1996, unless the parties agree otherwise, the tribunal will, in accordance with their discretionary powers under Section 61 of the Arbitration Act 1996, award costs and fees on the general principle that they “follow the event”. In other words, costs will normally be awarded to the successful party. This does not of course mean that a successful party will recover all of its costs – only those costs that are either agreed between the parties to be payable or, failing such an agreement, that are awarded by the tribunal.
However, the CPR does not apply mandatorily to arbitration proceedings and the question in the recent decision in London Arbitration 17/13 was in what circumstances could a Part 36 offer apply, and if it did how was this to be reconciled with the common law principles of offer and acceptance (or in this case counter and revised offers).
London Arbitration 17/13
The parties were in dispute about the balance of an account, including which party should bear the cost of delays for hold cleaning. Owners claimed US$365,000 from charterers who denied liability and counterclaimed US$30,000.
The tribunal was asked to deal with the preliminary issue of whether (or not) the disputes had already been compromised by correspondence passing between the parties solicitors.
On 22 November 2010, charterers’ solicitors sent a fax to owners’ solicitors stating “The purpose of this fax is to make a sealed offer on a without prejudice save as to costs’ basis”. This offer also stated that it would be analogous, so far as possible, to a Part 36 offer under the CPR and was open for acceptance for a period of 21 days and would expire and “irrevocably lapse” at “16.30hrs (GMT) Monday, 30 December 2010”.
On 16 December 2010 owners’ solicitors responded by email rejecting the offer and disputing that it was in any event an effective Part 36 offer since it was expressed to be open for acceptance for a limited period of time. In the same email, owners’ put forward a Part 36 offer which in contrast did not have an expiry date.
Between January 2011 and May 2011 there were exchanges between the parties and further offers and counter-offers were made. Finally, on 6 June 2011 charterers’ solicitors sent the following fax to owners’ solicitors, “Notice of Acceptance of Claimants’ Part 36 Offer….We write with reference to your letter of 16 December 2010 and…confirm that our clients accepts your clients’ offer to accept US$320,000 inclusive of interest plus costs to be assessed on an indemnity basis in full and final settlement of the claims”. Charterers made payment on 16 June 2011. Owners’ solicitors wrote to charterers’ solicitors on the same day stating that charterers had rejected owners’ offer of 16 December 2011 and therefore owners were not obliged to offer a discount on their total claim.
The matter proceeded to arbitration, where charterers maintained that owners had offered to accept US$320,000 inclusive of interest in settlement of the charterparty dispute, that they had agreed to pay that amount and had indeed paid it in full and final settlement of the owners’ claims advanced against them.
Owners’ case was that their offer to accept US$320,000 inclusive of interest had been rejected and was therefore no longer available to be accepted at the time when charterers purported to accept it and made a payment in that amount.
The tribunal held that Part 36 offers could only apply to arbitration proceedings if the parties agreed that the Part 36 regime should apply. They considered that if the offer of US$320,000 in full and final settlement was analysed on the basis of common law principles of offer and acceptance, the offer to accept US$320,000 in full and final settlement was no longer available by the time the charterers sought to accept it because there had been intervening offers and counter offers. A counter offer is a rejection of a prior offer. However, the tribunal held that as a matter of commercial reality there was, implicitly, an acceptance by the conduct of the parties in the offer of 22 November 2010 and the response of 16 December 2010 that the Part 36 regime should be applicable to the proceedings. Accordingly, they held that the offer to accept was subject to the rule governing Part 36 offers, which is that an offer must remain open indefinitely for acceptance until withdrawn – i.e. unless or until “the offeror serves notice of withdrawal on the offeree”. As such, notwithstanding that there had been further offers and counter offers in the intervening period, on the 6 June 2011 when charterers accepted the 16 December 2010 offer, and by payment of the sum owners offered to accept, charterers had settled the claim.
Accordingly, it is worth remembering that it is open to parties in arbitral proceedings to make offers that are intended to be analogous to a Part 36 offer under the CPR. However, to give effect to such an offer, tribunals would need to identify an agreement to apply CPR 36. If there is such an agreement and Part 36 offers are made it is also worth remembering that, insofar as there are any subsequent counter offers, the common law principles of offer and acceptance do not apply to that Part 36 offer - so that, unless or until withdrawn, the recipient of the Part 36 offer can accept that offer notwithstanding any subsequent counter offer. For a more detailed overview of the latest developments regarding Part 36 offers please see Latest Developments in Part 36 offers - Certainty at last?
Article by Simon Thornton
[1] [2011] EWCA Civ 80
[2] For a discussion of the mechanics of Part 36 offers see 'Part 36 - What is the Effect of a Counter-Offer?'
