Latest Developments in Part 36 Offers - Certainty At last?
Published: February 01, 2012
Part 36.2 of the CPRs prescribes the form and content required for making a valid offer that attracts the consequences stipulated for in CPR 36. Despite this, the content of Part 36 offers made by litigants has varied significantly. This has led to the recent challenges in the UK courts. In this article we review two of the most important recent decisions in this area, the Court of Appeal judgment in C v D [2011] EWCA Civ 646 and the High Court judgment in Thewlis v Groupama Insurance Co. Ltd [2012] EWHC 3 (TCC) to see how the case law has clarified this subject.
Court of Appeal Decision in C v D
Background
The High Court decision in this case, which details the fundamental principles underpinning Part 36 offers, is discussed in an earlier website article Part 36 – What is the Effect of a Counter-Offer.To recap, the underlying dispute concerned a property transaction in which the parties disagreed whether or not a condition precedent to the sale contract had been fulfilled. The claimant pursued a claim for damages and subsequently purported to make a Part 36 offer to settle stipulating a limited period of 21 days in which it was capable of acceptance. The defendant sought to accept the offer significantly later than the 21 day period. The parties disputed whether the offer remained open for acceptance beyond the 21 days and the issue was considered by the Court.
The Court held that a Part 36 offer cannot have a limited period for acceptance and can only be terminated by express notice of withdrawal. The Court interpreted the wording within the purported Part 36 offer that stated that the offer was “open for 21 days” as meaning that it lapsed after 21 days, thereby being a time limited offer.
These issues were referred to the Court of Appeal which was tasked with considering:
1. whether an offer stated to be capable of acceptance within a limited period of time such that it lapses after that time is capable of being a Part 36 offer;
2. was an offer containing the commonly used phrase “open for 21 days” a time limited offer? ; and
3. if withdrawal of a Part 36 offer is necessary, was the offer withdrawn by virtue of its time limited terms?
1. Can a Part 36 Offer be time limited?
In considering this issue the Court of Appeal made repeated reference to the reasoning of the same court in the case of Gibbon v Manchester City Council [2010]. In Gibbon the Court of Appeal stated that general common law principles of offer and acceptance are inconsistent with the provisions of Part 36 so that valid Part 36 offers do not lapse through effluxion of time or become incapable of acceptance by being rejected or by virtue of a counter offer being made. Gibbon concluded that if a Part 36 offer is to lapse it must be formally withdrawn by written notice.
In the present case the Court expanded upon this reasoning by noting that for an offer to attract the cost consequences of Part 36 it must not have been withdrawn (Part 36.14(6)(a)). It would, therefore, be illogical to enable an offer that had lapsed to continue to have costs consequences when a withdrawn offer does not. Furthermore, under Part 36.9(2) an offeree can accept the offer “at any time… unless the offeror serves notice of withdrawal on the offeree.” Therefore, the offer cannot lapse on its own terms and remains on the table until formally withdrawn. The Court noted that in this way greater certainty in the process of making Part 36 offers can be achieved. Agreeing with the principles stated in Gibbon, the Court determined categorically that a Part 36 offer cannot be time limited.
2. Meaning of “open for 21 days”
The claimant contended that this expression should mean that the offer was not open for acceptance beyond the expiry of the 21 day period. If this was so the offer would, by implication, be time limited and therefore not a true Part 36 offer. The defendant submitted that it meant that the offer would not be withdrawn within the 21 day period and conveys a warning that any time thereafter it may be withdrawn.
The Court of Appeal preferred the defendant’s interpretation of the phrase, which meant the offer was not time limited and therefore remained open for acceptance by the defendant. In doing so the Court set out a principle of construction that “any ambiguity in a purported Part 36 offer should be construed as far as reasonably possible as complying with Part 36”.
3. Can terms of the offer itself amount to a withdrawal of the offer?
The reasoning on the previous two issues effectively answered this question. The Court reiterated that a time limited offer cannot comply with Part 36. Therefore, a valid Part 36 offer cannot set an expiry date at which time it will be withdrawn and only separate formal written notice can withdraw a Part 36 offer.
Consequently the defendant’s appeal was allowed and the offer was deemed a valid Part 36 offer that had not been withdrawn and so was capable of acceptance. The Court sought to increase certainty within the Part 36 process by spelling out 3 pervading principles for Part 36 offers:
(i) an offer providing limited time for acceptance cannot be a Part 36 offer;
(ii) any ambiguity in an offer stated to be a Part 36 offer, which otherwise complies with the formal requirements of Part 36, should be construed as such if reasonably possible; and
(iii) formal written notice of withdrawal is required to terminate a Part 36 offer.
C v D set the landscape for the subsequent judgment of The Technology and Construction Court in Thewlis v Groupama Insurance Company Ltd.
Thewlis v Groupama Insurance Company Ltd
This case arose from a claim made by a homeowner under a home insurance policy with Groupama for subsidence. The claimant made an offer to settle the claim, which was stated as being a Part 36 offer. That offer was expressly rejected, although, the claimant did not formally withdraw the offer at any time thereafter. After Court proceedings were issued the defendant purported to accept the offer and applied to stay the proceedings on the basis that they had accepted a Part 36 offer to settle the entirety of the claim.
Despite making the offer, the claimant argued that the offer was not a valid Part 36 offer on the basis that its content did not comply with the formal requirements prescribed by Part 36 for two reasons. First, in contradiction to Part 36.2(2)(b) it did not state that it was intended to have the consequences of Part 36; and second, the offer was inconsistent with Part 36 because it was said to be capable of acceptance after 21 days if the parties agreed “liability for costs or the court gives permission”. Taking the stance that it was not a Part 36 offer, the claimant contended that the offer had terminated in accordance with common law principles governing offer and acceptance. The defendant submitted to the contrary that the offer was validly made under Part 36 and relied upon C v D to argue that the ambiguity should be resolved as complying with Part 36.
The Court was, therefore, charged with determining whether the content of the offer constituted a valid offer under the terms of Part 36.
Review of the Authorities
In coming to its conclusion the court carried out a review of recent case law on the requirements for making Part 36 offers and highlighted the guiding principles that had been established by those cases, including C v D.
The court referred to Gibbon and the fact that it established that Part 36 is a self-contained code and in the interests of certainty should be understood on its own terms without importing other rules or meanings. Part 36 offers are not subject to common law principles and are, therefore, capable of being accepted even after rejection and/or a subsequent counter offer. A valid offer can be accepted at any time unless it has first been formally withdrawn.
In Epsom College v Pierse Contracting Southern Ltd [2011] the Court of Appeal had affirmed the principle in C v D: the offer in that case was stated to be open for acceptance for 21 days that included an “expiry” date for the offer. The Court construed it as being a valid Part 36 offer, the “expiry” being interpreted as the end of the period during which the offeror would not attempt to withdraw the offer.
Judgment
In conclusion, the court agreed with the claimant and held that the offer was not a valid Part 36 offer for two reasons. First, the offer did not contain a term saying it was intended to have the consequences of Part 36, in contravention of Part 36.2(2)(b). Second, the offer stated that after the expiry of the 21 day period it could “only be accepted if we agree the liability for costs or the Court gives permission”. This stipulation was contrary to the requirements of Part 36 as the effect was that the offer did not remain open for unconditional acceptance by the defendant beyond the 21 day period.
Conclusion
The decisions in C v D and Thewlis clearly reveal that for an offer to attract the consequences of Part 36 it is not enough simply to state that the offer is intended to be a Part 36 offer.
Even if all the litigants perceive an offer as being a Part 36 offer, and have relied on it as such, the courts will take a strict view on compliance with the technical requirements prescribed by Part 36. This has the desired effect of creating certainty as to what is and what is not a Part 36 offer. Those drafting Part 36 offers must take care to comply with all the requirements of Part 36 and, crucially, not seek to impose any terms that may conflict with the principles of Part 36.
Article by Gareth Thompson
