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Date: 13 August 2010
Authors: Anna Pertoldi & Maura McIntosh
Issue: Vol 160, Issue 7430
Categories: Features, Procedure & practice, CPR
Earlier this summer the Court of Appeal handed down a significant judgment relating to offers to settle made under Pt 36 of the Civil Procedure Rules (the joined appeals of Gibbon v Manchester City Council and LG Blower Specialist Bricklayer Limited v Reeves [2010] EWCA Civ 726, [2010] All ER (D) 218 (Jun). The court held that, contrary to normal contractual principles, a Pt 36 offer may remain open for acceptance even if it has previously been rejected or the offeror has made a subsequent offer in different terms.
As a result of the decision, parties need to review any Pt 36 offers previously made which they no longer wish to keep on the table. If there is any uncertainty, offers should be expressly withdrawn or varied. A failure to do so may mean that, in the eyes of the court, all offers remain on the table.
The judgment has also sought to limit the effect of Carver v BAA [2008] EWCA Civ 412, [2008] 3 All ER 911 the much criticised 2008 decision in which the Court of Appeal introduced a broad interpretation of whether a judgment is "more advantageous" than a defendant's Pt 36 offer. The Carver decision has been widely criticised, including in Lord Justice Jackson's civil litigation costs review, as introducing an unwelcome degree of uncertainty.
Rejected offer still open for acceptance
In Gibbon the claimant made a Pt 36 offer of £2,500. The defendant initially rejected this offer but, after a number of lower Pt 36 offers had been rejected by the claimant, increased its offer to £2,500. The claimant rejected this offer but failed to withdraw her own previous offer in the same amount. The defendant then wrote to the claimant’s solicitors formally accepting that previous offer. The question was whether or not it was entitled to do so.
The claimant argued that the defendant’s initial rejection of her Pt 36 offer rendered it incapable of acceptance thereafter in accordance with usual contractual principles. The Court of Appeal disagreed, saying rule 36.9(2) is clear that an offer may be accepted at any time unless the offeror has withdrawn the offer by serving notice of withdrawal on the offeree.
No room for implied withdrawal
In Gibbon, the claimant argued in the alternative that her rejection of the defendant's Pt 36 offer of £2,500 had made it quite clear that she was unwilling to accept that sum in settlement of her claim and had therefore amounted to an implied withdrawal of her own previous Pt 36 offer in the same amount.
The Court of Appeal also rejected this argument. Rule 36.3(7) provides that an offer is withdrawn by serving written notice on the offeree. This leaves no room for the concept of implied withdrawal.
The question of implied withdrawal was also considered in Blower. The Court of Appeal had to consider whether a Pt 36 offer made by the defendants remained in place for costs purposes or whether it had been superseded by the defendants' subsequent offer. The court held that the Pt 36 offer was not affected by the later offer, since the later offer had not expressly withdrawn it.
Potential for injustice?
There is an interesting contrast between cases where an offeree needs the court's permission to accept a Pt 36 offer (because trial has started, or in certain other limited circumstances identified in rule 36.9(3)) and the majority of cases where no permission is required.
In finding that a Pt 36 offer remains open for acceptance despite its previous rejection, the Court of Appeal approved the decision of Coulson J in Sampla v Rushmoor Borough Council [2008] EWHC 2616 (TCC), [2008] All ER (D) 335 (Oct). In Sampla, however, the offeree needed the court's permission to accept the offer because trial had already started. Therefore the court retained control over whether or not it was appropriate to allow acceptance. In fact the court refused permission, since there had been a material change of circumstances that made it unjust to allow acceptance. A similar approach is suggested in a High Court decision handed down since Gibbon.
In Rowles-Davies and others v Call 24-7 Ltd [2010] EWHC 1695 (Ch), [2010] All ER (D) 96 (Jul) after trial had started, the claimant purported to accept a Pt 36 offer made by the defendant some time previously, which was more generous than the defendant's two subsequent contractual offers to settle. The defendant objected to acceptance, the claimant did not pursue the point, and the trial continued. In handing down judgment on costs, the court noted that where an offeror objected to acceptance of its Pt 36 offer, the judge would be unlikely to permit acceptance.
In contrast, in Gibbon (as in most cases where an offer is accepted before trial begins) the offeree did not require the court's permission to accept the offer. There was therefore no room for a broad assessment of the justice of the case. Indeed the Court of Appeal commented that sometimes "the demands of clarity and certainty in the operation of Pt 36 may appear to produce injustice", but its sympathy for the offeror's position did not outweigh the clear requirements of the rules. This further underlines the need to ensure that any previous offers a party no longer wishes to maintain are expressly withdrawn or varied. If a party fails to do so, there is little scope for being "saved" by broad considerations of justice.
Implied variation?
In Blower, the defendants' later offer did not constitute a Pt 36 offer (because it was not expressed to be such and because it was inclusive of costs, contrary to the requirements of rule 36.2). It could not therefore be seen as a variation of the earlier Pt 36 offer. However, the court went on to consider whether under Pt 36 a later offer in different terms automatically varies a previous offer or whether a party can make a number of different Pt 36 offers, all of which are concurrently open for acceptance.
Moore-Bick LJ said there is no reason why a party should not make more than one Pt 36 offer and leave it to the other to decide which, if any, to accept. Equally, a party might vary its original offer so that only the revised offer is available for acceptance. It might seem odd to suggest that more than one offer might be available for acceptance at the same time, but the value of an offer will vary depending on when it is made because of the effect of interest (which is included in the offer under 36.3(3)) and the costs consequences in Pt 36. For example, a defendant might be prepared to offer a higher sum at an earlier stage in the proceedings, knowing it only has to meet the costs up to the date of acceptance, than it is prepared to offer later in the litigation when the costs have escalated. If it leaves the first offer available for acceptance and the claimant accepts it, the usual order under 36.10(5) is that the claimant will only have its costs until the date of expiry of the offer and will have to pay the defendant's costs from then on.
Moore-Bick LJ recognised that in some cases there might be argument about whether a later offer was intended to vary or supplement an earlier offer, but said it is for parties and their legal advisers to make their intentions clear.
Withdrawal or variation?
It is worth noting that it will generally be preferable for an offeror to vary its Pt 36 offer rather than withdrawing it altogether. Under CPR 36.14(6) the costs consequences of Pt 36 do not apply to offers that have been withdrawn. However, those costs consequences do apply to offers that have been varied to become less advantageous to the opponent, so long as the opponent has not beaten the less advantageous offer.
Consider for example a £10 million claim in which the defendant offers £6 million on 1 January and then reduces the offer to £3 million on 1 July. The claimant is ultimately awarded judgment for £2m. The defendant will have Pt 36 costs protection from the January offer meaning that, unless it is unjust to do so, the defendant will be awarded its costs from the date of expiry of that offer. If instead the defendant had withdrawn its earlier offer it would only have Pt 36 costs protection from the July offer, though of course the court could take the earlier offer into account in its general discretion on costs.
When is a judgment “more advantageous” than an offer?
In Carver v BAA the claimant beat the defendant's Pt 36 offer but only by a very small margin. The Court of Appeal held that it could not be said that the final outcome was "more advantageous" than accepting the offer, bearing in mind factors such as the emotional toll of the litigation on the claimant. This judgment has been widely criticised, including in Lord Justice Jackson's review of civil litigation costs, as introducing an unwelcome degree of uncertainty and tending to depress the level of settlements.
In Blower, the Court of Appeal expressed support for this criticism and, although bound by the decision in Carver, did much to limit its effect. Here the defendants argued that due to the small amount by which the judgment exceeded the defendants' Pt 36 offer (approximately £660 in the context of a judgment for the principal sum of £8,375), the claimant had failed to obtain a judgment that was “more advantageous” than the offer and therefore should suffer the costs consequences of Pt 36.
The Court of Appeal disagreed. Carver was binding authority that, in evaluating whether a judgment was more advantageous than a Pt 36 offer, the court must take into account all aspects of the case, including such things as emotional stress and irrecoverable costs. However, the weight that should be attached to each factor remained a matter for the judge in each case. In most cases obtaining judgment for an amount greater than the offer is likely to outweigh all other factors.
The comments in Blower were applied in the Rowles-Davies case, in which the judgment exceeded the defendant's Pt 36 offer by approximately £30,000 (against a judgment of some £155,000). The judge said that he did not attach much weight to the Carver factor, even assuming that the claimant's irrecoverable costs as a result of rejecting the offer and proceeding to trial would be greater than £30,000. The judge said the notion that a claimant should be obliged to concede £30,000 of his claim for fear of being penalised in costs even if he recovered his entitlement in a judgment was to “turn the Pt 36 process on its head and reward the defendant despite his failure to make an appropriate offer”.
The Court of Appeal's comments in Blower should give some comfort to those assessing Pt 36 offers. However, there remains a risk that where an offeree beats an opponent’s offer by a relatively small margin, other factors might be seen to outweigh this success. Unless and until the Civil Procedure Rule Committee sees fit to amend Pt 36 to make it clear that, in a money claim, a straightforward comparison of sums is all that is needed (or the point goes before the Supreme Court) some uncertainty will remain.
Anna Pertoldi is a partner and Maura McIntosh is a professional support consultant in the litigation and arbitration division at Herbert Smith LLP
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