Part 36 offers: make your intentions clear

In a judgment handed down on Friday 25 June, the Court of Appeal has held that an offer made under Part 36 of the Civil Procedure Rules (CPR) 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 this decision in the joined appeals of Gibbon v Manchester City Council and LG Blower Specialist Bricklayer Limited v Reeves [2010] EWCA Civ 726, parties need to review any Part 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 If there is any uncertainty, offers should be expressly withdrawn or varied.

The judgment has also sought to limit the effect of Carver v BAA, 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 Part 36 offer.

Key points

• General principles of contract law (such as the usual rules of offer and acceptance) should not be imported into Part 36 save where that was clearly intended.
• A Part 36 offer may be accepted even if it has previously been rejected by the offeree (in contrast to contractual offers, where rejection extinguishes the offer).
• If a litigant no longer wishes to be bound by an offer, it should serve express written notice withdrawing or varying the offer. This applies even if the offer has been rejected or the offeror's own conduct suggests that it no longer considers the offer to be on the table.
• When a Part 36 offer is intended to vary an earlier offer, this should be stated expressly. Otherwise a court may decide that the earlier offer remained open for acceptance.
• In evaluating whether a claimant obtained a judgment "more advantageous" than a defendant's Part 36 offer, although the court must take into account all aspects of the case (following Carver v BAA), in most cases obtaining judgment for an amount greater than the offer is likely to outweigh all other factors.

Rejected offer still open for acceptance  

In Gibbon the claimant made a Part 36 offer of £2,500. The defendant initially rejected this offer but, after a number of lower Part 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 Part 36 offer rendered it incapable of acceptance thereafter in accordance with usual contractual principles.

The Court of Appeal disagreed. The wording of 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. The rules do not provide for a Part 36 offer to lapse or become incapable of acceptance on being rejected by the offeree. This would be inconsistent with the concepts underlying Part 36, which proceeds on the footing that an offer is on the table and available for acceptance until the offeror himself chooses to withdraw it.

No room for implied withdrawal

In Gibbon, the claimant argued in the alternative that her rejection of the defendant's Part 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 Part 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. Moore-Bick LJ stated:

"In my view that leaves no room for the concept of implied withdrawal; it requires express notice in writing in terms which bring home to the offeree that the offer has been withdrawn".   

The question of implied withdrawal was also considered in Blower. In that case the defendants had made a series of offers, but then expressly withdrew all of them save for a Part 36 offer of £8,023.14 including interest which they had made in May 2007 (the "May offer"). Later, in February 2008, they made an offer which appeared slightly higher, but was in fact less favourable to the claimant as it was stated to be inclusive of costs (the "February offer"). None of the offers were accepted and the claimant ultimately obtained judgment for £8,375.94 plus interest and costs.

The Court of Appeal had to consider whether the May offer remained in place for costs purposes or whether it had been superseded by the February offer. The court held that the May offer had not been superseded by the February offer, since the later offer had not expressly withdrawn any earlier Part 36 offer that remained open for acceptance. Accordingly the May offer was unaffected by it.

Implied variation?

In Blower, the court held that the February offer did not constitute a Part 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). Accordingly, there was only one Part 36 offer (the May offer) that had to be taken into account in relation to costs.

However, the court went on to consider whether under Part 36 a later offer in different terms automatically varies a previous offer or whether a party can make a number of different Part 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 Part 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. Moore-Bick LJ recognised that in some cases there could be argument about whether a later offer was intended to vary an earlier offer or to stand alongside it. He said it is for parties and their legal advisers to make their intentions clear as to whether a new offer is intended to vary or supplement an earlier offer.

This aspect of the judgment leaves some scope for arguing that, on the facts of a particular case, a later Part 36 offer was intended to vary an earlier offer, even if that was not stated expressly. Given the general tenor of the judgment, however, this will clearly be a risky course. Where an offer is intended to vary an earlier one (as will normally be the case where the new offer is less favourable to the offeree), this should be stated expressly. Otherwise there is a risk that an opportunistic opponent might seek to take advantage of the ambiguity and accept the earlier offer. In such circumstances, given the Court of Appeal's comments in this case, the court might have little sympathy for an offeror who failed to make its intentions clear.      

Carver v BAA: when is a judgment "more advantageous" than an offer?

In the Carver v BAA case the claimant beat the defendant's Part 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. In his final report (see post), he commented that the judgment introduces an unwelcome degree of uncertainty and tends to depress the level of settlements, and recommended that its effect should be reversed.

In the current judgment, the Court of Appeal expressed support for that criticism and, although bound by the decision in Carver v BAA, did much to limit its effect.

In Blower, the defendants argued that, bearing in mind the small amount by which the judgment exceeded the May offer, and applying the principles in Carver v BAA, the claimant had failed to obtain a judgment that was "more advantageous" than the offer and therefore should suffer the Part 36 consequences.

The Court of Appeal disagreed. Carver v BAA was binding authority that, in evaluating whether a judgment was more advantageous than a Part 36 offer, the court must take into account all aspects of the case, including such things as emotional stress and irrecoverable costs. However, the Court of Appeal pointed out that the weight that should be attached to each factor remained a matter for the judge in each case. In evaluating weight, the court should see things from the litigant's perspective rather than imposing its own view.

The court recognised that, in a case where a Part 36 offer has been beaten by a very small amount and there is clear evidence that the successful party has suffered serious adverse consequences as a result of pursuing the case to judgment, those factors may be sufficient to outweigh success in pure financial terms. However, in the court's view, such cases are likely to be rare. Moore-Bick LJ stated:

"In most cases obtaining judgment for an amount greater than the offer is likely to outweigh all other factors."

Comment

This is a significant Court of Appeal judgment relating to Part 36 offers which clarifies a number of points that had previously been in doubt.

In finding that a Part 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). There is however an interesting contrast between the two cases.

• In Sampla, 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.
• In the current case (as in most cases) 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 Part 36 may appear to produce injustice", but its sympathy for the offeror's position in that case did not outweigh the clear requirements of the rules.

The judgment is also interesting for the strict approach taken by the Court of Appeal as to what will amount to withdrawal or variation of a previous Part 36 offer. The clear message from the judgment is that if a party wishes to withdraw or vary a previous offer it should say so expressly. A failure to do so may mean that, in the eyes of the court, all offers remain on the table and the offeree can pick and choose.

Finally, the judgment is to be welcomed for its comments restricting the impact of the decision in Carver v BAA. In our response to Lord Justice Jackson's civil litigation costs review, we agreed that the decision was unhelpful and should be reversed. The Court of Appeal's comments in the present case should give some comfort to those assessing Part 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. We therefore hope that the Civil Procedure Rule Committee will see fit to amend Part 36 to make it clear that, in a money claim, a straightforward comparison of sums is all that is needed.