Court of Appeal confirms offer relating to proposed claim by amendment was not valid Part 36 offer

The Court of Appeal has upheld a High Court decision that an offer to settle was not valid under CPR Part 36 as it related only to a claim put forward in draft amended particulars of claim: Hertel v Saunders [2018] EWCA Civ 1831.

The decision suggests that an offer made in existing proceedings will not be a valid Part 36 offer where it relates only to a claim that has not been formally pleaded in those proceedings. This contrasts with the position pre-action, where a Part 36 offer can be made despite the fact that (by definition) no claims have been formally pleaded.

The decision does not address the question of whether, once proceedings have been commenced, a Part 36 offer can be made which offers to settle both pleaded claims and other claims (or potential claims) that have not been pleaded in the action.

Neither the first instance nor the appeal judgment refers to the Court of Appeal decision in AF v BG [2009] EWCA Civ 757, where it was held that the defendant could be treated as having made a "claimant's Part 36 offer" in respect of its counterclaim even though the counterclaim had not yet been pleaded (see post).

Background

The background is summarised in our post on the High Court's decision. In brief, following the claimants' service of a draft amended claim form which alleged an alternative basis for their claims, the defendants put forward a purported Part 36 offer in settlement of the proposed claim. That offer was accepted by the claimants.

The claimants then abandoned the rest of their claims and sought an order for their costs of the entire proceedings. They relied on CPR 36.10(2) which provided that this was the default position where a claimant accepted a defendant's Part 36 offer relating to only part of the claim and abandoned the balance of the claim. (For Part 36 offers made since 6 April 2015 the position is reversed; under CPR 36.13(2) the default rule is that the claimant is only entitled to the costs of the relevant part of the claim.)

The deputy master ordered the defendants to pay the claimants' costs under CPR 36.10(2). The defendants appealed, arguing (for the first time) that their offer was not a Part 36 offer. The High Court judge (Morgan J) agreed. He held that since the proposed claim was not yet a part of the claim at the time the offer was made, the offer failed to comply with the mandatory requirement under CPR 36.2(2)(d) (now CPR 36.5(1)(d)) that it "state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so which part or issue".

The claimants appealed.

Decision

The Court of Appeal dismissed the appeal. Coulson LJ gave the leading judgment, with which Lewison and David Richards LJJ agreed.

Coulson LJ commented that he had not found the issue entirely clear-cut; he had initially thought Morgan J might have adopted an overly technical approach to the meaning of "claim" for the purposes of the mandatory requirement at what is now CPR 36.5(1)(d). On analysis, however, he concluded that Morgan J was right to find the offer was not in accordance with Part 36.

Coulson LJ said the claimants' "best point" in support of a broader interpretation was that, under the applicable rules, a Part 36 offer can be made at any time, including before proceedings commence - at which time the claim/part/issue cannot be defined by reference to pleadings. The claimants argued on that basis that claim/part/issue should not be defined by reference to the pleadings after commencement either. Coulson LJ rejected that argument, pointing out that the position pre-commencement is inevitably different to the position after commencement, and it would be wrong in principle to construe the rules in a way that ignored the certainty and clarity which the pleadings provide.

Once proceedings have been issued, claims/parts/issues can only properly be defined by reference to the pleadings. It would, Coulson LJ said, "introduce unnecessary and unwelcome uncertainty if claims/parts/issues were given a wide definition that did not seek to anchor them to the pleadings which the parties have exchanged".

Accordingly, a new claim which has been intimated, but which is not part of the pleadings, is not caught by CPR 36.5(2)(d). It made no difference that, in the present case, the new claim had been the subject of a proposed amendment which the defendants' solicitors had indicated they would not oppose.

If that was wrong, and the offer was a valid Part 36 offer, the Court of Appeal would have had to exercise the court's discretion afresh. However, that would have made no difference to the outcome. The court would in any event have exercised its discretion to depart from the usual order under (superseded) CPR 36.10(2) and award the defendants their costs of the abandoned claims.