Part 36 offer given effect even though it was not validly served

In a recent decision the High Court has held that a Part 36 offer was valid despite the claimant having failed to serve it in accordance with CPR Part 6: London Trocadero (2015) LLP v Picturehouses Cinemas Ltd and others [2021] EWHC 3103 (Comm).

The court held that the defective service (by emailing the offer without checking that the defendant's solicitors were willing to accept email service) was an error of procedure which, under CPR 3.10, did not invalidate the offer and could be remedied by court order. This is in contrast to Sutton Jigsaw Transport Limited v Croydon Borough Council [2013] EWHC 874 (QB) (considered here), in which the court held that a Part 36 offer was not validly accepted because written notice of acceptance had not been properly served.

The court in the present case distinguished Sutton both on the facts and because the court's power under CPR 3.10 to remedy a procedural error was not relied on in that case. However, the court did take into account the defective service at the costs stage by declining to award the claimant the full benefits available under Part 36.

For parties receiving a Part 36 offer that has been defectively served, the message from this case is that it should not be ignored as the court has the power to remedy the defect. On the other hand, those serving Part 36 offers should not assume that the court will come to their aid in such circumstances, but should ensure there is proper service under CPR Part 6.

Background

The claimant landlord obtained summary judgment against the defendant tenants for arrears of rent and service charges due since the outbreak of the Covid-19 pandemic (as outlined here). The present hearing was to deal with a number of consequential matters including costs and specifically the effect of a Part 36 offer ("the Offer") that the claimant had made to one of the defendants.

The claimant's solicitors sent the Offer by email to the defendants' solicitors on 15 December 2020. The Offer related to part of the claim, being the rent which had become due on two particular dates together with contractual interest. It stated that, in settlement of this part of the claim, the claimant would accept the full amount of the rent without any interest. The total rent due was £841,965 and the interest up to the date of the Offer was £8,402.34. The Offer therefore represented approximately 99% of the amount claimed.

Where a claimant obtains a judgment that is at least as advantageous as its own Part 36 offer, the court must (unless it considers it unjust to do so) award the claimant costs on an indemnity basis from the date on which the relevant offer period expired, together with certain other favourable consequences, under CPR 36.17.

The defendant accepted that the summary judgment against it was at least as advantageous to the claimant as the proposals contained in the Offer – thus, in principle, triggering the consequences set out in CPR 36.17. However, the defendant contested this for two reasons:

1. CPR 36.7(2) provides that a Part 36 offer is made "when it is served on the offeree". The Offer was not properly served, as it was emailed to the defendants' solicitors without checking in advance whether they had instructions to accept service by email, and was therefore invalid.
2. In any event, it would be unjust to impose the consequences provided for by CPR 36.17 for a number of reasons, including the fact that the Offer was not a genuine offer to settle the proceedings but was simply a litigation tactic designed to put pressure on the defendants.

Decision

The High Court (Robin Vos sitting as a Deputy Judge) held that the Offer was valid despite not having been properly served, but that it would be unjust to award all of the consequences set out in CPR 36.17.

Was the Offer invalid due to defective service?

The judge contrasted the wording of current CPR 36.7: "A Part 36 offer is only made when it is served on the offeree" with the pre-2007 wording at old CPR 36.8(1): "A Part 36 offer is made when it is received by the person to whom the offer is made" (emphasis added). He found that here there had been a failure to comply with the service rules under CPR 6.20 and PD6A as the claimant had not obtained confirmation from the defendants' solicitors that they were willing to accept email service of the Offer.

The judge considered whether CPR 3.10, which enables the court to make an order to remedy a procedural error, could apply in this case. Having reviewed the authorities, including Integral Petroleum SA v SCU- Finanz AG [2014] EWHC 702 (considered here) in which the court applied CPR 3.10 where particulars of claim had been served by email without prior authorisation, the judge concluded that the court had the power to make an order to remedy the defect in service. In exercising that discretion the court would take into account all the circumstances of the case in accordance with the overriding objective of dealing with cases justly and at a proportionate cost.

The judge noted that, although a failure to comply with the rules of service in CPR Part 6 should not be taken lightly, here the defendants' solicitors had not complained about the defective service until shortly before the present hearing and had not suggested that any prejudice had been suffered as a result. He concluded that it would be "a triumph of form over substance" if the court were to make an order invalidating the Offer. He therefore made alternative orders under CPR 3.10(b) to remedy the defect in service and under CPR 6.28 dispensing with service.

Finally, he noted that he did not consider the decision in Sutton Jigsaw Transport v Croydon Borough Council (referred to above) to be of any real assistance, given that CPR 3.10 was not relied on or referred to in the judgment. The situation in that case was also very different, with a defective notice to accept a Part 36 offer having been given two minutes before valid service of a notice withdrawing the offer. The judge commented that, in those circumstances, it was easy to see why the judge reached the conclusion he did.

Was it unjust to order the Part 36.17 costs consequences?

The judge summarised the position where, as here, a claimant recovers more at trial than the amount of its offer: unless it considers it unjust to do so, the court must award: (i) interest at up to 10% above base rate on the amount of money awarded, from the expiry of the “relevant period” stated in the offer; (ii) indemnity costs from the end of the relevant period; (iii) interest on those costs at a rate not exceeding 10% above base rate; and (iv) an additional percentage amount capped at £75,000.

In deciding whether it would be unjust to make any of those orders the judge had to consider all the circumstances of the case including the factors set out in CPR 36.17(5), including whether the offer was a genuine attempt to settle the proceedings, a question that was in issue between the parties.

Genuine attempt to settle the proceedings

The judge observed that the discount of 1% in the present case was greater than the 0.3% offered by the claimant in Rawbank SA v Travelex Banknotes Limited [2021] EWHC 1619 (considered here). In Rawbank the judge accepted that this very small discount constituted a genuine element of concession, in circumstances where there was no issue as to quantum (the sum was either due or it was not) and the defendant clearly had no defence to the claim.

By analogy with the facts of Rawbank, the present case also had a binary outcome, namely whether the rent was due or not: there was no dispute as to the amount payable. Similarly, the small concession made by the claimant reflected its belief that the defendants were able to pay the rent but had simply chosen not to do so and that they did not have a realistic defence to the claim, as demonstrated by the (successful) application for summary judgment. The judge therefore held that the Offer was a genuine attempt to settle the proceedings.

Other factors

The judge then considered other factors put forward by the defendant as to why it would be unjust to apply the consequences under CPR 36.17.

He concluded that both the exceptional circumstances of the Covid pandemic and the defective service of the Offer meant that it would be unjust to apply the "full rigour" of CPR 36.17. He noted that, by taking into account the pandemic, he was taking into account events which had occurred after the Part 36 offer was made, but said it was clear that the court should take into account all the circumstances and this is not restricted to circumstances before the date of the offer.

The judge considered, however, that some of the CPR 36.17 consequences should apply in respect of the sum awarded and costs incurred in relation to the part of the claim to which the Offer related.

He therefore awarded: interest from the end of the relevant period at the judgment rate (8%); indemnity costs; and interest on those costs at an enhanced rate of 5% above base rate (but not the maximum 10% above base). He declined to award the additional amount of up to £75,000.