Part and parcel

For every case that reaches the Royal Courts of Justice there are dozens more that have settled behind closed doors.

One of the skills of a good litigator is knowing when to take advantage of settlement negotiations and get the best deal for clients through the acceptance of a Part 36 offer.

If a litigant who has refused a Part 36 is subsequently unsuccessful in achieving a more advantageous result through the judicial system, it is possible that they could be landed with the legal costs for both parties. An opponent who refuses a settlement offer under Part 36 of the Civil Procedure Rules (CPR) could also be ordered to pay elevated costs on an indemnity basis.

For litigators, who are experts at the small print, knowing what constitutes a Part 36 offer is of paramount importance. This is what the Court of Appeal (CoA) was asked to determine last week in C v D.

The anonymised judgment does not concern details of a footballer’s private life, but proceedings for breach of contract over the sale of land.

The issue was whether a settlement offer, which was expressed to be open for acceptance for 21 days, was capable of being a Part 36 offer.

The Part 36 offer to settle was made by the claimant C in December 2009. Specifically the letter stated that “the offer will be open for 21 days from the date of the letter”. If it was not accepted, the letter stated, there would be financial consequences for D. The time limit passed without acceptance of the offer.

Shortly before the trial was due to start in November 2010 the defendant opted to accept the Part 36 offer. The claimant contended that time had expired on the offer and asked the court to endorse the view. Opposing D argued that no notice of withdrawal had been served, as required by the CPR, meaning it was therefore still open to acceptance.

In November, the High Court held that the letter sent by C did not constitute a Part 36 offer. The reason, said Mr Justice Warren, was that the letter had stipulated a time limit within which the offer should be accepted.

For a valid Part 36 offer to be made, it must remain open for acceptance until it is changed or withdrawn by the service of a notice of withdrawal, the judge ruled. The court could take the offer into account when deciding costs but as it was not a Part 36 offer it did not give rise to Part 36 financial consequences.

At the CoA the offeror argued that the judge was wrong to say that Part 36 could not admit a time limited offer and that just because the court had not endorsed a withdrawal, it did not mean that the offer had not been withdrawn.

The CoA agreed with Warren J that a true Part 36 offer could not be time limited, but did not apply that to the case in hand.

In the court’s view, the claimant had used the words “open for 21 days” in the pre-2007 sense, and since the offer had not been withdrawn by formal notice, the defendants were still free to accept it.

The ruling shows how careful litigators need to be when constructing Part 36 offers. The financial implications can be drastic.