PART 36: OFFER DID NOT COVER COSTS OF ADJUDICATIONS
In Wes Futures Limited -v- Allen Wilson Construction Limited  EWHC 2863 (TCC) Mr Justice Coulson considered the terms of an offer from the claimant that the Defendant accepted 10 months afterwards. Curiously it was the claimant that was arguing that their own offer was not a valid Part 36 offer. The judge held that it was a Part 36 offer. The offer made no reference to costs of adjudication and these costs could not be recovered, despite late acceptance by the defendant.
“The approach to the interpretation of an offer that purports to be a part 36 offer is laid down by this court in C v D  EWCA (Civ) 64,  1 WLR 1962. If an offer is expressed to be a part 36 offer it should be interpreted if possible to make it effective as what it purports to be, rather than ineffective”
- The claimant made an offer to accept £65,000 in February 2016.
- The defendant accepted that offer in November 2016 after an adjudicator had upheld the claimant’s full claim of £86,269.21.
- The offer was held to be a Part 36 offer.
- The costs of the adjudications were not recoverable as costs of proceedings. (The costs of adjudications not normally being recoverable in any event).
(If anything this case shows the importance for a claimant of keeping offers under review and withdrawing or revising those offers when desirable).
The first relevant letter is dated 8 January 2016, from Futures’ previous solicitors to Wilson. This referred to an adjudication that had been commenced the previous year but which (I am told) had not progressed to completion because the adjudicator resigned on jurisdictional grounds. The letter sought the £86,469.21 and said:
“If our client does not receive payment of this sum within fourteen days we are instructed to issue court proceedings against you at the Technology and Construction Court without further notice.”
In similar vein, on 11 February the solicitors wrote again, referring to the fact that, although there had been meetings after their letter of 8 January, no settlement had been reached. The letter said: “Therefore we are now instructed to issue court proceedings against you without further notice.”
“Our client: Wes Futures Limited
406-408 The Strand
Without Prejudice Part 36 Offer
We refer to our client’s claim against you in the sum of £86,469.21 plus VAT.
We are instructed to make a settlement offer in accordance with Part 36 of the Civil Procedure Rules. Our client is prepared to accept the sum of £65,000 plus VAT in full and final settlement of its claim.
If this offer is accepted at a point which is more than 21 days from the date of this offer you will be liable for all our client’s legal costs incurred in this case.”
The sums were not paid and, in August 2016, Futures commenced a second set of adjudication proceedings, again seeking the £86,469.21 plus VAT. The claim was disputed and, in their response, Wilson put forward allegations of fraud. In a decision dated the 13 September 2016 the adjudicator upheld Futures’ claim in full, together with VAT and interest.
Wilson still refused to pay, so on 6 October 2016 Futures commenced adjudication enforcement proceedings in the TCC. I gave directions leading up to the hearing fixed for today. Wilson relied on a 50 paragraph witness statement to dispute the claim. This raised a number of points, including the allegations of fraud which had been rejected by the adjudicator.
B: THE COURT’S APPROACH
Both sides expressly accept that, as a result of the second letter of 11 February and the letter of 4 November 2016, there was a binding compromise between the parties. They confirmed that in answer to my direct question this morning. However, they differ as to the proper interpretation and construction of that compromise. In particular, Futures submit that the agreement includes the cost of both the adjudication in 2015 and the subsequent adjudication in the summer of 2016; Wilson dispute that. Until the start of today’s hearing, there was also an argument that the compromise settled the fraud allegations raised by Wilson against Futures: Futures said it did, Wilson said it did not. However, Ms McCann now accepts that, as against Futures, those allegations have indeed been compromised. In my view that concession, albeit late, was rightly made.
When I was looking at the papers in preparation for today’s hearing, I thought that one conclusion might be that there was, in truth, no agreement between the parties at all, so fundamental were their differences. However, I acknowledge that the court is here to assist the parties if at all possible, and once it was confirmed this morning that both parties continued to rely on the existence of the agreement, it seemed to me appropriate to deal with the issue as a question of interpretation/construction only.
The correctness of that approach to disputes under part 36 is confirmed by the decision of the Court of Appeal in Dutton & others v. Minards & others  EWCA (Civ) 984 where, at paragraph 29 of his judgment, Lewison LJ said:
“The approach to the interpretation of an offer that purports to be a part 36 offer is laid down by this court in C v D  EWCA (Civ) 64,  1 WLR 1962. If an offer is expressed to be a part 36 offer it should be interpreted if possible to make it effective as what it purports to be, rather than ineffective. This general principle of interpretation (validate if possible) was relied on by Rix LJ at paragraph 55, Rimer LJ at paragraph 75, and Stanley Burnton LJ at paragraph 84.”
Paragraph 30 of the same judgment identifies examples of cases where, despite this principle, the court was unable to say that the offer was a valid part 36 offer. Those include Mitchell v. James  EWCA (Civ) 997, where the offer to settle was on the basis that each party bear their own costs. Another was French v. Groupama Limited  EWCA (Civ) 1119 where the offer was held not to be a part 36 offer because it included the offer to pay a global sum inclusive of costs.
C: WAS THIS A PART 36 OFFER?
CPR 36.7 makes plain that a part 36 offer can be made at any time, including prior to the commencement of the relevant court proceedings. This pre-action offer was therefore not invalid on that score. Moreover, this offer was made on the same day as the letter from Futures’ previous solicitors saying that they were now instructed “to issue court proceedings against you without further notice”. On the face of it, therefore, this was a part 36 offer relating to those imminent court proceedings. The acceptance of 4 November repeats the express reference to part 36. On the face of it, therefore, this offer was made and accepted as a valid part 36 offer. It did not contain either of the obvious errors identified in paragraph 30 of Dutton. The court should therefore validate it, unless there is a very good reason not to.
Mr Selby contended that the offer did not comply with r.36.13.4(b) and r.36.13.5 because it purported to exclude the court’s power to determine liability for costs in circumstances where the offer was accepted after the 21 days, and therefore precluded the court from deciding what was just in the particular circumstances of the case. I consider that to be a rather artificial argument, and a long way from the sort of examples of invalidity identified in Dutton. In addition, it could be said that determining liability for costs is precisely what the court is doing this morning, and because both parties consider that they have reached an agreement as to costs, it might be thought unjust for the court to interfere with it. Accordingly, I conclude that this was a part 36 offer, particularly given the approach outlined in paragraph 29 of Dutton.
If this was a Part 36 offer, the analysis is straightforward. Rule 36.13(1) refers to the claimant recovering “the costs of the proceedings”. That was the subject of the part 36 offer, and that was what was accepted. That means the cost of the court proceedings, threatened in February but not actually commenced until later. It is, I think, agreed that the costs of the adjudications are not costs of the proceedings. So if this was a part 36 offer, it would exclude the costs of both the earlier and the later adjudications, which would not be recoverable.
D: WHAT IF THIS WAS NOT A PART 36 OFFER?
Now let us assume that I am wrong, and that this is not a part 36 offer because of the point raised by Mr Selby in relation r.36.13.4(b) and r.36.13.5. Does that make any difference to the outcome? In my view it does not. Even though, on this assumption, the second letter of 11 February was not a part 36 offer, it was a letter that expressly referred to part 36. It therefore presupposed that there were or would be court proceedings in respect of which the offer was designed to operate. That is confirmed by the fact that the offer letter was written on the very same day as the warning that court proceedings would be commenced without further notice. Accordingly, it seems to me that, as a matter of construction, even if this was not a part 36 offer, it was still an offer that was being made in relation to “the costs of the [court] proceedings” as set out in r.36.13.1.
Mr Selby sought to rely on the words “all [Futures’] legal costs incurred in this case” and submitted that this form of words was wider than “the costs of proceedings” and could be construed as including the legal costs incurred/to be incurred in the adjudications. I do not agree with that. It seems to me that those words are entirely consistent with the fact that part 36 had been identified in the offer letter, and related to the imminent court proceedings. The reference to “incurred in this case” merely confirms that interpretation. Further, the offer letter makes no reference to the costs of adjudication proceedings, either as costs incurred in the past or to be incurred in the future. That is perhaps unsurprising, because the offer envisages (as the other letter of the same date made plain), that there would be court proceedings instead. Accordingly, it does not seem to me that, even if this was not a part 36 offer, it could be said to include the costs of the past or future adjudications.
In my view there are also two wider principles which also militate against Futures’ interpretation of the letter, even if we assume that it was not a part 36 offer. The first is that, in an ordinary case, a party seeking to recover a sum awarded by an adjudicator is not entitled to (and cannot seek) the legal costs it incurred in the adjudication itself. That is because, pursuant to the Housing Grants (Construction and Regeneration) Act 1996, as amended, costs incurred in adjudications are not recoverable. So if a successful party cannot recover its costs in the adjudication itself, it cannot recover them in enforcement proceedings either.
In Lobster Group Limited v. Heidelberg Graphic Equipment Limited  EWHC 413 (TCC) it was held that the costs of a pre-action mediation could not subsequently be recovered as costs of the proceedings because the parties had agreed that they would each bear their own costs of that mediation. That is effectively achieving by an agreement to mediate what the 1996 Act requires for adjudication, and the result is the same: the costs are the subject of a different regime and are not recoverable.
Secondly, “costs of proceedings” (which is the relevant wording, whether or not this was an offer actually made under part 36 or simply an offer that referred to part 36) includes “recoverable pre-action costs” (CPR 36.13.1). Those will not normally include the costs of separate, stand-alone ADR proceedings such as adjudication. In the case of Roundstone Nurseries Limited v. Stevenson Holdings Limited  EWHC 1431 (TCC) that principle was restated, albeit that the particular costs under review in that case were again the costs of a mediation rather than an adjudication. However, in my judgment, the same principles apply.
RELATED POSTS: PART 36
- Part 36: costs not taken into account when considering whether an offer has been “beaten”.
- Has a Part 36 offer been beaten when the value of currency changes? A High Court decision.
- Claimant’s Part 36 offers: when has the claimant beaten its own offer?
- Part 36: additional amounts and interest.
- Indemnity costs on appeal after Part 36 offer.
- Costs should not normally be reduced when a claimant beats their own Part 36 offer: Court of Appeal decision.
- Part 36: the costs consequences of late acceptance
- Part 36 offer did not encompass payment on account
- Fixed costs and Part 36: the judgment in the Court of Appeal.
- Lord Chancellor gets a bonus: the powerful results of a claimant’s Part 36 offer.
- Not a racing certainty: but indemnity costs follow claimant’s Part 36 offer.
- Part 36: when the normal costs penalties may not apply
- Is this a claimant’s or defendant’s offer? Another important decision on Part 36
- Clarification of a Part 36 offer has a major effect on costs.
- Costs where a claimant accepts a Part 36 offer late: two cases where the claimant came to grief
- Another case where there was an invalid Part 36 offer
- Is this a Part 36 offer I see before me? That’s an important question
- How relevant are Part 36 offers to issue based orders?
- Knowing the risks and advantages for the claimant in the new Part 36.
- The costs consequences of Part 36 offers: do they always apply? The cases in detail.
- Costs consequences of Part 36 offers: some interesting examples
- Costs, conduct, Part 36 and the “Winning Party”.
- Interest and costs when a claimant beats their own Part 36 offer.
- Costs of £7 million: Part 36 bites hard on claimants who cleared a first hurdle but fell at the second.
- Claimant beats own Part 36 offer and receives an additional £75,000 in damages.
- The dangers of a Part 36 offer: Claimant pays three times more in costs than he receives in damages.
- Another example of a successful defendant not recovering all of its costs (and of the advantages of a Part 36 offer).
- Percentage costs orders after a claimant beats their own Part 36 offer: a High Court decision.
- Very important decision on Part 36 offers, assessment of costs and additional amounts when offers not beaten.
- Increased interest and costs after claimant beats its own Part 36 offer.
- Part 36 offer does not override the need to serve the claim form.
- Part 36: Indemnity costs when a defendant accepts out of time.