YOU CAN'T GO BEHIND THE OTHER SIDE'S BACK WHEN WITHDRAWING A PART 36 OFFER
Mr Justice Leggatt in a judgment given today described the facts in Evans -v- Royal Wolverhampton Hospitals NHS Foundation Trust  EWHC 3185 (QB) as “remarkable”. It raised the question of “whether a party who requires the court’s permission to withdraw a Part 36 offer may be granted such permission on the basis of information and for reasons not disclosed to the the party to whom the offer was made.” This is the strangest case I have read on procedure. The defendant made a “secret” application to withdraw a Part 36 offer and persuaded the court that the reasons for the application, and evidence upon which it was based, should be withheld from the claimant.
Evans was a clinical negligence case. On the 3rd July 2014 the defendant made a Part 36 offer of £325,000. On the 23rd July 2014 at 11.25am the defendant’s solicitors served a notice of withdrawal of the Part 36 offer. At 12.45pm on the same day the claimant’s served notice of acceptance. Both of these notices were served within the 21 day period for acceptance under Part 36. The defendant needed permission of the court to withdraw the offer within that 21 day period.
The defendant did not pay the £325,000 and the claimant applied for judgment for that sum, as provided for under Part 36.11(7),
THE DEFENDANT’S SECRET APPLICATION
Unbeknown to the claimant the defendant made a without notice application to the court. The judge ordered that the defendant had permission to withdraw the offer. Further the judge ordered that the requirement that the application notice and evidence in support be served on the claimant “shall be dispensed with”
THE SECRET STATE
- On 13 August 2014 the claimant received a copy of this order (which I will call “the ex parte order”). However, as sanctioned by paragraph 5 of the ex parte order, the claimant was not served with the application notice or the evidence which had been relied on in support of the defendant’s application. Nor was the claimant given any note or other record of what had been said at the hearing. Even now, the claimant and her representatives do not know the basis on which the ex parte order was made. The only information provided to them has been a redacted version of the defendant’s skeleton argument for the hearing on 7 August 2014. This contains a submission that there was a change of circumstances which justified permitting the defendant to withdraw its offer. However, in the copy disclosed to the claimant the parts of the skeleton argument which presumably explained the nature of this alleged change of circumstances have been blanked out.
BACK TO THE JUDGE
The judge who made the order determined that the court had jurisdiction to permit the defendant to withdraw its Part 36 offer after a claimant had accepted it. The question of whether the claimant was entitled to see the evidence upon which the order was made was adjourned to a High Court Judge.
BUT THE HIGH COURT JUDGE CAN’T SEE THE EVIDENCE EITHER
- I have not seen the defendant’s application notice dated 24 July 2014 nor the evidence relied on in support of its application for permission to withdraw its Part 36 offer; nor have I been told the grounds on which the defendant contends that there had been a change of circumstances which made it just to give such permission. The defendant has asked me to consider this material without it being disclosed to the claimant. The claimant objects to that course.
WHAT ABOUT NATURAL JUSTICE?
The claimant pointed to three recent decisions of the Supreme Court which considered the requirements for natural justice. Faced with this the defendant conceded that the claimant could, and should, see the evidence and know the basis on which the order was made. The defendant asked for an adjournment.
NOW THIS IS WORTH READING
- Before granting an adjournment, however, the court would need to be satisfied that there is a sufficient reason to do so. Mr Counsell submitted that, for this limited purpose, it is permissible for the court to consider evidence and argument which has not been disclosed to the claimant. In support of this contention he relied on the passages in the judgment of Lord Hope in the Al-Rawi case at para 72 and in the Bank Mellat case at para 81 which I have quoted above and on the similar distinction between ancillary matters and questions of substantive rights drawn in the BSkyB case. He submitted that the adjournment which the defendant is seeking is a procedural matter which does not engage the fundamental principles of open and natural justice. In due course the claimant can see the defendant’s evidence and the substantive questions raised by the applications can then be argued and decided in accordance with an open and fair procedure.
- Mr Samuel responded to the effect that justice delayed is justice denied. The claimant is at present being kept out of money which, if her acceptance of the defendant’s Part 36 offer was valid, she should have been paid by 6 August 2014. He submitted that the delay that has already occurred, and any further delay, affects her substantive rights and is causing her, as a severely disabled person, real prejudice. In these circumstances any application to adjourn the hearing can itself only properly be conducted on the basis that the grounds and evidence relied on in seeking an adjournment are disclosed to the claimant.
Should the court see the defendant’s evidence?
- The question which I found difficult when listening to the oral argument and which led me to reserve judgment is whether I should look at the defendant’s evidence solely for the purpose of deciding whether there is any merit in the application for an adjournment. On the one hand it seemed to me unfair to follow a procedure, for any purpose at all, which involves putting the parties on an unequal footing. But on the other hand I felt a concern that, without knowing the reasons which are said by the defendant to require an adjournment, I cannot say whether they are insufficient. I also felt a concern that it might be unfair to require the defendant to disclose the reasons to the claimant, or for the court to refuse to consider them unless they are disclosed, when it is the defendant’s case that such disclosure would itself defeat the reasons why an adjournment is required.
- On consideration, however, I have come to the clear conclusion that these concerns are misplaced and that I can and should reject the application for an adjournment without considering any evidence or argument which the defendant has refused to disclose to the claimant.
The defendant’s without notice application
- I remind myself that the context for this hearing is that the defendant has already been given permission to withdraw its Part 36 offer and that such permission was given on an application made without notice to the claimant.
- The practice of making orders which determine questions of substantive legal rights on an application made without notice is itself an exception to the principles of open and natural justice. As such, it is a power which, in principle and as a matter of established practice, can only properly be exercised in certain limited circumstances and subject to vital safeguards.
- As a general principle, such an application should not be made without notice unless either giving notice would enable the respondent to take steps to defeat the purpose of the application or there has been literally no time to give notice before the urgent assistance of the court is required: see National Commercial Bank Jamaica v Olint Corpn Ltd  1 WLR 1405, 1408 at para 13. Paradigm cases falling in the first of these categories are freezing orders and search orders, where there is concern that giving notice of the application might well prompt the respondent to take evasive action which would render the order ineffective before it was made.
- It is standard practice when granting a freezing order, search order or other form of interim injunction without notice for the court to require undertakings that the applicant will serve on the respondent at the same time as the order or as soon as practicable copies of all evidence and documents which were relied on in support of the application. There is also an obligation on the applicant to provide the respondent with a note or transcript of the hearing. These requirements reflect the rights of the respondent to know the basis on which an order affecting his legal rights has been made and to apply to set aside or vary the order. It is difficult to see how it could ever be compatible with natural justice to determine a question of substantive legal right against a party to litigation at a hearing held without notice to that party unless he is afforded such protection.
- I cannot accept that it was or could have been appropriate in this case for the defendant to apply to the court for permission to withdraw its Part 36 offer and to have the claimant’s purported acceptance of the offer set aside without giving notice of its application to the claimant. There was clearly ample time in which to give such notice between 24 July 2014 when the application was issued and 7 August 2014 when the application was heard. Nor is an application for permission to withdraw a Part 36 offer one whose purpose could be defeated by the offeree if notice of the application is given before an order granting the application is made.
- I understand the defendant to have been concerned that, pursuant to CPR 36.11(6) and (7), unless permission to withdraw the offer was given within 14 days of its purported acceptance, the claimant would be entitled to enter judgment for the unpaid sum. In response to the claimant’s application to enter judgment, however, it would have been open to the defendant to argue that the purported acceptance of its Part 36 offer was invalid because the defendant had served notice of withdrawal on the claimant. This would have raised the question of whether the notice of withdrawal was valid, which in turn would depend on whether the court gave permission for the withdrawal of the offer. The logical approach would therefore have been to list the defendant’s application for permission to withdraw its offer and the claimant’s application to enter judgment for hearing at the same time.
- Even if it were thought essential for the defendant’s application for permission to withdraw its offer to be heard within the 14 day period referred to in CPR 36.11(7), this would not provide any justification for making the application without notice to the claimant. There is no step which, if given notice of the application, the claimant could have taken to prevent an order giving the defendant permission to withdraw its offer from being effective.
- It accordingly seems to me that it was wrong in principle for the defendant to make its application for permission to withdraw its Part 36 offer without notice to the claimant and for the court to entertain that application.
- It was all the more wrong in my view, when such permission was given and the claimant’s purported acceptance of the Part 36 offer was set aside at a hearing from which the claimant was excluded, to conceal from the claimant the grounds on which that order had been made. I am not aware of any precedent for such a procedure and none was cited. That is unsurprising as the procedure seems to me to represent a denial of justice. As discussed, making orders which determine questions of substantive right as between the parties to litigation without notice to a party against whom such an order is made can only be justified if that party has the right to apply to the court to set aside or vary the order upon being given notice of it. That right is embodied in CPR 23.9(3) and 23.10. However, the right to apply to have the order set aside is only real and meaningful if the party against whom the order was made (the respondent) is told the grounds on which the order was sought and made and is shown the evidence on which the applicant relied. It is manifest that, unless the respondent knows the case it has to meet, it cannot adduce evidence or advance arguments to persuade the court that it was wrong to make the order.
- CPR 23.9(2) states that where the court makes an order whether granting or dismissing an application which it permitted to be made without service of a copy of the application notice, then:
“a copy of the application notice and any evidence in support must, unless the court orders otherwise, be served with the order on any party or other person–
(a) against whom the order was made; and
(b) against whom the order was sought.”
It was under this rule that the court in paragraph 5 of the ex parte order quoted earlier “ordered otherwise” by dispensing with the requirement to serve the application notice and evidence in support on the claimant. I cannot accept, however, that it is legitimate to use this dispensing power in a way which is calculated to prevent a party against whom the order was made from exercising effectively its right to make an application to set aside the order under CPR 23.10. Yet that is plainly the effect of the order made in this case.
- For these reasons, the ex parte order should not in my view have been made and it follows that the claimant is entitled as of right to have it set aside.
Applying inter partes
- This would not prevent the defendant, now that both parties are before the court, from arguing that it should be given permission to withdraw its Part 36 offer and from opposing the claimant’s application to enter judgment on the basis that such permission should be granted. However, in accordance with the principle of natural justice such arguments would have to be supported by reasons and evidence to which the claimant was given an opportunity to respond. This case does not fall into a category where any form of ‘closed material procedure’ is permissible.
- The defendant has not served any evidence or disclosed any reasons to support the contentions that it should be given permission to withdraw its Part 36 offer and that the claimant’s acceptance of the offer is therefore invalid. In the absence of any such evidence or reasons, the claimant’s acceptance of the offer must be treated as effective, from which it follows that the claimant is entitled to judgment pursuant to CPR 36.11(7) for the accepted sum.
The request for an adjournment
- The defendant cannot, in my view, avoid that conclusion by requesting an adjournment in circumstances where no evidence has been served and no reasons have been disclosed in support of that request. I accept the claimant’s submission that the application for an adjournment engages her substantive legal rights and is an application which must itself be decided in accordance with the principle of natural justice. The claimant’s application to enter judgment is before the court and there is no insufficiency of time or other purely administrative reason why it cannot be determined now. On the material currently before the court, the claimant is entitled to have judgment entered against the defendant. If the defendant wishes to argue that judgment should not be entered against it now, it must therefore as a starting point indicate reasons which are capable of providing a substantive answer to the claimant’s application. The principle of natural justice requires that the claimant is entitled to know those reasons and to have an opportunity to dispute them.
- I conclude that it would be unlawful and improper for the court to receive evidence or argument from the defendant in support of a request for an adjournment without the claimant knowing the contents of that evidence and argument.
- It follows that the defendant’s attempt to withhold from the claimant the material that it wishes the court to consider is not a position which it is entitled to adopt. Either the defendant must now serve the evidence and disclose the arguments on which it relies to justify the withdrawal of its Part 36 offer or judgment should now be entered in favour of the claimant.
Change of circumstances
- There is another separate line of reasoning which leads me to the same conclusion. Part 36 provides a statutory procedure designed to facilitate and encourage the settlement of disputes. It is essential to its efficacy that there should be clarity and certainty in its operation. An important element of the scheme is that, when a Part 36 offer is made, the offeree knows that it has a period of 21 days (or longer if the parties agree) in which to decide whether or not to accept the offer – subject only to the reservation that the offer may be withdrawn before the expiry of that period if the court gives permission.
- The test to be applied when the court is considering whether to give a party permission to withdraw a Part 36 offer is whether there has been a sufficient change of circumstances to make it just to permit the party to withdraw its offer. That test was set out by the Court of Appeal in relation to payments into court in Cumper v Pothecary  2 KB 58 at 70. The Court of Appeal gave as examples of such circumstances “the discovery of further evidence which puts a wholly different complexion on the case … or a change in the legal outlook brought about by a new judicial decision…” This test was adopted in relation to Part 36 payments by the Court of Appeal in Flynn v Scougall  1 WLR 3069, 3079 at para 39. I see no reason why the test should be different in relation to a Part 36 offer and, as mentioned earlier, the defendant’s application to withdraw its Part 36 offer was made on the basis that this is the applicable test.
- Although I am dealing with the matter on the footing that the court’s permission for the withdrawal of the offer may be given after the notice of withdrawal was served, the date as at which the court must decide whether there was a sufficient change of circumstances to make it just to permit the party to withdraw its offer must clearly be the date on which the offer was purportedly withdrawn. It cannot be open to a party who did not have good reason to withdraw its offer at the time when it gave notice of withdrawal during the 21 day period and who would have been refused permission by the court on that date to justify the withdrawal by reference to matters discovered subsequently. This being so, I find it difficult to envisage what legitimate reason there possibly be for seeking to conceal from the offeree the way in which circumstances are said to have changed after the offer was made and before the notice of withdrawal was given. But even assuming there is such a legitimate reason, it seems to me that the matter relied on as constituting such a change of circumstances must in principle be one which the offeror is ready to disclose at the time when notice of withdrawal is given and the necessary application for permission is made. Part 36 sets out a structured series of steps, with specified timescales, for the acceptance of an offer made in accordance with its provisions and for payment of the accepted sum. It would be inconsistent with this regime and with the aim of providing a fair, speedy and effective mechanism for the settlement of proceedings, if the offeree could be required to wait in limbo for an indeterminate time, as is proposed in this case, with the whole action stayed meanwhile, before it can be established whether the offer was validly accepted within the 21 day relevant period such that the offeree was entitled to payment or judgment within 14 days thereafter.
- I would accordingly hold that the only new circumstances which could make it just to permit the party to withdraw its offer before the expiry of the relevant period are circumstances which the offeror is able and willing to make known to the offeree at the time of serving notice of withdrawal.
i) It was not permissible to allow the defendant to withdraw its Part 36 offer and to set aside the claimant’s purported acceptance of that offer on an application made without notice to the claimant, and the ex parte order dated 7 August 2014 must therefore be set aside;
ii) The defendant cannot rely in opposition to the claimant’s application to enter judgment or in support of a request to adjourn the hearing on evidence or arguments not disclosed to the claimant and to which the claimant has no opportunity to respond;
iii) It follows that, unless the defendant serves the evidence and discloses the arguments on which it wishes to rely in opposition to the claimant’s application forthwith, the claimant is entitled to enter judgment pursuant to CPR 36.11(7).
The judge described the case as “remarkable”. It is, in fact, bizarre, absolutely bizarre.