DEFECTIVE PART 36 OFFER MEANT CLAIMANT DID NOT OBTAIN PART 36 BENEFITS: WHY CLAIMANTS SHOULD DRAFT THEIR PART 36 OFFERS CAREFULLY

I am grateful to Simon Fisher from DWF costs for sending me a copy of the decision of District Judge Osborne in Flanagan -v- Royal & Sun Alliance Insurance PLC (16th May 2019). A copy of that case is available here   Darren Flanagan – Manchester CC – Judgment – 20190516 – V FINAL . It is an object lesson in the need to carefully draft Part 36 offers. The “not particularly happy” wording used meant the offer made was not a Part 36 offer and the court would not impose any of the penalties that would apply in a non-compliant offer.

” This offer is open for acceptance for 21 days from the date this letter is received by you. After 21 days the offer can only be accepted if we’re able to reach an agreement on costs or the court gives permission.”

THE CASE

The claimant succeeded at trial.  Damages of just over £2,000 were awarded.  In May 2017 the claimant had made an offer of £1,702.50.

THE WORDING OF THE OFFER

The wording of the offer is, obviously, of critical importance.  In particular the phrase “After 21 days the offer can only be accepted if we’re able to reach an agreement on costs or the court gives impression.”

“Please note that all previous offers in this matter are withdrawn.” I do
not know what they were, if any. “We are instructed by the claimant to put forward an
offer in the gross sum of £1,702.50 in full and final settlement of their claim for damages,
subject to the payment of our cost disbursements incurred to date in proceedings in this
matter, to be assessed in default of agreement. In accepting this offer, the gross sum
indicated above constitutes the value of the claim, which is exclusive of any agreed
position on liability, and consequently the defendant accepts their liability for standard
costs exclusive of disbursements and VAT. The offer relates to the whole of their claim
and is inclusive of interests as set out in part 36.54 and is made pursuant to part 36 of the
Civil Procedure Rules 1998. This offer is open for acceptance for 21 days from the date
this letter is received by you. After 21 days the offer can only be accepted if we’re able to
reach an agreement on costs or the court gives permission.”

THE JUDGE’S OBSERVATIONS ON THE OFFER

The judge described this as “not a particularly happy set of wording”.

“So that is the wording of the letter, not a particularly happy set of wording, and I
would guess done from some template, parts of which might not have stood the test of time
terribly well”

THE CLAIMANT PUT OTHER (SLIGHTLY THREATENING) MATERIAL IN AS WELL

The “Part 36 offer” did not stop there, and this has some relevance to the judge’s eventual exercise of his discretion.

“There are then a number of other paragraphs which, I think it would be fair to say,
threaten cost consequences on one scenario or another, for example if the defendant will
not enter into ADR, rare though that would be in routine road traffic accidents, or I
presume a threat of the inevitable outcome if the claimant obtained judgment for the offer
or higher, then a reference to defending the issue of any allegation of fraud, should that be
made, and a threat to seek costs on that and the right is reserved to refer it to the court, as
one would anticipate with a part 36 offer.”

THE ISSUE: WAS THIS A VALID PART 36 OFFER?

The judge found that this was not a valid Part 36 offer.

5. The defendant contends that this is not a valid part 36 offer in terms of 36.5 and the
first objection is that admittedly curious wording, “subject to the payment of our costs and
disbursements incurred to date in proceedings to be assessed in default of agreement,” and
going on with the mysterious paragraph that the defendant accepts their liability for
standard costs exclusive of disbursements and VAT. Whether that is a misprint for
inclusive or whether it means some yet vaguer thing, nobody has offered any explanation
for.
6. The defendant says that that is an improper attempt to oust 36.20 which would fix a
recoverable costs regime on this claim and attempts to put costs at large and to that extent
is an abuse of process in attempting to circumvent the CPR because it does not accurately
state the costs consequences.

7. The second objection is that, pursuant to 36.5, there is no mention of whether or not
it includes or does not include any counterclaim. As counsel for the claimant has pointed
out, the word “any” is somewhat mysterious in that rule. Does it mean whether it arises or
not, or does it mean where one has already been put forward? The defendant points out
that this came very, very early in the case and it could not then be known whether there
was likely to be any counterclaim or not. To that extent it is technically wrong, and the
wrongness is not a mere technicality such as it can safely be ignored because there never
was, in the end, anything approximating to a counterclaim.

8. The more technical area objected to by the defendant arises out of an inconsistency
with 36.11 and 36.13 because of that paragraph that says: “The offer is open for
acceptance for 21 days from the date this letter is received by you. After 21 days the offer
can only be accepted if we are able to reach an agreement on costs or the court gives
permission.” The rule that that triggers initially is 36.9. Is that a withdrawal? It says: “A
part 36 offer can only be withdrawn or its terms changed if the offeree has not previously
served notice of acceptance,” as you would expect, and then, “The offeror withdraws the
offer or changes its terms by serving written notice of the withdrawal or change of terms
on the offeree.” Therefore, if one does not do that, is the offer open ended?
9. There is, of course, another paragraph which says, at 36.9(4): “Subject to paragraph
1, after expiry of the relevant period the offeror may withdraw the offer,” which it would
appear he has to do overtly and deliberately in the terms of serving notice to that effect, “or
the offer may be automatically withdrawn in accordance with its terms.” Now, on the
wording here, the issue would therefore be is the offer automatically withdrawn in
accordance with its terms, because, it says, it can only be accepted “if we are able to reach
an agreement on costs or the court gives permission after 21 days”? Does it, therefore,
lapse and is that a new kind of offer referred to in the second sentence of that, perhaps
curious, paragraph?
10. One must bear in mind, as I have said, that the rest of the letter makes various
threats, as it were, of consequences, including if there is not an immediate entering into
ADR, that there will be costs in accordance with the well-known case of Halsey v Milton
Keynes General NHS Trust [2004] EWCA Civ 576 and the like, and, therefore, it has been
characterised by the defendant that this sort of thing is an opportunity to hold to ransom the
late accepting defendant with demands for costs, though it must be said that there is the
also issue of the court gives permission, so there is oversight of whatever is to be done.
11. It seems to me the interpretation of that paragraph is that the offer is conditionally
withdrawn and curiously the wording here is the very wording from the well-known case
of Shaw v Merthyr Tydfil County Borough [2014] EWCA Civ 1678. The letter in that case
stated, “The offer remained open for 21 days from receipt. Thereafter, it can only be
accepted if we agree the liability of the costs or the court gives permission.” And the
judgment at paragraph 16 of Shaw goes on to discuss that unhappy wording from a time
before 36.5 was changed and on that case it was found that that meant it did not comply
with the requirements of part 36.

12. In the present case it seems to me that the effect of that paragraph is that the offer is
withdrawn and that if the parties thereafter want to negotiate, then they can negotiate about
the costs consequence of whatever new offers are put forward and, in effect, therefore,

there is no offer on the basis of that paragraph because the part 36 offer lapsed after 21
days.

THE JUDGE’S CONCLUSIONS

The judge concluded that the wording of the offer took the matter outside Part 36.  He would not exercise any discretion he had to give the claimant any of the potential benefits that would have existed had this been a valid Part 36 offer.

13. My conclusions are, first, that the defendant’s first proposition is right; that the
wording, clumsily expressed again, is an attempt to oust the recoverable costs regime in
36.20 and, therefore, is not a valid part 36 offer. Secondly, that one could not know at the
time whether this was or was not to be a case where it would be material. We are in a
highly technical regime requiring certainty and the failure to refer to the counterclaim
likewise invalidates the attempt. But, anyway, if I were wrong about both those things, it
seems to me that this part 36 offer, if it were one, would have been withdrawn
automatically in its own terms.
14. The consequences of that are set out in a helpful and discursive note at 36.10.4 in the
White Book, dealing with the cost consequence of withdrawing or changing the terms of a
part 36 offer, and the conclusion I come to, which is material to other aspects here, is set
out very well there. The propositions include that if the court concludes that, of course, it
was open to a defendant to accept within 21 days that would have certain costs
consequences. If it concluded that was too early or there were some other factors, that
might be something to bear in mind as to whether it was merely a general exercise of the
cost discretions in part 44. However, in my view, as I have held, the whole thing did not
amount to a valid part 36 offer; none of the other considerations, interesting though they
are, set out on page 1197 of the current White Book as to the effects of a lapsed or
withdrawn Part 36 offer are not material.
15. One moves on, therefore, to a consideration of the consequences. What should the
consequences be of the fact that this “offer”, valid for only 21 days, was not accepted?
Should the defendant really have accepted it and should they be penalised in costs for not
having done so? I bear in mind how early it was, what its technical purpose was, which
was to put the defendant under pressure at a time when the claimant may well have had a
monopoly of much of the information, the follow-up threats of other costs, consequences
for failure to engage in ADR, failure to withdraw any allegation of fraud and the like.
16. The costs regime in part 36 is punitive, and overtly so, where it is a defendant not
accepting a claimant’s offer. The other way round, it is merely an appropriate way of
expressing the undesirability of continuing with litigation and losing in not beating the
offer. This way round, to put pressure on a defendant, the consequences are, first, the costs
will be on the indemnity basis, and here, eye-wateringly, this seems to be a figure of
£34,000 on this very modest claim, accepting for the moment the cost schedules served at
the time of trial. Second, there is interest at what is a rate far above commercial rates or
that available in other forms of litigation as well, on both damages and costs.
17. It seems to me that that regime should only be applied in the case of part 36 offers in
the strict terms of part 36 and not under the more general regime concerning offers in CPR
44.2(4) (c). I can see no reason for imposing that, given the circumstances and this modest
claim, on this defendant and it seems to me the claimant is adequately rewarded by the
predictable recoverable costs regime which the legislature has deemed just for this kind of
modest road traffic accident. I am, therefore, not going to make any punitive or other
awards in the claimant’s favour, other than the recoverable costs.