DATE ON LETTER DID NOT PREVENT IT BEING A VALID PART 36 OFFER: NO ESTOPPEL IN THE CONSTRUCTION OF PART 36 OFFERS: HIGH COURT DECISION TODAY

September 11, 2020 · by · in Costs, Part 36

In Essex County Council v UBB Waste (Essex) Ltd (No. 3) [2020] EWHC 2387 (TCC) Mr Justice Pepperall considered arguments relating to the validity of Part 36 offers. He found that the offer the claimant made was a valid Part 36 offer. He also observed that the principle of  estoppel has no part to play in the construction of a Part 36 offer and its consequences.

 

“I consider that, as a matter of policy, the responsibility for ensuring that an offer is compliant with Part 36 should lie squarely upon the offeror and his lawyers.”

THE CASE

The judge was considering the effect of an offer made by the claimant in an action.  The offer had been sent by email on the 7th March 2019. It has been sent after 4.30 pm and, therefore, was deemed to arrive the following day. The defendant argued that it was not a valid Part 36 offer because the offer was dated 7th March and the 21 days for acceptance ran from the date of the letter.  This argument was not accepted by the judge.

THE JUDGMENT ON THIS ISSUE

2. WAS THE OFFER A COMPLIANT PART 36 OFFER?
    1. Rule 36.5(1)(c) provides that a Part 36 offer must, among other matters, “specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs in accordance with rule 36.13 or 36.20 if the offer is accepted.” The Authority’s offer in this case was dated 7 March 2019. It stated, in apparent compliance with r.36.5(1)(c):
“If the Defendant accepts the offer within 21 days of the date of this letter (the ‘Relevant Period’), the Defendant will be liable for the Claimant’s costs of the Proceedings (including pre-action costs) up to the date on which written notice of acceptance of this Offer is received by the Claimant, in accordance with CPR 36.13.”
    1. The offer was not, however, “made” for the purposes of Part 36 until 8 March 2019:
9.1 Rule 36.7(2) provides that Part 36 offers are made when they are served.
9.2 The Authority’s offer was sent by email at 4.54pm on 7 March 2019. Given that the email was sent after 4.30pm, it was deemed by r.6.26 to have been served on the following day.
    1. Mr Stewart argues that the only proper construction of the letter is that the 21 days ran from 7 March and, because the offer was not made until the following day, the offer therefore failed to specify a relevant period of not less than 21 days. Mr Taverner responds that the court should construe the offer such that the 21 days ran from the date of deemed service. Citing C v. D [2011] EWCA Civ 646, [2012] 1 WLR 1962, he submits that faced with two reasonable interpretations of the offer, the court should favour the construction that is compliant with Part 36.
DISCUSSION
    1. In C v. D, the claimant purported to make Part 36 offers that contained the words: “… the offer will be open for 21 days from the date of this letter (the ‘relevant period’).” The defendant purported to accept one of the offers after the expiry of the 21-day period. Warren J granted the claimant a declaration that its offer was no longer open for acceptance. The Court of Appeal allowed the appeal and construed the offer letter not as meaning that the offer was “only open” for 21 days, but as indicating that the relevant period (namely the period within which the defendant would be liable for the claimant’s costs upon acceptance in accordance with what is now r.36.13) was a period of 21 days and that thereafter it might be withdrawn.
    2. Rix LJ first concluded that, under the then applicable rules, parties could not make time-limited Part 36 offers. Since 2015, such difficulty has been removed by a new provision at r.36.9(4)(b). Nevertheless, the court’s ruling upon the possibility of making a time-limited offer was important since Rix LJ approached the question of construction of the offer on the basis that:
12.1 both parties’ solicitors would know such legal context; and
12.2 it was common ground that the offer was intended to be made and understood as a Part 36 offer.
    1. Rix LJ then relied, at [49], on the principle of construction that the court should read a document as a whole and seek to bring rational sense and consistency to that whole. Further, he relied on the statement of principle in Lewison on The Interpretation of Contracts that:
“The court is reluctant to hold that parts of a contract are inconsistent with each other, and will give effect to any reasonable construction which harmonises such clauses.”
    1. In addition, Rix LJ relied on the rule of construction (traditionally expressed by the Latin maxim verba ita sunt intelligenda ut res magis valeat quam pereat) that the court should prefer a construction that allows an instrument to be effective over one which would render it void, ineffective or meaningless. The judge concluded that both constructions of the offer letter were feasible and reasonable, but favoured the construction that was consistent with the clear intention to make a Part 36 offer and which ensured that such offer was effective rather than ineffective.
    2. In his own judgment, Rimer LJ powerfully explained why it is of no utility to consider the meaning of the critical passage in isolation from the context in which it was made. As Lord Hoffmann cautioned in Charter Reinsurance Co. Ltd v. Fagan [1997] A.C. 313, at 392A:
“It is artificial to start with an acontextual preconception about the meaning of words used and then see whether that meaning is somehow displaced.”
    1. That is, of course, because as Lord Hoffmann subsequently explained in Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 WLR 896, at page 913:
“The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter for dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax …”
    1. In C v. D, Stanley Burnton LJ added simply, at [84]:
“Any ambiguity in an offer purporting to be a Part 36 offer should be construed so far as reasonably possible as complying with Part 36. Once it is accepted that a time-limited offer does not comply with Part 36, one must approach the interpretation of the offer in this case on the basis that the party making the offer, and the party receiving it, appreciated that fact.”
    1. Lewison LJ pithily summarised the resulting principle as “validate if possible” in the subsequent case of Dutton v. Minards [2015] EWCA Civ 984, [2015] 6 Costs L.R. 1047. Further, the principles in C v. D were recently restated by Coulson LJ in Hertel v. Saunders [2018] EWCA Civ 1831, [2018] 1 WLR 5852, at [22]. There are, however, limits to what can be achieved purely through construction:
18.1 In Thewlis v. Groupama Insurance Co. Ltd [2012] EWHC 3 (TCC), [2012] 5 Costs LO 560, the offer did not comply with the then mandatory requirement in r.36.2(2)(b) that it “state on its face that it is intended to have the consequences of Section I of Part 36.” His Honour Judge Behrens held that it would not in any event have been a valid Part 36 offer because the offer letter stated that it could only be accepted after 21 days if the parties agreed the liability for costs or the court gave permission. Distinguishing the case from C v. D, Judge Behrens held that such wording was inconsistent with Part 36 and could not be ignored as mere surplusage.
18.2 The same issues arose in Shaw v. Merthyr Tydfil County Borough [2014] EWCA Civ 1678, [2015] P.I.Q.R. P8. The Court of Appeal endorsed Judge Behrens’ reasoning on both points. Maurice Kay LJ did not doubt the authority of C v. D but observed, at [20]:

“Here the offer was not a Part 36 offer because it failed to comply with the mandatory and highly prescriptive requirements of the current ‘self-contained code.’ In these circumstances it is not necessary to engage in the construction exercise invited by Mr Rivers. No process of construction, however liberal, can bring satisfaction of procedural requirements which were not fulfilled.”

18.3 Pitchford LJ added, at [27]:

“In the present case we are not concerned with a Part 36 offer presented as such and ‘otherwise complying with its form’ … We are concerned with an offer that purports to be made under Part 36, but whose terms are completely inconsistent with Part 36 and that fails otherwise to comply with its form.”

    1. Turning to the present case, I decline to construe the offer letter divorced from its proper context. Since there can be no doubt that Slaughter & May’s letter was intended to be a Part 36 offer, I consider that a reasonable person having all the background knowledge available to the parties would know that:
19.1 the letter was intended to be a Part 36 offer;
19.2 r.36.5(1)(c) requires Part 36 offers to specify a “relevant period” of not less than 21 days (being the period during which the defendant will be liable for the claimant’s costs upon acceptance under r.36.13);
19.3 the statement in the letter set out at paragraph 8 above was intended to be the statement of a relevant period in compliance with r.36.5(1)(c);
19.4 r.36.7(2) provides that Part 36 offers are made when they are served; and
19.5 since this offer was sent by email at 4.54pm on 7 March 2019, it was not “made” for the purposes of Part 36 until 8 March 2019.
    1. Approached in this way, I consider that the statement that the relevant period ran for “21 days of the date of this letter” could feasibly and reasonably be construed in one of two ways:
20.1 First, it could mean that the 21 days ran from the date stated on the face of the letter, i.e. 7 March. If so, a mistake was made and the offer did not comply with r.36.5(1)(c).
20.2 Alternatively, it could mean that the 21 days ran from the date when the offer was made, i.e. 8 March. It is not, in my judgment, a forced construction to describe the date of the making of an offer contained in a letter as the date of the letter.
    1. In accordance with the reasoning in C v. D, I prefer the latter construction since it is consistent with the clear intention to make a Part 36 offer and ensures that the offer is effective rather than ineffective. Accordingly, I reject UBB’s argument that the offer letter was not compliant with Part 36.
3. THE POSITION IF THE OFFER WAS NOT COMPLIANT WITH PART 36
    1. In view of my finding above, it is not strictly necessary to consider Mr Taverner’s fallback arguments that (1) any non-compliance was de minimis and that the court should, in any event, treat the offer as a Part 36 offer; and (2) UBB is estopped from now relying upon any defect in the offer. I have, however, heard full argument and, lest I am wrong upon the construction point, it is appropriate that I briefly consider the consequences of a finding that the offer was not compliant.
DE MINIMIS ERRORS
    1. Mr Taverner submits that the court can properly overlook minor defects in a Part 36 offer that mislead no one. Mr Stewart responds that Part 36 is a self-contained code and that parties must strictly adhere to its requirements in order to obtain the benefits of the regime. Substantial compliance, he contends, is not sufficient.
    2. In Hertsmere Primary Care Trust v. The Administrators of Balasubramanian’s Estate [2005] EWHC 320 (Ch), [2005] 3 All ER 274, Lightman J upheld a master’s award of additional interest and indemnity costs under what is now r.36.17 even though the claimant’s offer did not comply with the requirements of Part 36. Old cases such as Hertsmere need, however, to be treated with caution since the then applicable rules provided that non-compliant offers might still have the consequences of a Part 36 offer “if the court so orders.” By contrast, r.36.2(2) now provides:
“Nothing in this Section prevents a party making an offer to settle in whatever way that party chooses, but if the offer is not made in accordance with rule 36.5, it will not have the consequences specified in this Section.”
    1. If I am wrong in my construction of the offer in this case then it was not made in accordance with r.36.5 and therefore, subject to Mr Taverner’s estoppel argument, rule 36.2(2) prevents there being any question of treating the offer as if it were a valid Part 36 offer. If that is right, then the court’s discretion as to costs would fall under Part 44 and not Part 36.
    2. There is some authority that supports the proposition that the court might be able to treat a failure to comply with Part 36 as de minimis, especially where no one is misled, in order to provide like benefits under Part 44:
26.1 In Huntley v. Simmonds [2009] EWHC 406 (QB), Underhill J (as he then was) found that a purported Part 36 offer did not comply with the formal requirements of Part 36. The judge observed that the errors were “purely technical failures.” While not a Part 36 offer, Underhill J held that in such circumstances the court could give effect to a non-compliant offer by the exercise of its discretion pursuant to Part 44.
26.2 In Fitzroy Robinson Ltd v. Mentmore Towers Ltd [2010] EWHC 98 (TCC), Coulson J (as he then was) found that in considering the appropriate costs order the court could take into account that if two offers had been made in accordance with Part 36 then indemnity costs would have been payable as a matter of course under what is now r.36.17.
    1. Of course, a number of orders are ordinarily made in favour of claimants who achieve a judgment at least as advantageous as their Part 36 offers under r.36.17 that are simply not open to the court (viz. the additional amount of up to £75,000 and additional interest on costs and damages) or which are not routinely ordered (viz. indemnity costs) under Part 44. In PHI Group Ltd v. Robert West Consulting Ltd [2012] EWCA Civ 588, [2012] 4 Costs L.O. 523, Lloyd LJ observed, at [48]:
“Those consequences are not sought in the present case, even though PHI’s offer was a claimant’s offer. The point therefore does not arise for decision, but for my part I do not see how the court could award the additional interest unless the offer was a Part 36 offer properly so-called. Even a minor formal or technical defect would be fatal to that entitlement. So far as indemnity costs are concerned, they can of course be awarded under the general provisions as to costs, but absent a true Part 36 offer a claimant’s claim for indemnity costs would have to be justified on the relevant general principles, not just by arguing that the offer only just failed to comply with Part 36.”
    1. In F&C Alternative Investments (Holdings) Ltd v. Barthelemy (No. 3) [2012] EWCA Civ 843, [2013] 1 WLR 548, Davis LJ, doubting the decisions in Huntley and Fitzroy Robinson, said at [63]:
“Given the facts there can be no quarrel at all with the overall result in the Fitzroy Robinson case; nor can there be any quarrel with the judge having regard to the without prejudice save as to costs offers as part of the relevant material in deciding overall whether to order indemnity costs. But in my respectful view, it goes altogether too far to take into account as a factor that, had only those offers been made as Part 36 offers, then indemnity costs would have been payable as a matter of course. That is a course neither mandated nor permitted either under Part 36 or under r.44.3. Similarly, while the result in the Huntley case may be capable of being justified on the special facts, in my view it is not permissible wholly to discount a number of failures to comply with the requirements of Part 36 as the merest technicality. Perhaps there can be de minimis errors or obvious slips which mislead no one: but the general rule, in my opinion, is that for an offer to be a Part 36 offer it must strictly comply with the requirements.”
    1. Mr Taverner seizes on Davis LJ’s acknowledgment that there might be scope to accommodate “de minimis errors or obvious slips which mislead no one.” That is, however, a slim foundation upon which to build his argument.
    2. In my judgment, where the non-compliance is a failure to comply with one of the mandatory requirements set out in r.36.5, the position is as follows:
30.1 Rule 36.2(2) is clear and there is no possibility of such an offer being treated as a Part 36 offer.
30.2 Like any other settlement offer, the non-compliant offer must be taken into account when exercising the general discretion as to costs under Part 44: see r.44.2(4)(c).
30.3 In exercising the court’s discretion under Part 44, the court cannot, however, treat an offer that is a “near miss” as if it were a compliant Part 36 offer.

ESTOPPEL

The judge then went on to consider matters relating to estoppel.

ESTOPPEL
    1. The offer letter in this case concluded with these words:
“Should the Defendant require any clarification as to the terms of this Offer, or should the Defendant consider this Offer to be in any way defective or non-compliant with Part 36 of the CPR, please notify us by return and in any event within seven days of the date of this letter. Any failure to do so will be relied on by the Claimant to preclude the Defendant from attempting to avoid the adverse costs consequences of Part 36.“
    1. UBB’s solicitors replied to the offer on 25 March 2019. The reply expressly referred to the Authority’s Part 36 offer and made plain that its terms were unacceptable to UBB. Norton Rose Fulbright did not point out that there was an issue as to compliance with Part 36. I accept Mr Stewart’s submission that that was simply because the service point had not yet been identified.
    2. Relying on obiter dicta in Seeff v. Ho [2011] EWCA Civ 401, [2011] 4 Costs LO 443 and Ali v. Channel 5 Broadcast Ltd [2018] EWHC 840 (Ch), [2018] 2 Costs LR 373, Mr Taverner contends that UBB represented by its letter of 25 March that the offer was a Part 36 offer and that the Authority having acted to its detriment by relying on such representation, UBB is now estopped from taking the technical point under r.36.5(1)(c).
    3. Seeff was not a fully argued Part 36 appeal. Rather, the Court of Appeal was dealing with written costs submissions following its decision upon a substantive appeal. Thomas LJ, as he then was, found that the offer was compliant but added, at [12]:
“… in any event the letter of 14 May 2010 made it clear that if the offer was in any way defective or non-compliant with Part 36, Mr and Mrs Ho’s solicitors were asked to let them know as soon as possible. It seems to us clear that, not only did the solicitors treat the offer as a Part 36 offer in the light of the hearing of the appeal, but they also accepted it as a Part 36 offer in their letter of 21 September 2010.”
    1. In Ali, Arnold J (as he then was) rejected the claimants’ argument that the defendant’s offer was not a valid Part 36 offer because it offered a single sum to settle their claims. Mr Ali and Mrs Aslam argued that they had distinct individual claims. In rejecting their argument, Arnold J observed that the case involved parallel claims made by a married couple arising out of the same events in which they had throughout presented a united front. He then added that in any event it was not open to the claimants to raise the objection. The offer in that case had again contained a clause purporting to require the recipients to let the offeror know promptly if they thought that the offer was defective or not compliant with Part 36. Not only had the claimants not done so but their response to the offer appeared to treat it as being a valid Part 36 offer. Citing Thomas LJ’s judgment in Seeff, Arnold J added, at [44]:
“Although Thomas LJ did not express himself in this way, it appears to me that his reasoning was that Mr and Mrs Ho were estopped from challenging the validity of the Part 36 offer made by Mr and Mrs Seeff. In my judgment, this reasoning is equally applicable to the present case.”
    1. One can well see that on the facts of Ali there might have been proper grounds for concluding that the claimants were estopped from denying that they were acting together such that the offer was invalid. I acknowledge, however, that in the passage cited above Arnold J appears to go further and suggest that there might be a general proposition of law that offerees who fail to take a point at the time about some defect in a purported Part 36 offer, despite a clear instruction in the offer that they should do so promptly, might subsequently be estopped from taking the point.
    2. I recognise that there may be little purpose in cluttering the law reports with a further obiter dictum from a puisne judge upon this issue. That said, unlike Thomas LJ and Arnold J, I have had full argument from experienced leading counsel and am clear in my own conclusion that estoppel should play no part in the Part 36 regime:
37.1 First, one must keep in mind that Part 36 is a self-contained procedural code. It has become something of a tradition in Part 36 cases to attribute that observation to Moore-Bick LJ in the important case of Gibbon v. Manchester City Council [2010] EWCA Civ 726, [2010] 1 WLR 2081, but since 2015 it has been hardwired into Part 36 by the new r.36.1(1). Introducing the rules of estoppel would breach this core principle.
37.2 Secondly, Moore-Bick LJ added in Gibbon that Part 36 is a “carefully structured and highly prescriptive set of rules.” He explained that parties were not bound to follow those rules but that, if they wanted the substantial benefits which flow from Part 36, they had to follow them in every respect. As Coulson LJ observed in King v. City of London Corporation [2019] EWCA Civ 2266, [2020] 1 WLR 1517 at [59], that warning is as relevant today as when it was made by Moore-Bick LJ in respect of an earlier incarnation of Part 36. Indeed, this simple point is made by r.36.2(2), which reads:

“Nothing in this Section precludes a party making an offer to settle in whatever way the party chooses, but if the offer is not made in accordance with rule 36.5, it will not have the consequences specified in this Section.

(Rule 44.2 requires the court to consider an offer to settle that does not have the costs consequences set out in this Section in deciding what order to make about costs.)”

In my judgment, r.36.2(2) is a complete answer to the estoppel argument.
37.3 Thirdly, Moore-Bick LJ also explained, at [6]:

“Basic concepts of offer and acceptance clearly underpin Part 36, but that is inevitable given that it contains a voluntary procedure under which either party may take the initiative to bring about a consensual resolution of the dispute. Such concepts are part of the landscape in which everyone conducts their daily life. It does not follow, however, that Part 36 should be understood as incorporating all the rules of law governing the formation of contracts, some of which are quite technical in nature. Indeed, it is not desirable that it should do so. Certainty is as much to be commended in procedural as in substantive law, especially, perhaps in a procedural code which must be understood and followed by ordinary citizens who wish to conduct their own litigation. In my view, Part 36 was drafted with these considerations in mind and is to be read and understood according to its terms without importing other rules derived from the general law, save where that was clearly intended.”

For much the same reasons, I consider that Part 36 should not be construed so as to incorporate the rules of estoppel which would only be apt to introduce yet further uncertainty and complexity into the operation of the Part 36 regime.
37.4 Fourthly, I respectfully agree with the observation of Coulson LJ in Hertel v. Saunders [2018] EWCA Civ 1831, [2018] 1 WLR 5852, at [23], that the parties cannot agree that an offer is in accordance with Part 36 if, on analysis, it is not. If they cannot agree that a non-compliant offer is a Part 36 offer then, in my judgment, still less can one party be estopped from taking the point about the defect.
37.5 Fifthly, I consider that, as a matter of policy, the responsibility for ensuring that an offer is compliant with Part 36 should lie squarely upon the offeror and his lawyers. There are two very simple answers to the unrelenting stream of cases which, as Coulson LJ observed in King, litter the law reports in which parties seek to obtain the benefits of Part 36 despite making non-compliant offers:
a) As has been repeatedly stressed by the Court of Appeal and as the rules clearly explain, there is no problem with a party making an offer outside Part 36. Such offers will be taken into consideration under Part 44 but will not gain the special advantages of Part 36.
b) As the commentary in Civil Procedure (the White Book) makes clear at paragraph 36.5.2, much of the difficulty would be avoided if parties would only use form N242A to make their offers.
CONCLUSIONS
    1. Accordingly, the critical issue in this case is that of construction. If I am wrong in my construction of the offer in this case then the Authority cannot in any event obtain the advantages of Part 36 because the defect was de minimis or by a plea that UBB is estopped from now taking the point about such defect.
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