CLAIMANT’S OFFER TO ACCEPT 99.9% OF THE CLAIM WAS A VALID PART 36 OFFER: BUT NORMAL PART 36 BENEFITS WOULD NOT APPLY

In Sleaford Building Services Ltd v Isoplus Piping Systems Ltd [2023] EWHC 1643 (TCC) Mr Alexander Nissen KC, held that a claimant’s offer to accept 99.9% of its claim was a valid Part 36 offer. However it was held to be unjust for the normal Part 36 consequences to apply.

“… I am satisfied that it would be unjust to make the orders set out in CPR r.36.17(4) because, viewed objectively, the offer was not a genuine attempt to settle the proceedings. The obvious point to make here is that the offer, if accepted, required Sleaford to pay the whole of the principal amount decided by the adjudicator to be due, namely £323,502.32. That is not really much of a concession at all in circumstances…”

THE CASE

Isoplus brought an action relating to enforcement of an adjudicator’s decision.  Sleaford bought Part 8 proceedings in response. Isoplus was successful.  Prior to issue Isoplus had made an offer which, effectively, amounted to a concession of 0.01%.

THE PART 36 OFFER

Dear Sirs

Re: Isoplus Piping Systems Limited v Sleaford Building Services Limited

Adjudication Decision of Ms. Susan Francombe dated 23 December 2022

(“the Decision”)

Offer to settle under Part 36 – Without Prejudice Save as to Costs

We refer to the above matter in which we act for Isoplus Piping Systems Limited (our client). We also refer to our open letter of even date.

Our client is confident that it is in a strong position to enforce the Decision against your client, Sleaford Building Services Limited. Our client is firmly of the view that the Decision will be enforced by the Court and that our client entitled to the sum awarded by the Adjudicator, for the reasons set out in our open letter.

However, our client is keen to resolve this matter amicably and without the need for protracted litigation and the associated costs. We are, therefore, instructed to make your client, the following offer to settle under Part 36 (Offer).

This Offer is made pursuant to Part 36 of the Civil Procedure Rules and it is intended to be a claimant’s Part 36 offer. Accordingly, if your client accepts this Offer within 21 days (the relevant period), your client will be liable for our client’s costs, in accordance with CPR 36.13.

Terms of the Offer

Our client is willing to settle the whole of its claim (in relation to the amount ordered at paragraph 171(c) of the Decision) in the matter referred to above on the following terms:

• Your client to pay our client, within 14 days of accepting this Offer, the sum of £323,502.32 (three hundred and twenty three thousand five hundred and two pounds and thirty two pence) (the settlement sum), by way of bank transfer.

• The settlement sum does not include costs and, as mentioned above, your client will be liable to pay our client’s costs on the standard basis, to be assessed if not agreed, up to the date of service of notice of acceptance if this Offer is accepted within the relevant period.

• The settlement sum is inclusive of interest until the relevant period has expired. Thereafter, interest at a rate of 8% p.a. will be added.

The settlement sum does not include interest. Our client is willing to waive its right to interest for the purposes of this proposal. Should our client be required to enforce the Decision then a claim for interest will be included for which your client will be liable.

Failure to accept this Offer

If your client does not accept this Offer, and our client obtains a judgment which is equal to or more advantageous than this Offer, our client intends to rely on CPR 36.17. In other words, our client will be seeking an order in the following terms:

• Your client to pay our client’s costs up to the expiry of the relevant period.

• Your client to pay our client’s costs on the indemnity basis from the date on which the relevant period expired, with interest on those costs of up to 10% above base rate and interest on the whole or part of any sum awarded at up to 10% above base rate for some or all of the period starting from the same date.

• An additional amount of 10% of damages awarded by the Court.

If you consider this offer to be in any way defective or non-compliant with Part 36, please let us know by return.

We look forward to hearing from you”.

1. There was no response to the Part 36 offer letter either within 21 days or, indeed, thereafter.

THE JUDGE’S DECISION: THIS WAS A VALID PART 36 OFFER BUT THE NORMAL PART 36 CONSEQUENCES WOULD NOT APPLY

The judge held that this was a valid Part 36 offer.   However it was unjust for the normal Part 36 consequences to apply.

1. 1. It is in circumstances where the sum awarded by the Court, namely £326,586.60, exceeds the sum which Isoplus offered to accept, namely £323,502.32, that Isoplus seeks an order reflecting the consequences set out in CPR r.36.17(4).

1. 1. On behalf of Sleaford, Ms Shipley makes a number of submissions about the efficacy of the offer. First, she submits that, in the circumstances which occurred, the case was not “decided” within the meaning of CPR r.36.3(e) because what happened was that there was an agreement accepting the first proposal contained in the letter of 10 March 2023 whilst the substantive issues identified in the Part 8 claim can still be pursued albeit in new Part 7 proceedings. Her second point is that, since the judgment was handed down, Sleaford has paid the sum awarded so it cannot be said that judgment against it is at least as advantageous to Isoplus as that contained in the offer made by Isoplus. Her third objection is that the Part 36 offer was only in respect of the Part 7 proceedings and was not sufficiently broad to provide any benefits to Isoplus in respect of the Part 8 proceedings.

1. 1. Mr Thompson contends that both of the first two of these points are not correct, for reasons with which I respectfully agree, but he concedes that the offer did not encompass the Part 8 proceedings such that it provides no benefits in those proceedings.

1. 1. As to the first point, the effect of the acceptance of the first proposal was merely that the request to pay immediately was stayed until the first hearing of the Part 8 application. The subject matter of the Part 7 claim was only “decided” by the Court at that hearing when it came to be ordered that Isoplus was entitled to be paid. It required a decision to be made, albeit not one which was opposed. It is also not correct for Ms Shipley to say that not all the issues have been decided. In respect of the Part 7 claim, namely enforcement of the adjudicator’s decision, they have been. It is irrelevant that the substantive issues could be raised in separate proceedings which have not yet been commenced.

1. 1. As to the second point, payment was only made on 12 May 2023 which was after judgment was handed down on 28 April 2023. Reflecting that position, the ensuing Court Order now provides for judgment to be entered for £323,502.32 plus interest of £3,084.28. The Order recites the fact that, in the intervening period, Sleaford had paid £324,530.37 which included some, but not all of, the applicable interest which was due. In particular, whilst it had paid interest at the claimed rate for the period up to the issue of proceedings, it made no payment of interest for the later period. So the submission fails: (a) because the order provides for judgment in respect of the sum awarded by adjudicator despite the payment by Sleaford in the meantime; and (b) because the payment was insufficient to cover the full amount for which Sleaford was ultimately liable.

1. 1. I therefore conclude that the Part 36 offer was a valid offer upon which Isoplus is entitled to rely.

1. 1. The next issue concerns CPR r.36.17(4) which provides that, subject to an immaterial exception, the Court must order that the claimant, Isoplus, is entitled to the benefits in (a) to (d) “unless it considers it unjust to do so”.

1. 1. On behalf of Sleaford, Ms Shipley contends that it would be unjust to so order for four reasons. These reasons are based on conduct (sub-para (5)(d)) and on the nature of the offer itself (sub-para 5(e)). The reasons are:

(i) That Isoplus itself made an alternative offer to that contained in its Part 36 letter which was accepted by Sleaford. That offer was more favourable to Sleaford than that made in the Part 36 offer.

(ii) The Part 7 proceedings were unnecessary and should never have been issued. They were duplicative, contrary to the TCC guide. Sleaford was only given one working day to respond to the alternative offer. Had Isoplus waited until the response from Gateley on 16 March, it would have been clear that no proceedings were needed.

(iii) The purpose of the Part 36 regime is to allow parties to make and accept sensible offers. It does not apply in circumstances where an alternative offer was made concurrently with the Part 36 offer, which had been accepted. The matter was resolved by consent.

(iv) The Part 36 offer was not a genuine attempt to settle the proceedings but instead was purely tactical.

1. 1. In response, Mr Thompson on behalf of Isoplus relies on a passage from Briggs J, as he then was, in Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch) where, at [13], he said:

“The burden on a claimant who has failed to beat the defendant’s Part 36 offer to show injustice is a formidable obstacle to the obtaining of a different costs order. If that were not so, then the salutary purpose of Part 36, in promoting compromise and the avoidance of unnecessary expenditure of costs and court time, would be undermined.”

1. 1. As is pointed out in the commentary in the White Book at 36.17.5, this summary was approved by the Court of Appeal in Webb v Liverpool Women’s NHS Foundation Trust [2016] EWCA Civ 365. The notes suggest that, while the Judge in Smith was dealing with an unsuccessful claimant, the observation about it being a formidable obstacle could be said of the task of a defendant seeking orders other than those required by r.36.17(4).

1. 1. On the substance, Mr Thompson repeated his earlier point that the parallel offer, which was accepted, was merely to stay enforcement until the hearing of the Part 8 claim. It did not stop interest accruing in the meantime. Nor did Sleaford confirm its liability to pay. Had the Part 36 offer been accepted, Isoplus would not have been entitled to any further interest, to be contrasted with what actually happened, namely that interest has accrued in the meantime. Had the offer been accepted, the costs of the Part 7 proceedings would not have been incurred. It will be recalled that the offer was made before the proceedings were issued. The offer was a genuine attempt to settle the proceedings in that it made a concession, albeit a small one. He drew my attention to the notes in the White Book referring to Rawbank SA v Travelex Banknotes Ltd [2020] EWHC 1619 (Ch) in which the Judge accepted that a 99.7% offer was a genuine attempt to settle a very strong case where there was clearly no defence.

1. 1. Ms Shipley did not dissent from the proposition that there was a high burden imposed on Sleaford to show why the consequences set out in rule 36.17(4) should not follow.

1. 1. I note that, according to the commentary in the White Book at 36.17.5.1, the Court must have regard to all the circumstances of the case in deciding whether it would be unjust to make all or any of the four possible orders under r.36.17(4). It is open to the Court to make some but not all of the orders but it would be unusual for all the circumstances to yield a different result for only some of the orders.

1. 1. I am not satisfied that, individually or cumulatively, the first three of the reasons advanced by Ms Shipley are such as to make it unjust to make the order in CPR r.36.17(4). Taking the matters shortly, I accept Mr Thompson’s submission that the parallel offer which was accepted was not concerned with the substantive obligation to make payment and did not stop the accrual of interest. As such, it was not intended to and did not in fact cut across the ability of Sleaford to accept the Part 36 offer. The issue about the actual making of payment was not resolved by the alternative offer to stay enforcement until the first hearing. In any event, Sleaford’s position in respect of payment was equivocal as it later acknowledged service on the basis that it intended to defend part of the claim. I reject the contention that the issue of Part 7 proceedings was unnecessary. Sleaford had had from 23 December 2022 to make payment and yet refrained from doing so. Hill Dickinson gave Sleaford an opportunity to make payment on 3 January 2023 and gave it a further opportunity on 23 February 2023. In those circumstances, it was neither unreasonable, nor premature, for it to have made preparations to issue, and then issue, those proceedings on 15 March 2023. After the length of time which had passed since the decision was issued, it was not unreasonable to impose a very short time limit within which Sleaford had to consent. I agree that, when it issued its own Part 8 proceedings, Sleaford ought already to have considered what its attitude to payment of the adjudicator’s decision was going to be, including on questions of interest. It could have made proposals to Isoplus at that time, in line with the TCC Guide.

1. 1. However, I am satisfied that it would be unjust to make the orders set out in CPR r.36.17(4) because, viewed objectively, the offer was not a genuine attempt to settle the proceedings. The obvious point to make here is that the offer, if accepted, required Sleaford to pay the whole of the principal amount decided by the adjudicator to be due, namely £323,502.32. That is not really much of a concession at all in circumstances where, as in this case, adjudication enforcement tends to produce an all or nothing outcome save in severance cases, which this is not. In reality, all that Isoplus was offering was to forego interest for a short period. In some cases, foregoing interest may amount to a genuine and realistic element of compromise but this is not such a case.

1. 1. The notes commenting on Rawbank suggest that that case was explicable by the total lack of any arguable defence and should not generally be seen as encouragement to claimants to make exceptionally high offers. I accept that no arguable defence was ever advanced by Sleaford here. However, here the offer was even higher than the offer of 99.7% in Rawbank. At the date of the offer, the period of interest which Isoplus was offering to forego was a mere ten days and had a monetary value of c. £350. Expressed as a percentage of the claim it was 0.1%. Accordingly, the offer was to accept payment of 99.99% of the claim. It is relevant to weigh in the balance that, had I been satisfied that the reduction of c. £350 was a genuine offer, Isoplus would, all other things being equal, be entitled to an additional payment of £32,250.23, being the prescribed 10% uplift, let alone be entitled to recover both interest at a special rate and indemnity costs.

1. 1. In all the circumstances I do not consider the offer to have been a genuine attempt to compromise the Part 7 claim. Having taken into account all the circumstances of the case, including that feature, I consider it would be unjust to make the orders set out in r.36.17(4). I reject the application by Isoplus to this effect.

1. In the event, the rate of interest which it sought and to which Sleaford agreed was 4% per annum, whether or not the consequences in r.36.17(4)(a) applied.