PART 36 OFFER WAS VALID DESPITE THE FAILURE TO SPECIFY THE “RELEVANT PERIOD”: THE HISTORY OF OFFERS IS IMPORTANT

Important issues relating to the construction of Part 36 were considered in detail by Mr Justice Calver in Henderson & Jones Ltd v Salica Investments Ltd & Ors [2025] EWHC 838 (Comm). The claimant’s failure to specify the “relevant period” in a Part 36 offer did not render that particular offer ineffective.  The history of correspondence showed, clearly, that the parties knew full well what the relevant period was.

“…in context a reasonable solicitor would have understood the part 36 offer contained in the Letter as referring to a Relevant Period of 21 days, consistently with the other part 36 offers which had been made in the run up to the sending of the Letter. It could not sensibly be taken to be referring to any different period. Accordingly, I consider that the Claimant’s Part 36 offer dated 31 October 2023 was valid.”

KEY PRACTICE POINT

This case shows the importance of drafting Part 36 offers that comply with the rules. The safest option is to always use the form.  If there had not been a history of offers between the parties in this case then the defendant’s arguments could have succeeded. If you want to be totally safe then use the form – available here.

THE CASE

The claimant had been successful in an action for damages against the defendant. The judge’s decision on interest meant that the claimant had beaten an offer it made in October 2023.  The defendant argued that the offer was ineffective because it did not state, specifically, what the “relevant period was”.

THE JUDGMENT ON CONSTRUCTION OF THE PART 36 OFFER

The judge did not accept the defendant’s argument.  The history of offers between the parties showed that both of them fully understood what the “relevant period” meant and it had been defined in earlier offers that had been made.

“Issue 2(a): Was the Claimant’s offer of 31 October 2023 Part 36 compliant?

18. The first sub-issue arising under issue 2 is whether the Claimant’s Part 36 offer set out in their letter dated 31 October 2023 (“the Letter”) is valid. The requirements of a Part 36 offer are set out in CPR r. 36.5(1). Insofar as relevant, r. 36(5)(1)(c) requires the Part 36 offer to “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 and 36.20 if the offer is accepted”. Where there has been a failure to satisfy these requirements, r. 36.2(2) provides that “if an offer is not made in accordance with rule 36.5, it will not have the consequences specified in this Section”.

19. Paragraph 2.1 of the Letter provides that ‘If the Defendant accepts this Part 36 Offer after the end of the Relevant Period, they will be liable for the Claimant’s Costs….’.(Footnote:1) However, no definition of ‘Relevant Period’ is set out in the Letter. On this basis, the Defendants argue that the Part 36 offer is defective for failing to satisfy the requirement under r. 36(5)(1)(c). It is said that without having been appropriately defined, the ‘Relevant Period’ could very well have been any period of time, and there is no assumption that it would be 21 days (or indeed any other period). To find that the Part 36 offer is valid in such circumstances would be liable to cause substantial uncertainty in other cases.

20. The Defendants rely upon the judgment of Moore-Bick LJ in Gibbon v Manchester City Council [2010] 1 WLR 2081, in which he stressed that it was of the fundamental importance for parties to comply with the Part 36 rules if they wished to avail themselves of the benefits which flowed therefrom. See also Carillion JM Ltd v PHI Group Ltd [2011] EWHC 1581 (TCC), in which it was held that a failure to spell out a 21-day period meant that a purported offer fell outside the scope of Part 36. That analysis was upheld by the Court of Appeal ([2012] EWCA Civ 588).

21. The Claimant argues in reply that although the ‘Relevant Period’ is not defined in the Letter, that term was in fact defined as 21 days in (a) their previous Part 36 offer of £10m dated 26 May 2023; and (b) the Defendants’ Part 36 offer of £2 dated 3 May 2023. On this basis, the absence of express repetition in the Letter is explicable as it was plainly intended to adopt the same definition as in the earlier letter(s). It is reasonably to be inferred that this was how the term was intended to be interpreted since the Claimant clearly intended to make a compliant Part 36 offer, and there is no reason why the Claimant would wish to offer a longer period. Moreover, para. 4.2 of the Letter invited the Defendants to notify the Claimant if they considered the offer to be in any way defective or non-compliant; but no such response was ever received. The Claimant suggests that this is precisely because the Defendants – like the reasonable reader – would have understood the ‘Relevant Period’ to mean 21 days as in the earlier letters.

22. Reliance is also placed by the Claimant upon the Court of Appeal decision in C v D [2011] EWCA Civ 646, which is cited as the basis for the proposition in the White Book Vol 1 36.2.4 that ‘Where a party makes an offer that is intended to be a Part 36 offer but a point arises as to its construction, the court should prefer the construction, if possible, that would give effect to the stated intention and allow the offer to be effective’.

23. As the Claimant rightly states, although the term ‘Relevant Period’ was not defined in the Letter, there had been previous Part 36 offers exchanged between the parties which themselves had made reference to the fact that the ‘Relevant Period’ was understood by the parties to be 21 days in accordance with the requirements of Part 36.

24.First, the Defendants’ Part 36 offer of £2 made on 3 May 2023 defined the “Relevant Period” as 21 days:

“This Offer is made pursuant to Part 36 of the Civil Procedure Rules and is intended to be a defendant’s Part 36 offer. Therefore, our clients will be liable for your client’s costs in accordance with CPR 36.13, if the offer is accepted within 21 days (the “Relevant Period”).

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

25. The “Relevant Period” was accordingly a defined term.

26. Second, the Claimant responded to that offer by letter dated 26 May 2023 in which it made a Part 36 offer in the sum of £10m and stated:

“We write further to your WPSATC letter of 03 May 2023, together with the Part 36 Offer of the same date. For the avoidance of doubt, that Part 36 Offer of £2 is rejected. In response, pursuant to CPR Part 36, we set out below an offer by the Claimant to settle the whole of the claim against the Defendants…

The below Part 36 Offer will remain open for acceptance for a period of 21 days (the “Relevant Period”) and thereafter, until and unless we formally write to you withdrawing this offer. Please note that if this Part 36 Offer is accepted then the Defendants will be liable for the Claimant’s costs in accordance with CPR 36.13.

27. Again, the “Relevant Period” of 21 days is a defined term.

28. On 31 October 2023 the Claimant continued the without prejudice save as to costs correspondence. It made a further Part 36 offer for £2.6m inclusive of interest. No response was received to that letter. In it the Claimant stated:

“We write further to the recent WPSATC correspondence between our clients. We understand that our client recently communicated a WPSATC offer to settle the claim to your clients. We are now instructed to (essentially) repeat that offer under the terms of Part 36 CPR so as to afford our client the protections and potential benefits of CPR 36 (and in particular, CPR 36.17).

…

This settlement is inclusive of interest up until the expiry of the Relevant Period.

Thereafter, interest is claimed at 35% per annum above the Bank of England Base rate and will accrue on a daily basis. Such interest is claimed pursuant to the amendment to CPR r.36.5(5) introduced by the Civil Procedure (Amendment) Rules 2021 and in accordance with the Court of Appeal’s decision in Calonne Construction Ltd v Dawnus Southern Ltd [2019] EWCA Civ 75.

…

If the Defendants accept this Part 36 Offer after the end of the Relevant Period, they will be liable for the Claimant’s costs (including any costs incurred after expiry of the Relevant Period) as well as interest accrued from the end of the Relevant Period at the rate of 35% above the Bank of England base rate.”

29. It can be seen that “Relevant Period” (capital R, capital P), which had been defined as meaning 21 days in the offers up to this point, was not expressly defined in this letter.

30. However, against the background of the earlier correspondence of which this was expressly said to be a part, I consider that a reasonable reader of this correspondence would fully understand that the reference to the (capitalised) “Relevant Period” is a reference to a period of 21 days. There is nothing to suggest that that was no longer the understanding in this chain of offers(Footnote:2). Moreover, the fact that the Defendants did not seek to raise this issue at the time despite having been expressly invited to do so further supports the fact that this was the common understanding between the parties and that neither of them were in any doubt about this.

31. The Defendants argue that their failure to respond cannot give rise to any estoppel under the Part 36 regime: see Pepperall J in Essex County Council v UBB Waste (Essex) Ltd [2020] EWHC 2387 (TCC). However, the Claimant does not put its case on the basis of an estoppel and nor does it need to. The relevant issue is what the Letter would reasonably have been understood to mean at the time against the background of the earlier Part 36 offer letters.

32. Mr. Brown KC submitted that the scope for the use of principles of contractual construction, where the statutory requirements were not precisely adhered to, was limited, as “otherwise this was a recipe for uncertainty in other cases”. Whilst a de minimis defect might lead a court to prefer a construction which gives effect to the stated intention to make a Part 36 offer and so allow the offer to be effective, that is not this case. The Part 36 offer had to fall within the four corners of the rule in CPR 36.5 and it did not because the Relevant Period was not defined.

33. I do not accept Mr. Brown KC’s submission that contractual construction principles in this context have little role to play. As Mr. Sims KC pointed out, Essex County Council v UBB Waste contradicts that suggestion. In that case Pepperall J, referring to the Court of Appeal’s judgment in C v D [2011] EWCA Civ 646, summarised the law as follows:

14. 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.

15. 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] AC 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.”

16.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…”

17. 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.”

18. Lewison LJ pithily summarised the resulting principle as “validate if possible” in the subsequent case of Dutton v Minards [2015] EWCA Civ 984…

34.In C v D at [45], Rix LJ stated:

It follows from my answer to the first issue that there is a necessary inconsistency between an offer being both time-limited and a Part 36 offer. An offer may be one or the other, it cannot be both. That is the objective context in which the offer in this case was made by the claimant’s solicitors to the defendant’s solicitors. Both the writer and the reader of that offer must be taken, objectively, to know the legal context. Of course, mistakes occur and must be allowed for. However, the question is how a reasonable solicitor would have understood the offer in that context, including the known context of the dispute as it stood at that time: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998]1WLR 896.

35. Applying this approach, in context a reasonable solicitor would have understood the part 36 offer contained in the Letter as referring to a Relevant Period of 21 days, consistently with the other part 36 offers which had been made in the run up to the sending of the Letter. It could not sensibly be taken to be referring to any different period. Accordingly, I consider that the Claimant’s Part 36 offer dated 31 October 2023 was valid.

Issue 2(b):Was the Part 36 Offer beaten?

36. The second sub-issue arising under issue 2 is the question of whether the Claimant has beaten its Part 36 offer. The answer to this question necessarily turns on my determination of issue 1 above.

37. In the light of my findings on issue 1, it can be seen that the Part 36 offer contained in the Letter was beaten.

38. Having determined that the Claimant has beaten their Part 36 offer, I turn to consider the consequences which follow from this. CPR 36.17(4) provides (insofar as relevant) that unless the court considers it ‘unjust’ to do so, it must order that the Defendants pay the Claimant, from the expiry of the relevant period:

a.Interest on the judgment sum at up to 10% above base rate;

b.Costs on the indemnity basis;

c.Interest on those costs at up to 10% above base rate; and

d.An additional amount not exceeding £75,000.

39. It follows from CPR 36.17(4)(a) that from the expiry of the relevant period (ie 21 November 2023), the Defendants must pay the Claimant interest on the judgment sum at up to 10% above base rate. Mr. Sims KC argued for the full 10%. Mr. Brown KC accepted that if the Part 36 offer is found to be valid, then 10% is the correct rate. Accordingly, I award the full 10%.

40. As to CPR 36.17(4)(b), costs on the indemnity basis is agreed for the entirety of the period of the action, as conceded by the Defendants shortly prior to the commencement of the hearing(Footnote:3).

41. As to CPR 36.17(4)(c), the parties agree that interest on costs up to 21 November 2013 will be at the rate of 5% above base rate (because they agree that this must follow my finding on issue 1), and after 21 November 2013 it will be at the rate of 10% above base rate. I make clear that interest on costs only applies to items invoiced and paid (ie actually incurred)(Footnote:4).

42. Finally, as to CPR 36.17(4)(d), it is agreed that the Defendants should pay the Claimant an additional amount of £75,000(Footnote:5).”