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Commercial Angles' Newsletter - August 2001

Out of court settlements

In proceedings under English Civil law, it is common for the judge to award costs against the losing party. In many cases the losing party will pay not only the settlement ordered by the court and his own legal costs but also the legal costs of the winner. The Civil Procedure Rules 1999, introduced a mechanism for settling cases - Part 36 offers. A Part 36 offer enables one party to make a without prejudice offer to settle a claim. If the offer is not accepted and the offeror does better than his offer when the case goes to court, the recipient of the offer will suffer from a reduction of the costs awarded by the court. If the recipient of the offer is a defendant there may also be an adverse effect in the interest awarded.

Part 36 offers

A part 36 offer:

must be in writing, and
may relate to the whole or part of a claim, or to any issue arising, and
must state whether it relates to the whole claim, a part of the claim or to a specific issue, and
must state whether it takes into account any counterclaim, and
must, if it does not include interest, give details of interest.

If the Part 36 offer is made not less than 21 days before the start of the trial it must:

be expressed to remain open for acceptance for 21 days, and
provide that after 21 days the offeree may only accept it if
- the parties agree the liability for costs, or
- the court gives permission.

If the Part 36 offer is made less than 21 days before the start of the trial it must state that the offeree may only accept it if:

the parties agree the liability for costs, or
the court gives permission.

Scammell v. Dicker

The defendant's solicitors sent a Part 36 offer to the claimant's solicitors on 9 March 2000, less than 21 days before the start of the trial. The claim related to a boundary dispute and the offer was expressed to be open for 21 days even though this was not necessary under the CPR rules. On 13 March the defendant instructed his solicitor to withdraw the offer. The claimant's solicitors replied that a Part 36 offer, expressed to remain open for 21 days, must remain open and their client wished to accept the offer, subject to adding some clarifying words.

At the trial the judge held that the offer made on 9 March 2000, expressed to be open for 21 days, could not be withdrawn. The offer therefore remained open for acceptance and had been accepted by the claimant. His reasoning was that a party should not be able to use the Part 36 offer as a bargaining tool to tempt the other party to settle and then withdraw the offer to negotiate a better settlement.

The Court of Appeal's decision was given on 21 December 2000: the appeal was upheld and the defendant's Part 36 offer could be withdrawn even though it was expressed to be open for 21 days. The reasoning given was as follows:

There is nothing in Part 36 which states that an offer under Part 36 cannot be withdrawn. If it had been intended that withdrawal was precluded, it would be expected to be clearly stated. Payments made with Part 36 offers to settle monetary claims are expressly precluded in the Rules from being withdrawn without permission of the court.
Rule 36 only requires that the offer be expressed to remain open for 21 days. If the intention had been that the offer must remain open for 21 days then the word "expressed" would not have been used.
In the Rules there is no mention of a period during which an offer made less than 21 days before the trial date must remain open. It would be unreasonable to read into the Rules that such an offer could not be withdrawn.
Rule 36 expressly provides that a Part 36 offer can be withdrawn. There is no limitation on when the withdrawal can take place.
Precluding the withdrawal of a Part 36 offer could impose hardship in certain circumstances. Therefore it would be expected that a provision for withdrawal would be available, perhaps with the permission of the court.
A Part 36 offer is an offer to enter into a contract with the offeree. To impose a term that the offer could not be withdrawn would impose additional terms above what was actually offered by the offeror. In the general law of contract it is possible to withdraw an offer before acceptance and there was no reason to expect a Part 36 offer to be different.

The potential costs saving available to both claimants and defendants who make properly pitched offers complying with CPR Part 36 is high, particularly where it can be done at an early stage of the proceedings. A Part 36 offer should be expressed in very clear terms and in a form that complies with the requirements of Part 36. If the recipient requires clarification on certain points, this should be given because failure so to do might reduce the effectiveness of the offer. Litigants should review their settlement strategy regularly at specific stages in the proceedings, e.g. disclosure or exchange of witness statements, since these often affect a party's appreciation of the merits of his case.

Articles from previous newsletters