Date:  19 July 2010

COURT OF APPEAL BRINGS SOME CLARITY TO PART 36

GIBBON V MANCHESTER CITY COUNCIL_AND BLOWER V REEVES

 In any litigation, considering offers of settlement and doing so at an early stage is crucial. Failure to make or accept a reasonable part 36 offer of settlement at an appropriate time can have serious costs consequences.

In Gibbon_v_Manchester_City_Council and Blower_v_Reeves, the Court of Appeal looked at two cases which raised similar issues and took the opportunity to provide authoritative direction on some key principles regarding part 36 offers.

1)           Gibbon v Manchester City Council

The defendant admitted liability after the claimant was injured when she tripped and fell in the playground for which the council was responsible.

The defendant applied for a declaration that it was entitled to accept the claimant’s November 2008 offer.

Does rejection of a part 36 offer render it incapable of later acceptance?

The Court of Appeal held that the language of part 36 was clear. A part 36 offer may be accepted at any time unless the offeror has withdrawn the offer by serving notice of withdrawal on the offeree.  Furthermore, it may be accepted whether or not the offeree has subsequently made a different offer or rejected the offer.

This provision is contrary to the general position of offer and acceptance at common law where, for example, a counteroffer will automatically extinguish the effect of the original offer.

The CPR states clearly how a part 36 offer may be made, how it may be varied and how it may be withdrawn. They do not provide for it to lapse or become incapable of acceptance on being rejected by the offeree.  A part 36 offer is on the table and available for acceptance until the offeror chooses to withdraw it.

Does withdrawal of a part 36 offer require express notice in writing?

Importantly, it was held that the rejection of the sum of £2,500 on 18 February 2009 from the claimant’s solicitors could not be read as containing an implied withdrawal of her own part 36 offer also in the sum of £2,500 dated 18 November 2008. Part 36.3(7) provides that an offer is withdrawn by serving written notice on the offeree. That means that an implied withdrawal cannot apply; it requires express notice in writing in terms which bring home to the offeree that the offer has been withdrawn. The Court of Appeal stated that in order to avoid uncertainty it should include an express reference to the date of the offer and its terms, together with some words making it clear that it is withdrawn.

The claimant’s November part 36 offer remained on the table and was therefore open for acceptance.

This can be used as a tactical advantage, especially where one offer is withdrawn and replaced by a less advantageous offer where the offeror is trying to send a message to the offeree that the offeree's case is weakening.

2)           L G Blower v Mr & Mrs Reeves

The defendants entered into a contract with the claimant to carry out improvements to their home. They were unhappy with the quality of some of the work and they sought to set off against the final invoice various amounts which they said represented the loss they had suffered. The claimant was unwilling to accept less than the full amount covered by its invoice and commenced proceedings.

The claimant successfully obtained judgment in the sum of £8,375.94 together with interest and costs. The judgment obtained was worth £661.38 more than the defendants’ Part 36 offer, once interest had been calculated.

The district judge ordered the defendants to pay half of the claimant's costs from 8 January 2008 – this was the day before the defendants withdrew all of their part 36 offers, apart from the offer dated 15 May 2007.  They considered that the order was far too favourable to the claimant and he should have awarded them their costs, or at least made no order as to costs, and appealed.

Can_a_party_make_several_offers_in_different_terms,_all_of_which may at any one time be capable of acceptance?

Obiter, the Court of Appeal expressed the view that part 36 was quite clear as to the manner in which offers may be made, varied and withdrawn. It did not provide that only one offer may be available for acceptance at any one time; nor did it provide that a later offer was to be treated as varying or revoking a previous offer.  There was no reason why a party should not make more than one offer and leave it to their opponent to decide which, if any, to accept.

Had_the_claimant_failed_to_obtain_a_judgment_more_advantageous_than_the_May_2007_offer? What factors do we take into account and how much weight is afforded?

In Carver_v_BAA, the Court of Appeal concluded that when asking itself whether the judgment was more advantageous to the claimant than the part 36 offer, the court should take into account all aspects of the case, including emotional stress and financial factors (such as the incurring of irrecoverable costs).

The decision was criticised for bringing in a degree of uncertainty into the operation of part 36. In Blower, the Court of Appeal agreed with that criticism and added more clarity to the situation. The Court of Appeal recognised that the weight attached to each factor to be taken into account could vary, and that remained a matter for the judge in each case.

When deciding how much weight to attach to any particular factor it was important to see things from the litigant's perspective rather than the court's own view. That was particularly important when dealing with money claims, both because to recover judgment for more than what was offered is legitimately regarded as success, and because a party faced with a part 36 offer ought to be entitled to evaluate it by reference to a rational assessment of his own case (including the risk of incurring unrecoverable costs if he presses on). Some factors are inherently difficult to value, such as the amount of irrecoverable costs and the stress likely to be generated by pursuing the case to judgment.

In most cases obtaining judgment for an amount greater than the offer is likely to outweigh all other factors. In a case where the offer has been beaten by a very small amount and there is clear evidence that the successful party has suffered serious adverse consequences as a result of pursuing the case to judgment, those factors may be sufficient to outweigh success in pure financial terms. However such cases are likely to be rare.

It was held that the judgment was more advantageous to the claimant than the part 36 offer.