England and Wales Court of Appeal (Civil Division) Decisions

Case No: B2/2000/0447

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM POOLE COUNTY COURT

HIS HONOUR JUDGE THOMPSON QC

Royal Courts of Justice

Strand, London, WC2A 2LL

Thursday 21st December 2000

(Claimants/Respondents)

(Defendant/Applicant)

Ms S. Hargreaves (instructed by Simpson & Co for the Applicant)

Ms L. Davies (instructed by Jacksons for the Respondents)

LORD JUSTICE ALDOUS:

1. This is an appeal against the order of 20th March 2000 of His Honour Judge Thompson QC in which he held that the action had been settled upon terms made in a Part 36 offer. To arrive at that conclusion he held that the Part 36 offer that had been made remained open for acceptance despite the fact that it had been withdrawn prior to acceptance.

2. The background facts are not material, but in outline they are these. The appellant Mrs Dicker and the respondents are neighbouring landowners in Dorset. In 1989 Mrs Dicker commenced an action seeking declarations as to the location of the boundary between her land and that of the respondents, a mandatory injunction requiring removal of certain buildings and machinery from her land, an injunction prohibiting further acts of trespass and a claim for mesne profits and damages. The parties compromised that action and an order was made by consent on 4th February 1994. In September 1995 the respondents commenced the present action in which they alleged that the compromise and consent order had been the result of a mutual mistake of fact or mixed fact and law. They sought to set aside the consent order and to re-litigate the issues in the first action.

3. It is clear from a letter of 18th February 2000 from solicitors acting for the respondents that the parties had tried to settle their differences. To advance the chances of a settlement that letter contained a Part 36 offer. The details are not important, but as a trial date had not been set, the offer was expressed to remain open for acceptance for 21 days from the deemed date of receipt. Subsequently the trial was set to start on 20th March 2000.

4. By letter dated 9th March 2000 solicitors acting on behalf of the appellant put forward a different Part 36 offer on behalf of their client. The letter said that they had taken instructions and discussed the contents of the letter of 18th February with their client. It concluded in this way:

"As you rightly point out, the only sticking point is that in relation to our client's costs.

In an attempt to avoid what are likely to be considerable Counsels' fees, solicitors' costs and experts' fees in the trial of this action our client's offer to settle both actions is this:-

A. Points 1-8 of your letter of 18th February, subject to the provisos above. The width of access point 2 is to be 18ft.

B. Our client will acknowledge that your clients have a right of way over any land in her ownership which does not form part of the byway at access points 2, 3 and 4.

C. Our client is to be paid £13,000 towards her costs of the 1989 action. In addition she is entitled to retain the £3,000 paid to her by Mr Bourke.

D. Our client is to be paid her legal aid costs in the current action from the date of her Legal Aid Certificate, that being 5 April 1998.

As this offer is made less than 21 days before the start of the trial, your client may only accept it if agreement can be reached as to the liability for costs or if the Court gives permission."

5. On 10th March 2000 solicitors for the respondents wrote stating:

"We are now instructed to tell you that, this point apart, points A and B in your letter under reply are agreed.

As to points C and D there is no reason why your client should be entitled to retain £3,000 paid to her by Mr Bourke if she is agreeing to the setting aside of the Consent Order. Our clients counter-offer on these points is payment to your client of £23,000 in total with your client splitting that in whatever way suits her purpose. Consequently, with the £3,000 she has already received from Mr Bourke she receives £26,000 being the £13,000 referred to at numbered paragraph C and what we understood to be the figure she was prepared to set for her costs of the 1989 action (advised by your Counsel to our Counsel) namely a further £13,000.

We have a Courier calling to collect the papers for delivery to Counsel today. We anticipate those papers will reach Counsel's Clerk at approximately 4.30 pm. At that point Brief fees are incurred and this counter-offer if not accepted by then, will lapse.

We leave you to deal with this counter-offer as you deem appropriate."

6. It seems there were discussions between the parties' counsel during the afternoon of 13th March. The respondents say that they resulted in agreement between counsel that the Part 36 offer, made by the appellant in the letter of 9th March, should remain open for acceptance for a reasonable time. That allegation was not dealt with by the judge and was not the subject of a respondent's notice.

7. By a letter dated 13th March 2000 solicitors for the appellant wrote:

"As you will recall the Part 36 offer was put forward not on the basis of advice received by our client, but at our Client's own request.

We have now received specific instructions from our Client to withdraw that offer with effect from receipt of this letter."

That letter was received during the morning of 14th March. It was replied to immediately by solicitors for the respondents. They contended that a Part 36 offer, expressed to be open for acceptance for 21 days after it was made, remained open for acceptance even if it had been purported to be withdrawn. They contended that the Part 36 offer made on 9th March remained open for the same reason. The letter went on to state that the respondents were willing to settle on terms of the Part 36 offer of 9th March 2000 subject only to the words "in the total sum of £14,781.57" being added to the end of paragraph D, that sum being the amount of the appellant's legal aid costs.

8. By letter also of 14th March 2000 the solicitors acting for the appellant disputed the contention that the Part 36 offer had not been withdrawn.

9. As the respondent's solicitors took the view that the action had been compromised by their acceptance of the offer of 9th March, they gave notice of application seeking adjournment of the trial of the action and directions for the determination of whether their view was correct. That application came on for hearing on 20th March 2000. Counsel who appeared on behalf of the respondents contended that the Part 36 offer could not be withdrawn without leave of the court and in those circumstances it was open to the respondents to accept it. He submitted to the judge that, as the respondents had accepted the offer, the action had been settled upon terms contained in that offer. He sought an order to that effect. Counsel for the appellant contended that the Part 36 offer could be and was withdrawn and in those circumstances there had been no settlement.

10. As there was no dispute between the parties that the offer had been made, nor that, prior to acceptance, a letter had been received by the respondents stating that it had been withdrawn, the issue before the judge was whether the Part 36 offer of 9th March could be unilaterally withdrawn in the circumstances which had arisen.

11. The judge concluded that the Part 36 offer could not be withdrawn. He said (page 17):

"I think that a Part 36 offer can lapse in the sense that if it is made for a period of 21 days and it is not accepted within that period then the consequences which follow under Part 36.5(6) result in the offer only being capable of acceptances if the parties can agree the liability for costs or the court gives permission. Once the period of acceptance has expired without acceptance then the offer may be withdrawn without any further negotiation prior to any application being made to the court for permission to accept out of time. Furthermore I think that if the parties have been unable to agree the liability for costs or the court has been asked to give permission and the permission has been refused, then at that stage it would be possible to withdraw a Part 36 offer.

However, it seems to me that where a Part 36 offer states in terms that it remains open for acceptance for 21 days from the date on which the offer is made, then, in those circumstances it is contrary to the whole spirit of the rules and the whole intention of this part of the rules that the offer should be capable of withdrawal. It would make a nonsense for a party to be able to make an offer, saying this offer is open for 21 days and when the offeree is on the point of acceptance within that period for the offeror to be able to say `No, I am withdrawing that, and I am going to ask for a bit more'. That would be endeavouring to use a Part 36 offer as a negotiating tool to try to screw a better deal or better conditions from the other side. That is not at all the spirit of the intention of the rules.

The court and the public at large have an interest in litigation being avoided and cases being settled whenever and whichever it is appropriate for that to happen. Judicial and court resources are limited and are substantially paid for from the public purse. Part 35 is designed to encourage sensible negotiations and facilitate settlements. Part 36 offer, which is a solemn offer, has important consequences for both sides, and is said to be open for 21 days, it is not open to the offeror to withdraw it during that period."

12. The judge went on to consider the consequences of a Part 36 offer and concluded in this way:

"In these circumstances it seems to me that the offer having been made on 9th March, having been expressed to be open for a period of 21 days and the acceptance having been made of all the terms within that 21 day period, that when the defendant purported to withdraw the offer when the terms were agreed, save for the clarification sought in respect of costs, she was not in a position to do so; and when the claimant's solicitors stated that they were accepting the offer, having accepted the figure which had been put forward for the defendant's costs of £14,781.57, without demur that was a valid acceptance and concluded the case. In those circumstances it seems to me that this litigation has been compromised and the application for an adjournment is otiose as the case has been settled upon those terms offered by the defendant and accepted by the claimants."

13. The offer of 9th March was not required to be expressed to be open for 21 days as the trial was due to start on 20th March, but was in fact expressed to be.

14. Before us Miss Hargreaves, counsel for the appellant, submitted that a Part 36 offer was subject to the same legal principles of offer, acceptance, rejection and withdrawal as applied to the formation of contracts. Thus a Part 36 offer may be withdrawn at any time prior to acceptance, even if the offer is expressed to remain open for a specified period. A counter-offer had the effect of rejecting the offer, at least in the absence of some intimation in the counter-offer that the offeree did not intend it to be a rejection. An offer once it had lapsed or had been withdrawn or rejected, was not capable of acceptance.

15. Miss Davies who appeared on behalf of the respondent did not dispute the basic law as to offer, acceptance, rejection and withdrawal which applied to the formation of contracts. She argued that there had been no rejection of the Part 36 offer and that the counter-offer that had been made did not have the effect of rejecting the offer. But her primary submission was that those legal principles did not apply to Part 36 offers. She submitted that the structure of Part 36 was such that a Part 36 offer could not be withdrawn until after the 21 day period provided for in the rules, in the case of an offer made 21 days prior to the trial, or, in respect of an offer made within the 21 day period prior to trial, for a reasonable period alternatively up to the start of the trial. She accepted that there was no express requirement in the rules that a Part 36 could only be withdrawn with leave of the Court and that rule 36.5(8) contemplated that an offer could be withdrawn in certain circumstances; but she submitted that it would be contrary to the idea that lay behind a Part 36 offer to enable it to be withdrawn at will. The purpose of the requirement that there be a 21 day period was to give the offeree a proper opportunity to consider the offer and if necessary to seek clarification. That purpose would be defeated if the offer could be withdrawn at any time. She submitted that a purposive construction of the rules resulted in the conclusion that the offer had to remain open for acceptance during the period of 21 days, alternatively for a reasonable period.

16. Part 36 contains rules relating to offers to settle and payments into court. Rule 36.5 sets out the form and content of a Part 36 offer in this manner:

"36.5- (1) A Part 36 offer must be in writing.

(2) A Part 36 offer may relate to the whole claim or to part of it or to any issue that arises in it.

(3) A Part 36 offer must-

(a) state whether it relates to the whole of the claim or part of it or

to an issue that arises in it and if so to which part or issue;

(b) state whether it takes into account any counterclaim; and

(c) if it is expressed not to be inclusive of interest, give the details relating to interest set out in rule 36.22(2).

(4) A defendant may make a Part 36 offer limited to accepting liability up to a specified proportion.

(5) A Part 36 offer may be made by reference to an interim payment. (Part 35 contains provisions relating to interim payments.)

(6) A Part 36 offer made not less than 21 days before the start of the trial must-

(a) be expressed to remain open for acceptance for 21 days from the date it is made; and

(b) provide that after 21 days the offeree may only accept it if-

(i) the parties agree the liability for costs; or

(ii) the court gives permission.

(7) A Part 36 offer made less than 21 days before the start of the trial must state that the offeree may only accept it if-

(a) the parties agree the liability for costs; or

(b) the court gives permission.

(Rule 36.8 makes provision for when a Part 36 offer is treated as being made.)

(8) If a Part 36 offer is withdrawn it will not have the consequences set out in this Part."

17. Rule 36.6 is concerned with Part 36 payments. It requires the defendant who makes such a payment to file with the court a notice stating the amount of the payment and giving other details. Sub-rule (3) requires the court to serve the Part 36 payment notice on the offeree unless the offeror informs the court, when the money is paid into court, that the offeror will serve the notice. Sub-rule (5) states:

"A Part 36 payment may be withdrawn only with the permission of the court."

18. The rules go on to set out the formalities required to make an offer a Part 36 offer. If made, the rules set out the consequences that follow, namely the time limits for acceptance, the costs consequences and the effect of acceptance. As the editorial note in the White Book states:

"Part 36 concerns offers to settle and payments into court made in accordance with its provisions (called respectively a Pt 36 offer and a Pt 36 payment), and the consequences which follow if such offers and payments do so comply. There is no prohibition against a party making an offer to settle in any way he chooses, but if the offer made does not comply with the provisions of this Part, the consequences specified will not follow unless the court so orders (see r.36.2). Part 36 applies not only to claims but also to counterclaims and other additional claims within Pt 20 (see r.20.3)."

19. I reject the submission of the respondents. The Civil Procedure Rules do not prevent a Part 36 offer being withdrawn at any time prior to acceptance. That I believe to be clear for six reasons. First there is nothing in Part 36 which states that a Part 36 offer cannot be withdrawn. If withdrawal was precluded, I would have expected the rule to have said so in clear terms. That is to be contrasted with rule 36.6(5) which prevents withdrawal of a payment without permission. Second, rule 36.5(6) only requires the offer to "be expressed to remain open for acceptance for 21 days ...". If the intention had been that the offer had to remain open for 21 days then the word "expressed" would not have been used. Third, there is no mention of a particular period for offers made close to trial (see rule 36.5(7)). To read into the rules that such offers cannot be withdrawn for a reasonable period from the date of the offer would provide uncertainty which could not have been contemplated. Fourth, rule 36.5(8) expressly provides that a Part 36 offer can be withdrawn. There is no limitation on when the withdrawal can take place. The effect is set out, namely that the offeror cannot rely upon the consequences of having made a Part 36 offer. Fifth, a requirement that a Part 36 offer could not be withdrawn could impose hardship in certain circumstances. That being so, I would have expected a provision providing for withdrawal in certain circumstances, at least with permission of the Court. Sixth, 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 result in an addition to the contractual terms offered by the offeror. That would be possible, but should not be done by implication. The purpose of making a Part 36 offer, as opposed to another type of offer, is to attain the advantages that the rules provide. It is only those offers which comply with the rules that are certain to attain those advantages.

20. I do not believe that Part 36 seeks to exclude the general law of contract that an unaccepted offer can be withdrawn. All that it does is to lay down the requirements that are needed to attain the consequences of making a Part 36 offer. I note that that conclusion is consistent with paragraph 5.4 of "Settlement under the Civil Procedure Rules" by Mr David Foskett QC. There it is said: "Consistent with the normal rules of the law of contract, a Part 36 offer may be withdrawn not merely within a period of 21 days or more granted from acceptance, but also at any time before the court gives permission for it to be accepted after that period of 21 days or more has expired. Unlike a Part 36 payment, which can be withdrawn only with the court's permission, a Part 36 offer can be withdrawn at any time."

21. A note to that passage states that a proposal that the rules should provide that a Part 36 offer could not to be withdrawn without permission of the court was twice considered and twice rejected by the Civil Procedure Rules Committee.

22. Our attention was also drawn to the judgment of Dyson J in Pitchmastik Plc v Birss Construction Ltd (unreported, 19th May 2000) in which it was held that an offer once rejected could not be accepted. Of course that reflected the established law of contract. However the judge went on to express a view as to the effect of Part 36. In so far as he did so, it appears to me that his observations were obiter. I prefer to express no view on the effect of rejection of a Part 36 offer - in particular whether it continues open for acceptance and whether the offeror can keep the advantages of having made a Part 36 offer while at the same time treating it as at an end due to its rejection. Whatever the effect, I think that a court will be slow to construe correspondence passing between the parties as a rejection of a Part 36 offer in the light of rule 36.9 which allows the offeree to seek clarification.

23. For the reasons that I have given, I believe that the judge came to the wrong conclusion. The Part 36 offer by the appellant was withdrawn and therefore could not be accepted by the respondents. It follows that their subsequent letter did not result in the action being compromised. I therefore would allow the appeal.

LORD JUSTICE MANCE:

24. I agree.

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