England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		1 February 2006

Lord Justice Brooke : This is the judgment of the court.

1. On 16^th and 17^th November 2005 another division of this court (Latham, Neuberger and Hallett LJJ) heard an appeal by the first defendants and a cross-appeal by the third defendants following the trial of preliminary issues on liability in this action by Wilkie J in which he delivered judgment in January 2005. At the end of the hearing they reserved judgment.
2. In this action the claimant claimed damages from the first defendants, who were the owners of a Southend nightclub, arising out of an assault on him by a doorman whose services had been provided by the second defendants, a security company which is now insolvent. The third defendants are the second defendants' insurers and they were joined as parties to the action on account of their potential direct interest in the outcome.
3. The judge held that the first defendants had day to day control of the doorman's activities and were to be deemed to be his temporary employers. He held them to be liable to the claimant and dismissed their contribution proceedings against the second defendants on the grounds that there was nothing that they could have done to have avoided the accident. The first defendants appealed against that decision. During the course of his judgment the judge held that the claimant's injuries constituted "accidental bodily injury" for the purposes of the public liability insurance cover provided by the third defendants to the second defendants, and he made another finding adverse to the third defendants in relation to the effect of a default judgment which had been entered against the second defendants in July 2003. These two findings were the subject of the third defendants' cross-appeal.
4. The appeal and cross-appeal were listed to be heard on 16^th and 17^th November. On 10^th October 2005 another division of this court delivered judgment in a different case which was perceived to have a potential effect on the outcome of the first defendants' appeal.
5. On 9^th November the third defendants' solicitors made a Part 36 offer to settle the outstanding appeals on the basis that the parties agreed to a 50-50 division of liability, they each bore their own costs of the appeal, and the third defendants took over the conduct of the defence.
6. On 14^th November the first defendants' solicitors made their own Part 36 offer on the same terms except that liability should be divided as to one third to their clients and as to two thirds to the third defendants.
7. On 17^th November, on the morning of the second day of the appeal hearing, the first defendants' solicitor made a new offer to the third defendants' solicitor to the effect that his clients would now accept a 40-60 division of liability. This offer was made in the course of a discussion outside court.
8. After taking instructions, the third defendants' solicitor told the first defendants' solicitor that the offer was rejected. He said that his client felt that a 50-50 split was a fair proposal, but that if this were accepted, he thought that they would now require their costs of the appeal to be paid.
9. Both solicitors then went back into court, and during the course of the morning the third defendants instructed their solicitor that they did not wish to maintain their 50-50 offer any longer. He therefore dictated a letter over the telephone to his secretary, which was prepared and signed by a colleague in the office and faxed to the first defendants' solicitor at 12.09 p.m. It was in these terms:

"We refer to the counter proposal made by you at Court this morning of 60/40 split in liability in your client's favour.

We confirm that this proposal is rejected.

It follows, therefore, that the 50-50 split on liability is no longer available."

10. Later that day the hearing of the appeals was concluded and judgment was reserved. On 22^nd November the first defendants' solicitors wrote a further letter in these terms:

"We refer to your Part 36 Offer dated 9 November 2005 and confirm acceptance of that offer.

Notwithstanding the comments in your letter of 17 November 2005 a counter offer does not mean that a Part 36 Offer is no longer available.

We confirm that the First Defendant will pay your costs of the appeal incurred post 10 November 2005 and the Claimant's costs of the appeal from the same date."

11. The third defendants' solicitors denied that the offer made on 9^th November was still open for acceptance on 22^nd November, and because this difference of opinion could not be resolved amicably the first defendants applied to the court on 7^th December for an order that the appeal "heard before the Court of Appeal on 16 and 17 November 2005" be stayed pursuant to CPR 36.15(6) and for a declaration that the third defendants' Part 36 Offer dated 9^th November was validly accepted by their letter of acceptance dated [22^nd] November. In so far as it might be necessary, they also sought an order that they might be given permission to accept that offer. It was then directed that the application be heard in court by two lords justices drawn from those members of the court who had not heard the substantive appeals. It was in these circumstances that the present division of the court heard the first defendants' application on 16^th December. At the end of the hearing we told the parties that we were dismissing the application for reasons that we would give later. These are our reasons.
12. CPR Part 36 is the procedural code which governs what are now called Part 36 offers. This was not a case in which a payment could be made into court. A Part 36 offer is defined as an "offer made in accordance with this Part" (CPR 36.2(1). By CPR 36.2(4)(b) a Part 36 offer may be made in appeal proceedings.
13. CPR 36.5 sets out the requirements for the form and content of a Part 36 offer. CPR 36.5(7) and (8) are material in the present case:

"(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.

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

14. CPR 36.8(5) provides that a Part 36 offer is accepted when notice of its acceptance is received by the offeror. CPR 36.12(2) and (3) set out in substantive form what was already referred to in CPR 36.5(7) (see above):

"(2) If –

(a) a claimant's Part 36 offer is made less than 21 days before the trial; ....

(i) if the parties agree the liability for costs, the defendant may accept the offer without needing the permission of the court;

(ii) if the parties do not agree the liability for costs, the defendant may only accept the offer with the permission of the court;

(3) Where the permission of the court is needed under paragraph (2) the court will, if it gives permission, make an order as to costs."

15. It will be noticed that CPR Part 36 refers to "the trial" while it also contemplates that a Part 36 offer may be made in appeal proceedings (CPR 36.2(4)(b)). In Utaniko Ltd v P & O Nedlloyd BV (No. 2) [2003] EWCA Civ 174; [2003] 1 Lloyd's Rep 265 this court was concerned with the meaning of the words "at trial" in CPR 36.21, and Brooke LJ said (at para 4) that those two words must clearly be interpreted as meaning "on the hearing of an appeal". It was common ground between the parties that the same approach should be adopted in relation to the words "less than 21 days before the trial" in CPR 36.12(2), and that they should mean "less than 21 days before the hearing of the appeal" in the present context.
16. In Scammell v Dicker [2001] 1 WLR 631 this court held that CPR Part 36 did not exclude the general law of contract, so that an unaccepted offer could be withdrawn. All that it did was to lay down the requirements that were needed to achieve the costs and other consequences of having made a Part 36 offer if it was not "beaten". In giving the leading judgment, with which Mance LJ agreed, Aldous LJ said (at para 22):

"I prefer to express no view on the effect of rejection of a Part 36 offer – in particular whether it continued 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."

17. The argument of Mr Sweeting QC, for the first defendants, was disarmingly simple. He maintained that Part 36 does not provide for a Part 36 offer to lapse, whether it was made before or within 21 days of the hearing. The third defendants' 50-50 offer was made on 9^th November. It had never been rejected, and it was still open for acceptance on 22^nd November when his clients accepted it. Because the third defendants did not agree that their offer was still open for acceptance, it followed that there was no agreement between the parties as the costs consequences of acceptance, and on that basis alone it might be that the permission of the court was required under CPR 36.12(2). He observed, however, that the costs consequences were probably obvious, and his clients had already accepted liability to pay both the third defendants' and the claimant's costs of the appeal.
18. Mr Lawrence QC, who appeared for the third defendants, maintained that his clients' solicitors' letter dated 17^th November withdrew their 50-50 offer, even if it was still then open for acceptance. He also argued that the first defendants' counter-offer (of a 1:2 division of liability) constituted a rejection of his client's offer, and the existence of a later counter-offer (of a 4:6 share of liability on 17^th November) tended to confirm the conclusion that his client's original offer was no longer susceptible of acceptance on or after 17^th November. He added, if further argument was necessary, that there was an implied term of the 9^th November offer that it should be accepted within a reasonable time, and that period had elapsed before the purported acceptance of the offer on 22^nd November.
19. Finally, he suggested that his client's offer was not a valid Part 36 offer because it omitted to include the mandatory information prescribed by CPR 36.5(7). This was an unattractive argument because it purported to disavow the validity of what his client's solicitors had expressly described as a Part 36 offer.
20. In any event, CPR 36.1(2) provides:

"Nothing in this Part prevents a party making an offer to settle in whatever way he chooses, but if that offer is not made in accordance with this Part, it will only have the consequences specified in this Part if the court so orders."

This rule would give the court ample power to give no effect to arguments as unmeritorious as Mr Lawrence's final point, given that both parties were represented by solicitors who could advise them of the effect of a Part 36 offer made less than 21 days before the start of the relevant hearing.

21. Elements of the Part 36 regulatory scheme are now under active reconsideration by the Civil Procedure Rules Committee, and a consultation paper was recently published which suggested certain changes to the present scheme. It would be helpful if the Rules Committee could consider the issues raised on this application when they are deciding how, if at all, they should recast the part of the scheme that relates to Part 36 offers.
22. It will be recalled that in Chapter 24 of his Interim Report on Access to Justice (June 1995) Lord Woolf proposed that the arrangements for payment into court should be abandoned, and that in future both claimants and defendants should be able to make offers "without prejudice as to costs" which would have costs consequences in the event that an unaccepted offer was not "beaten" at the trial. In Chapter 11 of his Final Report (July 1996), however, Lord Woolf recommended that the two regimes should continue to exist side by side. In paragraph 5 of that chapter (at p 113 of the report) he addressed the question of the withdrawal of offers in terms which do not arise for consideration on the present application.
23. It was the form of the parties' offer and counter-offers, and a certain lack of clarity in the rules, which introduced needless complexity into this dispute. At the hearing of this application neither party drew the court's attention to Mitchell v James [2002] EWCA Civ 997, 1 WLR 158, in which Peter Gibson LJ made it clear that the draftsman of CPR Part 36 did not intend terms as to costs to be included in a Part 36 offer, although there was nothing in Part 36 that prevented a party making an offer to settle in whatever way he chose.
24. If the third defendants' solicitors had taken that decision into account – and it is mentioned in note 36.5.2 on page 952 of Volume 1 of the 2005 White Book – and had borne in mind the requirements of CPR 36.5(7), they would have phrased their offer, made a week before the appeal hearing started, in terms like these:

(i) We offer to settle on terms that our clients share the liability to the claimant equally and that they are permitted to take over the conduct of the entire defence;

(ii) You may only accept this offer if we are able to agree the liability for costs or if the court gives you permission to accept it.

25. If the ordinary rules of offer and acceptance apply in the present context, the first defendants' counter-offer (which would normally be interpreted as meaning "We reject your 50-50 offer but we offer you a 1:2 split of liability instead") would be readily interpreted as a rejection of the third defendants' offer (see Hyde v Wrench (1840) 3 Beav 334, 337: Norfolk County Council v Dencare Properties Ltd (unreported, CAT 9^th November 2005); and Chitty on Contracts, 29^th Edition, Vol 1, pp 163-4 at para 2-090).
26. Similarly, it is so well known that the risks inherent on litigation may alter significantly, particularly if an appeal court has pre-read the papers, as soon as a hearing starts and the judge or judges start to get engaged with the issues, that there would be a strong case for saying that there was an implied term of the offer that it was only open for acceptance (so long as one or other of the conditions in CPR 36.12(2) were fulfilled) until the time when the appeal was opened in court at the hearing.
27. But in our judgment it is unnecessary to decide this application on either of these grounds, strong though each of them appears to be. It would be better to postpone any decision on these matters until a case in which they do arise for decision, and to give the Rules Committee a chance to consider them without being constrained by a definitive ruling of the court in either regard.
28. It is in our judgment sufficient to decide the present application on two different grounds. The first is that there was an explicit withdrawal of the offer on 17^th November, so that it was no longer available for acceptance. If the first defendants on receipt of the letter of 17^th November had been in any doubt as to its meaning, (and particularly the meaning of the words "it follows that...") they could have asked for clarification. Alternatively, if they wished to try and accept the offer before the end of the hearing, they should have asked for a stay of the hearing while they sought permission to accept the offer from a different judge of the court.
29. The second ground is that even if, which we doubt, the third defendants' offer of 9^th November had been available for acceptance after the appeal hearing started, we have no doubt at all that it carried an implied term that it would not be available for acceptance after the hearing ended and the court reserved judgment. By that stage the risks of the litigation might have altered very significantly and it would be inimical to the Part 36 regime if there was any scope within for a Part 36 offer to be susceptible of a valid acceptance (subject to a ruling as to costs) after the appeal hearing was over and the court had embarked on considering its judgment. One reason for this conclusion is that at that stage the members of the court who heard the appeal could not be informed of the existence or content of the Part 36 offer if it turned out not to be susceptible of acceptance, and any other member of the court could not know enough about the dynamics of the hearing itself to be able to determine whether it would be just to permit the offer to be accepted at this thirteenth hour – and the language of CPR 36.12(2) is wide enough to permit it to refuse permission even if satisfactory terms as to costs are being offered.
30. One reason why we are not deciding this application on the ground that the counter-offer represented a rejection of the original offer (as it would in a straightforward contractual context) is that it might be considered unjust for one party's late offer to be susceptible of acceptance (so long as one of the conditions in CPR 36.12(2) was fulfilled) right up to the time of the hearing whereas the other party's late offer was not susceptible of acceptance from the time of the counter-offer simply because it was made first in time. The making of both offers could convey with them adverse costs consequences to the side which did not accept, and in those circumstances it might appear just for each of them to be theoretically open for acceptance until the hearing starts. It would, as we have said, be far better if the Rules Committee reviewed this matter and came to a clear conclusion on how the scheme should operate in these circumstances.
31. We should add that we have found it unnecessary for the purposes of this judgment to say very much about the judgment of Dyson J in Pitchmastic plc v Birse Construction Ltd (unreported, 19^th May 2000), to which our attention was drawn. Dyson J was concerned in that case with an offer which had been expressly rejected. The case is only of interest in the present context because he said that even if the offer was not terminated by its rejection, it was common ground that it would lapse after a reasonable time, and that although there might be room for argument as to when a reasonable time expired, he was in no doubt that it had expired at the very latest by the time the parties received his draft judgment.
32. It is therefore for the reasons set out in paragraphs 28 and 29 above that we dismissed this application.