COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE, CHANCERY DIVISION
MR JUSTICE WARREN
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE RIMER
LORD JUSTICE STANLEY BURNTON
||Claimant / Respondent
|- and -
||Defendant / Appellant
Mr Michael Barnes QC (instructed by SJ Berwin) for the Respondent
Hearing dates : Tuesday 19 April 2011
Crown Copyright ©
Lord Justice Rix :
The parties' dispute
"Our client's proposal is this:
1. [The defendant guarantor] purchase the property for £10,500,000; or
2. whilst there is no certainty as to the [third party] purchase of the Property, our client is willing to drop the action for specific performance and settle the claim at for £2,000,000.
Regardless of which offer your client chooses, the offer will be open for 21 days from the date of this letter (the "Relevant Period"). Your clients can thus walk away from the dispute by the year end having achieved an attractive settlement. [The judge referred to this paragraph as the "Offer Paragraph", which is a convenient device.]
Both offers are intended to have the consequences set out in Part 36 of the Civil Procedure Rules and are to settle all matters raised in the proceedings.
Failure to Accept this Offer
If your clients do not accept this offer and our client obtains a judgment which is equal to or more advantageous than this offer, our clients will rely on CPR 36.14 to seek an order in the following terms:
(i) that your clients will pay our client's costs up to the expiry of the Relevant Period;
(ii) that your clients pay our client's costs on the indemnity basis from the date on which the Relevant Period expired, with interest on those costs of up to 10% above base rate and interest on the whole or part of any sum awarded at up to 10% above base rate for some or all of the period starting from the same date.
We await your response."
CPR Part 36
"1. Part 36 Offers to Settle
Scope of this Section
(2) Nothing in this Section prevents a party making an offer to settle in whatever way he chooses, but if the offer is not made in accordance with rule 36.2, it will not have the consequences specified in rules 36.10, 36.11 and 36.14…
Form and content of a Part 36 offer
36.2 (1) An offer to settle which is made in accordance with this rule is called a Part 36 offer.
(2) A Part 36 offer must –
(a) be in writing;
(b) state on its face that it is intended to have the consequences of Section I of Part 36;
(c) 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 36.10 if the offer is accepted;
(d) state whether it relates to the whole of the claim or to part of it or to an issue which arises in it and if so to which part or issue; and
(e) state whether it takes into account any counterclaim…
(3) Rule 36.2(2)(c) does not apply if the offer is made less than 21 days before the start of the trial…
Part 36 offers – general provisions
36.3 (1) In this part
(a) the party who makes the offer is the "offeror";
(b) the party to whom an offer is made is the "offeree"; and
(c) the "relevant period" means –
(i) in the case of an offer made not less than 21 days before trial, the period stated under rule 36.2(2)(c) or such longer period as the parties agree;…
(3) A Part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest until –
(a) the date on which the period stated under rule 36.2(2)(c) expires;
(b) if rule 36.2(3) applies, a date 21 days after the date the offer was made…
(5) Before expiry of the relevant period, a Part 36 offer may be withdrawn or its terms changed to be less advantageous, only if the court gives permission.
(6) After expiry of the relevant period and provided that the offeree has not previously served notice of acceptance, the offeror may withdraw the offer or change its terms to be less advantageous to the offeree without the permission of the court.
(7) The offeror does so by serving written notice of the withdrawal or change of terms on the offeree…
Acceptance of a Part 36 offer
36.9 (1) A Part 36 offer is accepted by serving written notice of the acceptance on the offeror.
(2) Subject to rule 36.9(3), a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer) unless the offeror serves notice of withdrawal on the offeree…
(3) [This rule lists four cases where the court's permission is needed to accept a Part 36 offer. None of them applies in this case. The fourth of them (d) is where "the trial has started". So permission is not needed to accept an offer after the "relevant period" has expired.]
Costs consequences of acceptance of a Part 36 offer
36.10 (1) Subject to…paragraph 4(a), where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings up to the date on which notice of acceptance was served on the offeror…
(4) Where –
(a) a Part 36 offer that was made less than 21 days before the start of trial is accepted; or
(b) a Part 36 offer is accepted after expiry of the relevant period,
if the parties do not agree the liability for costs, the court will make an order as to costs.
(5) Where paragraph (4)(b) applies, unless the court orders otherwise –
(a) the claimant will be entitled to the costs of the proceedings up to the date on which the relevant period expired; and
(b) the offeree will be liable for the offeror's costs for the period from the date of expiry of the relevant period to the date of acceptance…
The effect of acceptance of a Part 36 offer
36.11 (1) If a Part 36 offer is accepted, the claim will be stayed…
Costs consequences following judgment
36.14 (1) This rule applies where upon judgment being entered –
(a) a claimant fails to obtain a judgment more advantageous than a defendant's Part 36 offer;
(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant's Part 36 offer.
(2) Subject to paragraph (6), where rule 36.14(1)(a) applies, the court will, unless it considers it unjust to do so, order that the defendant is entitled to –
(a) his costs from the date on which the relevant period expired; and
(b) interest on those costs.
(3) Subject to paragraph (6), where rule 36.14(1)(b) applies, the court will, unless it considers it unjust to do so, order that the claimant is entitled to –
(a) interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;
(b) his costs on the indemnity basis from the date on which the relevant period expired; and
(c) interest on those costs at a rate not exceeding 10% above base rates.
(4) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3) above, the court will take into account all the circumstances of the case…
(6) Paragraphs (2) and (3) of this rule do not apply to a Part 36 offer –
(a) that has been withdrawn;
(b) that has been changed so that its terms are less advantageous to the offeree, and the offeree has beaten the less advantageous offer;
(c) made less than 21 days before trial, unless the court has abridged the relevant period.
(1) that the "relevant period" of at least 21 days before trial is critical to the operation of a Part 36 offer, and that the specification of such a 21 day period in which the acceptance of the offer will entail liability for the claimant's costs up to the date of acceptance of the offer is critical to the making of a Part 36 offer more than 21 days before trial (rule 36.2(2)(c), rule 36.3(1)(c), rule 36.10(1));
(2) that Part 36 is prescriptive of the effect of a Part 36 offer as to costs and interest (rule 36.3(3), rule 36.10.1, rule 36.14(2));
(3) that a Part 36 offer cannot be withdrawn within the relevant period without the permission of the court (rules 36.3(5) and (6));
(4) that a Part 36 offer can be withdrawn only by service of a written notice of withdrawal on the offeree (rule 36.3(7));
(5) that an unwithdrawn Part 36 offer can therefore be accepted at any time, and that common law rules as to the lapsing of a Part 36 offer do not apply (rule 36.9(2));
(6) that Part 36 prescribes the costs consequences of a judgment which betters or fails to better the Part 36 offer, subject only to the court's discretion to order otherwise if the prescribed consequences would be unjust, and subject also to a discretion as to the amount of the enhanced rate of interest to be awarded to a claimant on both any judgment sum and on costs (rule 36.14);
(7) that it is an essential feature of the rule 36.14 consequences (where the litigation has proceeded to judgment) that they only apply where the offer has not been withdrawn (rule 36.14(6)(a));
(8) that an offer may be made outside Part 36, in which case it will not have the prescribed consequences (rule 36.1(2)).
Jurisprudence on Part 36
" It can be seen from Part 36 as a whole, as well as from the extracts cited above, that it contains a carefully structured and highly prescriptive set of rules dealing with formal offers to settle proceedings which have specific consequences in relation to costs in those cases where the offer is not accepted and the offeree fails to do better after a trial…parties are not bound to make use of the mechanism provided by Part 36, but if they wish to take advantage of the particular consequences for costs and other matters that flow from making a Part 36 offer, in relation to which the court's discretion is much more confined, they must follow its requirements…
 Basic concepts of offer and acceptance clearly underpin Part 36, but that is inevitable given that it contains a voluntary procedure under which either party may take the initiative to bring about a consensual resolution of the dispute. Such concepts are part of the landscape in which everyone conducts their daily life. It does not follow, however, that Part 36 should be understood as incorporating all the rules of law governing the formation of contracts, some of which are quite technical in nature. Indeed, it is not desirable that it should do so. Certainty is as much to be commended in procedural as in substantive law, especially, perhaps, in a procedural code which must be understood and followed by ordinary citizens who wish to conduct their own litigation. In my view, Part 36 was drafted with these considerations in mind and is to be read and understood according to its terms without importing other rules derived from the general law, save where that was clearly intended…"
" In my view, attractive though these arguments are, they cannot be reconciled with the clear language of Part 36, or indeed with the scheme which it embodies. Rule 36.9(2) is quite 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. Moreover, it may be accepted whether or not the offeree has subsequently made a different offer, a provision which is contrary to the general position at common law. The rules state 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. That would be the case at common law, but it is inconsistent with the concepts underlying Part 36, which proceeds on the footing that the offer is on the table and available for acceptance until the offeror himself chooses to withdraw it. There are good reasons for that. An offer which appears unattractive when made, and which is therefore rejected, may become more attractive as the proceedings progress and the parties reassess the strength of their prospective cases. A defendant who chooses to leave his offer on the table may tempt the claimant into accepting it, with the benefit to himself of the consequences for costs of an offer made at an early stage. Part 36 allows a defendant (or for that matter a claimant) to decide whether to leave his offer open for acceptance or to withdraw it and make another offer later. To import into Part 36 the common law rule that an offer lapses on rejection by the offeree would undermine this important element of the scheme. It could give rise to disputes about whether the offer had been rejected in any given case, so as to render it incapable of acceptance. In Sampla v Rushmoor Borough Council  EWHC 2616 (TCC) Coulson J held, largely for these reasons, that the rejection of a Part 36 offer does not render it incapable of late acceptance. In my view he was right to do so.
 Nor do I think that the letter of 18 February 2009 [in which the claimant had rejected a counter-offer] can be read as containing an implied withdrawal of the Part 36 offer. Rule 36.3(7) provides that an offer is withdrawn by serving written notice on the offeree. In my view that leaves no room for the concept of implied withdrawal; it requires express notice in writing in terms which brings home to the offeree that the offer has been withdrawn. If justification for that requirement is sought, it can be found once again in the need for clarity and certainty in the operation of the Part 36 procedure…
 In some cases the demands of clarity and certainty in the operation of Part 36 may appear to produce injustice and I see the force of Dr Friston's submission that Mrs Gibbon's solicitors had made it clear that she was not willing to accept £2,500 to settle her claim. Her difficulty, however, is that a Part 36 offer had been made on her behalf and had not been withdrawn. It remained on the table and was therefore open for acceptance. We are not concerned with whether she has any ground for complaint against the council [the offeree] for accepting her offer despite the fact that she had made her intentions clear, since no suggestion has ever been made that she has a legitimate complaint about that."
" First…CPR Part 36 is entirely silent as to offers that are rejected…
 Secondly, CPR [36.9(2)] makes plain that an offer can be accepted "at any time". Those are wide words which are not qualified in any way. If an offer could not be accepted because it had been initially rejected, then I would have expected Part 36 to say so in clear terms…
 Thirdly, in express confirmation of those first two points, are the words in brackets in CPR 36.9(2), to the effect that an offeree can accept an offer at any time, even if his original response had been to make a counter-offer. That is the direct opposite of the position in contract, where a counter-offer 'kills' an offer just as completely as an express rejection."
"It was thus clear that the part 36 offer, and the offer of mediation etc, were still on the table. There is in fact no practical limit on the time within which a Part 36 offer may be accepted: see CPR 36.9(2). There was no reply to that letter either."
Ultimately the matter went for trial. Both the trial judge and this court treated the offer as a Part 36 offer. The judge used it against the offeror, because she had failed at trial to obtain as much as her offer. The judge proceeded as if she had failed at trial to obtain as much as a defendant's Part 36 offer (there was none) and because she had claimed so much more than her Part 36 offer. I said (at ):
"However, there is nothing about the procedure which states that an offeror is to be prejudiced as to costs because he has expressed his willingness to accept less than his open position. That would make the procedure a most dangerous one to use. The judge's ruling that the incidence of costs should change at the expiry of the relevant period of three weeks confirms the illogicality of his decision. The three weeks is given to protect the offeree, who has that period to make up his mind: the judge used it, however, (to its limited extent) to protect the offeror, Mrs Rolf."
Elias and Tomlinson LJJ agreed.
"This offer is made pursuant to Part 36 of the Civil Procedure Rules and is intended to have the consequences of that rule.
The relevant acceptance period is 21 days from the date of receipt of this letter, namely to 26 September 2008."
Within that period the claimant accepted the offer. The offer and the acceptance said nothing about costs, and there was a dispute about how costs should be dealt with. It was submitted on the part of the claimant that the defendant's offer did not amount to a Part 36 offer because the wording of rule 36.2(2)(c) was not expressly set out. This court rejected that submission. Goldring LJ said:
"the reference to the relevant (my emphasis) acceptance period of 21 days plainly pointed to CPR 36.2" (at para 27)."
"32. I also agree. The moral of this story is that someone who writes a letter headed "Part 36 offer", and which is stated as "intended to have the consequence of that rule", should make sure that he knows what those consequences are. I agree with my Lord that those consequences in a case such as this are clearly set out in 36.2(2) and 36.10(1). If the party writing the letter does not want those consequences to apply, he should put his offer in some other way, as is expressly permitted by rule 36.2.
33…it seems to me important, in the interests of certainty, that, when the Part 36 jurisdiction is expressly invoked, the court should generally take that at face value, and as far as possible give effect to the consequences as envisaged by the rules."
The 2007 amendment to Part 36
"Form and content of a Part 36 offer
36.5…(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…
(8) If a Part 36 offer is withdrawn it will not have the consequences set out in this Part…
Time for acceptance of a claimant's Part 36 offer
36.12 (1) A defendant may accept a Part 36 offer made not less than 21 days before the start of the trial without needing the court's permission if he gives the claimant written notice of acceptance not later than 21 days after the offer was made."
If, however, the offer was accepted after 21 days and the parties agreed liability for costs, then the offer could again be accepted without the permission of the court (rule 36.12(2)(b)(i)). That was consistent with rule 36.5(6)(b)(i).
"to make it easier and more attractive to use Part 36 by removing unnecessary burdens/processes, in particular by:…
– allowing parties to accept offers after the initial time limit has expired without requiring the court's permission and, to balance that, allowing unaccepted offers and payments to be withdrawn after the time for acceptance has expired."
"28. At present it is not entirely clear whether the court may exercise its general discretion to extend the prescribed time for acceptance of a Part 36 offer (so that the offeree will still enjoy automatic costs consequences).
29. Rule 3.1 probably allows it, but that rule refers to extending or shortening time limits for compliance with any rule, whereas Part 36 does not itself directly require acceptance (or explicit rejection) of an offer. The Department considers that it should be made clear, one way or the other, whether the court can amend the 21-day period for accepting offers.
30. Assuming the court's probable power to extend is to be confirmed…
31…there may be circumstances in which the offeror may know that the offeree is likely to require longer than 21 days to assess the claim. To avoid unnecessary applications, and possible censure by the court, the offeror may prefer to express the offer as remaining open for more than 21 days. The Department proposes therefore that the offeror should be permitted to state a longer period of acceptance than 21 days…
32. It is proposed to remove the requirement to obtain the court's permission to accept a Part 36 offer after the expiry of the time limit. This is because a permission requirement implies a possibility of refusal and it is unclear why the court should ever do this. Parties should be encouraged and assisted to settle cases, not hindered. (If the parties cannot agree costs, the court will have to agree those costs in any event)…
34. It is proposed that:
• the formal requirement for permission to accept an offer out of time should be removed;
• an offer (if not withdrawn) should be acceptable at any time. If accepted out of time, it should not have the automatic costs consequences of Part 36 (see rules 36.13 & 14). If costs were not agreed, they would fall to be assessed by the court. The normal rule might be that costs incurred after the time for acceptance would not be allowed…
"36. As the rules stand, there is a lack of clarity and consistency in respect of the withdrawal of offers and payments…
38. A Part 36 offer…may be withdrawn at any time but rule 36.5(8) provides that such offers that are withdrawn will not have the consequences set out in Part 36. However the Western Power judgment must throw doubt on this…
41. It is proposed as a means to achieve such clarity to place litigants on an equal footing (removing the distinction in relation to offers and payments). The approach favoured by the Department is that all offers (and payments in support of offers) may be withdrawn:
• any time after the expiry of the period during which they are expressed to be open for acceptance, unless the offer has been accepted
• before the expiry of the period during which they are expressed to be open for acceptance only with the permission of the court
42. The Department considers that allowing a party who makes an offer to withdraw it (after the expiry of the period during which it is expressed to be open for acceptance) is a natural corollary of the offeree being able to accept it without permission after expiry of the same period (see paragraphs 32-34 above)…
46. However, we do not propose an absolute bar on withdrawal during that period, merely that there should be a requirement to apply to the court for permission.
47. The alternatives to what is proposed would be either an unfettered right to withdraw an offer at any time (by service of a notice), or a requirement for permission to withdraw at any time, and/or a complete ban on withdrawing during the period for acceptance (which might be expressed as more than 21 days or might have been extended by the court)."
(1) Can a Part 36 offer be made in terms which limit the acceptance of the offer to a stipulated period, such that the offer lapses at the end of that period? Such an offer was referred to as a time limited offer. The judge said that such an offer could not be made as a Part 36 offer, although it could be made as an offer outside Part 36. Within Part 36, however, an offer must be withdrawn, otherwise it remains on the table. The appellant seeks to maintain that answer on appeal.
(2) What is the true construction of the respondent's offer being "open for 21 days" in the context of what was clearly intended to be a Part 36 offer? The judge said it was a time limited offer, and that therefore it was not a Part 36 offer. The appellant submits that that was wrong. The respondent seeks to maintain that answer on appeal.
(3) If withdrawal of a Part 36 offer is necessary, was the respondent's offer withdrawn: either by the time limited terms of the offer itself, or by the emails which followed it? The judge did not formally decide that issue, but briefly expressed his view that, had a withdrawal been necessary, there was none. The appellant submitted that that opinion was correct, the respondent submitted that it was wrong.
Issue (1): Can a Part 36 offer be a time limited offer?
"The rules state 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. That would be the case at common law, but it is inconsistent with the concepts underlying Part 36, which proceeds on the footing that the offer is on the table and available for acceptance until the offeror himself chooses to withdraw it."
Issue 2: as a matter of construction, what does "open for 21 days" mean in context?
"This question must be approached on the basis that the court's duty is to reconcile seemingly inconsistent provisions if that result can conscientiously and fairly be achieved."
"It would in my judgment be quite wrong to approach this question of construction with any predisposition to find inconsistency between the special condition and cl. 19. They are all part of the same contract…One should, therefore, approach the documents in a cool and objective spirit to see whether there is an inconsistency or not" (at 349/350).
He affirmed Steyn J's analysis, albeit saying that he did so with more confidence than Steyn J had expressed in his answer.
"The court is reluctant to hold that parts of a contract are inconsistent with each other, and will give effect to any reasonable construction which harmonises such clauses."
"If the words used in an agreement are susceptible of two meanings, one of which would validate the instrument or the particular clause in the instrument, and the other render it void, ineffective or meaningless, the former sense is to be adopted. This rule is often expressed in the phrase ut res magis valeat cum [sc. quam] pereat. Thus, if by a particular construction the agreement would be rendered ineffectual and the apparent object of the contract would be frustrated, but another construction, though by itself less appropriate looking to the words only, would produce a different effect, the latter interpretation is to be applied, if that is how the agreement would be understood by a reasonable man with a knowledge of the commercial purpose and background of the transaction. So, where the words of a guarantee were capable of expressing either a past or a concurrent consideration, the court adopted the latter construction, because the former would render the instrument void. If one construction makes the contract lawful and the other unlawful, the former is to be preferred…"
"In the case of the Offer Letter, the specification of the relevant period can be found, if it is found at all, only in the Offer Paragraph. There is nowhere else in the Offer Letter where the specification of a relevant period is to be found and the definition of "the Relevant period" makes the position clear. So one can see that at least one of the purposes of the Offer Paragraph is to ensure compliance with rule 36.2(2)(c)."
If so, then that is a powerful pointer to the self-same words having to be interpreted in a way consistent with Part 36 as a whole and with the doctrine of the relevant period, something which on the respondent's construction becomes wholly irrelevant. Yet the same 21 days are involved.
Issue (3): Do the terms of the offer itself, or the subsequent emails, amount to a withdrawal of the offer?
(i) Claimant's solicitors to defendant's solicitors, 18 December 2009:
"You will be aware that our client's Part 36 offer will remain open until 31 December. If your clients intend to revert after such time, we would expect a formal request detailing a specific date for extension of the deadline and the reason for this request. We would then revert to our client accordingly."
(ii) Defendant's solicitors to claimant's solicitors, 18 December 2009:
"Thank you for your email we are aware when the period for acceptance expires however to provide a formal reply our client has to go through its internal reporting procedures…this process may not have completed until 8th January"
(iii) Claimant's solicitors to defendant's solicitors, 23 December 2009:
"It was not clear from your email that a response was required, apologies. We had understood your clients' internal reporting procedures necessitate a longer period for consideration of the settlement offer, until 8 January 2010. If this is still the case, our client is prepared to wait until that date for a full response to its offer."
(iv) Defendant's solicitors to claimant's solicitors, 23 December 2009:
"Thank you for clarifying the position."
(v) Claimant's solicitors to defendant's solicitors, 8 January 2010:
"Our client agreed to wait until today for a full response from your client to its settlement offer. We note that no response has been forthcoming and ask that you confirm by the end of the day when such response will be available."
(vi) Defendant's solicitors to claimant's solicitors, Friday 8 January 2010:
"I have not been able to get into the office but will respond early next week."
(vii) Claimant's solicitors to defendant's solicitors, Monday 11 January 2010:
"In relation to your clients' response on settlement, we request a response in the shortest possible order."
Lord Justice Rimer :
'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 of 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….'
Lord Justice Stanley Burnton