Source: http://www.civillitigationbrief.com/2019/05/05/defendants-part-36-offer-was-valid-court-of-appeal-uphold-offer-that-referred-to-unpleaded-counterclaim-and-sought-8-interest-after-expiry/
Timestamp: 2020-04-10 11:55:11
Document Index: 462723840

Matched Legal Cases: ['ART 36', 'ART 36', 'EWCA ', 'art 36', 'art 36', 'art 36', 'ART 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 20', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36', 'art 44']

DEFENDANT’S PART 36 OFFER WAS VALID: COURT OF APPEAL UPHOLD OFFER THAT REFERRED TO UNPLEADED COUNTERCLAIM AND SOUGHT 8% INTEREST AFTER EXPIRY – Civil Litigation Brief
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In Calonne Construction Ltd v Dawnus Southern Ltd [2019] EWCA Civ 754 the Court of Appeal upheld a finding that a defendant’s Part 36 offer was a valid one. The offer related to a counterclaim that had yet to be pleaded and sought 8% interest. This did not breach any of the requirements of CPR 36.
The claimant brought an action for declarations in relation to work done in refurbishing a property. The defendant made an early offer to settle the case, this took into account a defendant the counterclaim said it had. That offer also made a specific claim for interest. The claimant proceeded to trial and the defendant beat its own offer. An issue arose as to whether the defendant’s Part 36 offer was a valid one. The trial judge held it was and made an order for costs on that basis. The claimant appealed, arguing that the Part 36 offer was not valid. The Court of Appeal rejected that appeal.
The defendant’s offer was in the following terms:-
THE JUDGMENT ON APPEAL: THIS WAS A VALID PART 36 OFFER
The Court of Appeal considered, and rejected, the claimant’s argument that the Part 36 offer was not valid because it included a reference to a counterclaim that had not yet been pleaded.
Accordingly, it seems to me that a defendant’s proposed counterclaim must be treated as if it were a claim for the purposes of Part 36. In those circumstances, and in the light of the fact that a party is entitled to make a Part 36 offer at any time, including before commencement of proceedings (r 36.7), it seems to me that it cannot be correct that a Part 36 offer cannot be made in relation to a counterclaim before that claim has been pleaded. To conclude otherwise would derogate from both CPR r 20.3 and from CPR r 36.7. That must be the case even if proceedings in relation to another claim, the original claim, are already on foot. If it were otherwise, those rules to which express reference is made at the end of r 36.2 and r 36.7 would be undermined. It follows that I reject Mr Cook’s argument that in such circumstances, the party who wishes to counterclaim remains entitled to make a Part 36 offer “at any time” pursuant to r 36.7 and it is only the content of that offer which is constrained. Such an approach would have the effect of negating r 36.7 as far as any proposed claim by way of counterclaim was concerned.
It seems to me, therefore, that the Judge was right to conclude that the Offer was not invalidated by reason of a reference to the proposed counterclaim which was not pleaded until some ten days later and that CPR r 36.5(2)(d) and, for that matter, (e), must be construed in a way which enables such an offer to be made despite the fact that the counterclaim, which is a separate claim for the purposes of the Rules, has yet to be commenced.
I am fortified in my conclusion by the wider consequences if Mr Cook’s argument is right. It cannot be correct that the defendant must go to the expense of pleading the counterclaim and if necessary, obtaining permission in relation to it, or alternatively, issuing separate proceedings in order to be able to make a Part 36 offer in relation to it or which takes the counterclaim into account. Such a consequence would be contrary to the policy behind both Part 20 and Part 36 itself.
I also note that in different circumstances in the Van Oord case, when determining whether an offer was a claimant’s offer attracting the consequences in CPR 36.17(4) or a defendant’s offer with the consequences set out in CPR 36.17(3), Coulson J, as he then was, did not question and the parties agreed that an offer made by a defendant which took into account a counterclaim which had yet to be formulated, was a Part 36 Offer.
I have come to this conclusion despite the decision of the Court of Appeal in Hertel. In that case Coulson LJ, with whom Lewison and David Richards LJJ agreed, upheld the decision of Morgan J that once proceedings had commenced “claim or part of [a claim] or issue” for the purposes of CPR r 36.2(2)(d) (which is now CPR r 36.5(1)(d)) should be interpreted to mean claims which had been pleaded and did not include an amendment to the claim which was in draft but which had not been made. No reference was made whether at first instance or in the Court of Appeal to the decision in AF v BG.
The issue arose in circumstances where an offer had been made by the defendants in respect of a new claim by the claimants which was intended to be introduced by way of a proposed amendment to the particulars of claim which was in draft, but which had not yet been the subject of a court order granting permission. All the pleaded claims were abandoned when the offer was accepted by the claimants. Deputy Master Lloyd held that the offer was in accordance with Part 36 and ordered that, as a consequence of what was Rule 36.10(2) (now Rule 36.13(2)), the defendants should pay the claimants’ costs of the abandoned claims down to the date of acceptance of the offer.
At the hearing of the appeal before Morgan J, the appellants/defendants took the point for the first time, that their own defendant’s offer was not a valid Part 36 offer because the claim which was the subject of the proposed amendment was not “a claim or part of the claim or an issue which arose in the claim”. It was said that because the amendment had not been pleaded it did not satisfy CPR r 36.2(2) (now r 36.5(2)). If that were correct, the defendants said that CPR r 36.10.(2) (now r36.13(2)) did not apply and on an exercise of discretion under CPR r 44, it was the defendants who should be regarded as the successful party in relation to the abandoned claims and who were, therefore, entitled to their costs of the proceedings. Morgan J allowed the appeal, holding that the offer did not conform with CPR r36.2(2)(d) and ordered that the claimants pay the defendants’ costs of the abandoned claims.
CPR Rule 36.10(2) has not been preserved and on the contrary, as Coulson LJ pointed out at [8] of his judgment, the current rule 36.13(2) expressly states that, where a Part 36 offer relates to part only of the claim “the claimant will only be entitled to the costs of such part of the claim unless the court orders otherwise”.
It seems to me that Hertel was primarily concerned with the effects of CPR Rule 36.10(2), a provision which is no longer within the CPR and, in fact, has been reversed. Furthermore, it was concerned with a defendant’s offer in relation to part of a claim intended to be contained in a proposed amendment to the claim in proceedings which had already been commenced. It was in that context that Coulson LJ decided that “claim” or “part of a claim” and “issue” in what is now Rule 36.5(1)(d) meant pleaded claims. See [27], [31], [33] and [35]. No consideration was given to the effect of CPR r36.7 in relation to a counterclaim which is to be treated as a separate claim by virtue of rrs 20.3 and 20.3 and has yet to be commenced. In fact, rule 36.7 was only addressed in the context of a submission that “claim”, “part of a claim” or “issue” should not be defined too narrowly because a Part 36 offer can be made at any time, including before commencement of proceedings and, accordingly, should not be construed by reference to the pleadings after commencement either. See [26]. Not surprisingly, perhaps, that submission was rejected. As Coulson LJ stated at [27] “the position pre-commencement is inevitably different to that which exists after commencement of proceedings”.
It seems to me, therefore, that the decision in Hertel is not directly relevant to the circumstances under consideration in this appeal and did not address them.
THE EFFECT OF AN OFFER IN RELATION TO INTEREST
The Court of Appeal also rejected the claimant’s argument that the attempt by the defendant to include extra interest rendered the Part 36 offer invalid.
Did the inclusion of a term as to interest after the end of the Relevant Period render the Offer invalid for the purposes of CPR r 36? In my judgment, it did not. First, there is nothing in Part 36 and in CPR 36.5 in particular, which precludes the inclusion of terms as to interest in a Part 36 offer which are intended to apply after the Relevant Period has expired. The only express provision in relation to interest is CPR Rule 36.5(4) which provides that offers to pay or accept a sum of money will be treated as inclusive of interest essentially until the Relevant Period expires. It seems to me that that takes the matter no further.
Secondly, there is nothing which expressly precludes the inclusion of terms in addition to the requirements in CPR 36.5(2) and CPR 36.2(2) expressly preserves the ability to make an offer to settle in whatever way the party chooses, albeit that it provides that if r 36.5 is not complied with the offer will not have the costs consequences set out in that section.
Thirdly, as Mr Stokell points out, if a party could not provide for interest to run after the end of the Relevant Period, it would not be compensated with interest for any delay between the end of that period and a subsequent acceptance of the offer.
Fourthly, it seems to me that there is nothing in Mr Cook’s submission that if this is correct, an offeror could state, for example, that the settlement sum was subject to 25% or even 200% interest after the expiry of the Relevant Period, something which he says would inhibit settlement and be contrary to the policy of CPR Part 36. Mr Stokell suggests in his skeleton argument that there are two alternative answers to this. First, the assessment of whether an offeror has obtained a judgment, at least as advantageous as the proposal in its offer is made at the date of the judgment. An offeror who had provided for the application of such interest rates after the expiry of the Relevant Period might find that the judgment was not more advantageous than the offer and accordingly, the costs consequences of Part 36 would not apply. Secondly, and in the alternative, as interest after the end of the Relevant Period is ignored for the purposes of the CPR 36.17 assessment (see Purrunsing v A’Court [2016] EWHC 1528 (Ch), [2016] CILL 2861 (ChD) per HHJ Pelling QC at [15] – [16]), it should also be ignored for the purposes of determining whether the Part 36 offer is valid. Although Mr Cook’s objection is undermined in either case, it seems to me that the latter reflects the correct approach.
Fifthly, if the offeree found the particular clause unpalatable, it would be possible for it to make its own Part 36 offer in the same terms but without the offending provision. It seems to me therefore, that there is no reason whether of policy or otherwise which renders an offer invalid for the purposes of Part 36 if it includes provisions as to interest after the expiration of the Relevant Period. After all, as Flaux LJ pointed out in the course of argument, there is nothing wrong with a party making a Part 36 offer expressed as a specified sum which includes interest during the Relevant Period calculated on the basis of a particularly high rate. He just has to take the consequences when it comes to be determined whether the offer has been “beaten”.
For all the reasons set out above, I would dismiss the appeal. Accordingly, it is unnecessary to decide the points which arise on the Respondent’s Notice or to determine whether this court should exercise the discretion under CPR part 44 in relation to Calonne’s costs below or decide to remit the matter to the Judge for reconsideration.
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