Offers intended as Part 36 offers should usually be construed accordingly (Court of Appeal) | Practical Law

Offers intended as Part 36 offers should usually be construed accordingly (Court of Appeal) | Practical Law

In C v D [2011] EWCA Civ 646, the Court of Appeal considered issues regarding the validity of Part 36 offers, in particular, whether a time-limited offer can constitute a valid Part 36 offer and how offers that are described as Part 36 offers should be construed. (Free access).

Offers intended as Part 36 offers should usually be construed accordingly (Court of Appeal)

by PLC Dispute Resolution
Published on 01 Jun 2011 • England, Wales
In C v D [2011] EWCA Civ 646, the Court of Appeal considered issues regarding the validity of Part 36 offers, in particular, whether a time-limited offer can constitute a valid Part 36 offer and how offers that are described as Part 36 offers should be construed. (Free access).
Speedread

Speedread

The Court of Appeal has allowed an appeal against the High Court's decision in C v D and another [2010] EWHC 2940 (Ch), a case where the offeror, who had made an offer described as a Part 36 offer, sought to argue that his offer had "lapsed" (when the offeree accepted the offer outside the expressed 21-day acceptance period).
The High Court's decision that a time-limited offer is not capable of being a Part 36 offer was upheld. However, applying the rules of construction, the Court of Appeal held that the offer in this case, that was clearly intended to be a Part 36 offer, should be construed as such.
This judgment reinforces the lessons first spelt out by the Court of Appeal last year in Gibbon v Manchester City Council [2010] EWCA Civ 726, not least the need for parties to keep Part 36 offers under careful review and to formally withdraw them, in accordance with CPR 36.9(2), if they are no longer intended to be capable of acceptance. It also demonstrates that offers that are clearly intended as Part 36 offers are likely to be treated as such by the courts.
This decision highlights the need for parties who present offers as Part 36 offers to ensure that they are aware of the consequences. Also, parties on the receiving end of offers described as Part 36 offers, but which raise ambiguities about whether they comply with the formal requirements, might be advised to raise concerns with the offeror at an early stage to avoid any unexpected penalties for failing to accept an offer that they did not consider to be a valid Part 36 offer, if the court decides otherwise. (C v D [2011] EWCA Civ 646.)

Background

Part 36 offers

A party may make an offer to settle proceedings in accordance with CPR 36 or in whatever way he chooses.
An offer will only have the costs consequences specified in CPR 36.10, 36.11 and 36.14, if it is made in accordance with CPR 36.2 (CPR 36.1(2)).
Subject to certain exceptions set out in CPR 36.9(3):
"a Part 36 offer may be accepted at any time ... unless the offeror serves notice of withdrawal on the offeree." (CPR 36.9(2).)
The offeror withdraws a Part 36 offer by serving written notice on the offeree (CPR 36.3(7)).
In Sampla and others v Rushmoor Borough Council and another [2008] EWHC 2616 (TCC), the court held that, as a matter of principle, a party can accept a Part 36 offer even if he has previously rejected it. The decision clarified that a Part 36 offer can be accepted at any time, unless the offeror serves a notice of withdrawal. If the offeree rejects the offer or makes a counter-offer, this does not preclude the offer being accepted later (subject to agreement or determination on the issue of costs). This indicates the court's support of flexibility in the rules governing settlement, and a clear departure from the contractual situation that applied to the offer and acceptance of settlement offers before the CPR were introduced. For a detailed note on the decision, see Legal update, Part 36 offer can be accepted after it has been rejected.
Subsequently, in Gibbon v Manchester City Council [2010] EWCA Civ 726, (in part based on the court's findings in Sampla), the Court of Appeal held that a Part 36 offer may be accepted at any time, unless the offeror has withdrawn it by serving a notice of withdrawal on the offeree. The judgment emphasised that, although the basic concepts of offer and acceptance underpin it, Part 36 should not be understood as incorporating all the rules on the formation of contracts. Part 36 should be read and understood:
"according to its terms without importing other terms derived from the general law, save where that was clearly intended."
For more details, see Legal update, Risks of failing to withdraw a Part 36 offer and Carver revisited.
Rolf v De Guerin [2011] EWCA Civ 78 and Onay v Brown [2009] EWCA Civ 775 are cases where offers were expressed to be "open" for 21 days and to have a "relevant acceptance period" of 21 days, respectively (see Legal update, Those who invoke Part 36 should be aware of its consequences). This did not lead the courts to conclude that the offers lapsed after 21 days or were not capable of being Part 36 offers. In Onay, Carnwath LJ observed:
"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 consequences of that rule" should make sure that he knows what those consequences are ... 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."
For more information on Part 36 generally, see Practice notes:

Principles of construction

In Investors Compensation Scheme v West Bromwich Building Society [1997] UKHL 28, Lord Hoffmann spelled out the principles of construction of a contract, including:
  • "Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract."
  • "The 'rule' that words should be given their 'natural and ordinary meaning' reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had."
Pagnan SpA v Tradax Ocean Transportation SA [1986] 2 Lloyd's Rep 646 establishes that, when construing a document, it should be read as a whole and, if possible, the separate parts should be construed so as to bring rational sense and consistency to the whole.
Lewison, The Interpretation of contracts (Thomson Sweet & Maxwell, 4th ed, 2004), notes at paragraph 9.13:
"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."
Words should be read in a way that the matter is effective rather than ineffective (verba ita sunt intelligenta ut res magis valeat quam pereat) (see Beale, Chitty on Contracts (Sweet & Maxwell, 30th ed, 2008), paragraph 12-081).

Facts

The offer under scrutiny in this case was made in a letter dated 10 December 2009, which was headed "Offer to settle under CPR Part 36". The offer letter included the following wording:
"regardless of which offer your client chooses, the offer will be open for 21 days from the date of this offer (the "Relevant Period") ... 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."
At first instance, Warren J held that, as a Part 36 offer can only lapse on service of a notice of withdrawal (under CPR 36.9(2)), a time-limited offer cannot constitute a valid Part 36 offer. He went on to conclude that a reference to the offer being "open for 21 days" meant that it lapsed without any express withdrawal. Although it failed to constitute a Part 36 offer, it was treated as a valid offer under common law. For a detailed summary of the first instance decision, see Legal update, High Court holds that a settlement offer cannot be a Part 36 offer if it is time-limited.
On appeal to the Court of Appeal, the offeror argued that the judge had been wrong to hold that a time-limited offer could not be a Part 36 offer, while the offeree submitted that the judge had wrongly construed the offer. The offeror also appealed the judge's decision that, if there had been a Part 36 offer, it had not been withdrawn (either by the terms in which it was made or in subsequent e-mails).

Decision

The Court of Appeal upheld the High Court's decision that Part 36 does not allow for time-limited offers. However, it allowed the appeal against the judge's finding that the offer in this case did not constitute a Part 36 offer.
Rix LJ identified three issues to be determined:
  • Can a time-limited offer (made in terms that limit the acceptance of the offer to a stipulated period, so that the offer lapses at the end of the period) constitute a valid Part 36 offer?
  • What was the true construction of the offer being "open for 21 days" in the context of what was clearly intended to be a Part 36 offer?
  • Was the respondent's offer withdrawn either by virtue of the time-limited nature of the offer or through e-mails that followed?

Can a time-limited offer constitute a Part 36 offer?

The Court of Appeal unanimously upheld the decision of Warren J below, that the Part 36 scheme does not permit time-limited offers.
Rix LJ noted that, although Part 36 does not expressly exclude time-limited offers, the essence of the matter is that, to have the costs consequences after trial (as set out in CPR 36.10), there must be an offer that has not been withdrawn and has remained on the table.
A Part 36 offer will remain open for acceptance at any time, unless a notice of withdrawal is served on the offeree (under CPR 36.9(2)), subject to limited exceptions in CPR 36.9(3). In the ordinary way, a Part 36 offer may cease to be acceptable if the offer has been withdrawn:
  • Before the expiry of the relevant period with the leave of the court.
  • After the expiry of the relevant period by the service of a written notice of withdrawal.
There is "no room for" an offer that lapses as a matter of its own terms. A claimant can only have full autonomy over the means by which his offer can lapse outside of the Part 36 mechanism.
Although there may not be much difference in substance or form between a time-limited offer and an offer formally withdrawn immediately at the end of the relevant period, there is a substantial difference between a time-limited offer and an offer that can be accepted at any time until it is formally withdrawn. The Part 36 scheme is designed to avoid uncertainties that may arise regarding when an offer could be said to have lapsed. Gibbon, the most important decision on this point, establishes that, for a Part 36 offer to lapse, it must be formally withdrawn. The Part 36 scheme does not permit time-limited offers.
Both Rix and Stanley Burnton LJJ expressed regret that neither Part 36 nor PD 36A or 36B expressly address the issue of whether Part 36 permits time-limited offers. Stanley Burnton LJ had an uncomfortable suspicion that, when the offer was sent and received, neither party appreciated that a time-limited offer could not be a Part 36 offer. However, he concluded that any ambiguity in an offer purporting to be a Part 36 offer should be construed as complying with Part 36, as far as possible.

As a matter of construction, what was the meaning of "open for 21 days" taken in context?

An offer can be a time-limited offer or a Part 36 offer, not both. Applying the principles in West Bromwich, the question was how a reasonable solicitor would have understood the offer in the context of the dispute.
Rix LJ noted that it was common ground that the offer was intended to be made under Part 36. It was also common ground that the meaning of "open for 21 days" had to be construed in the context of the offer and Part 36 as a whole.
Two alternative meanings were advanced by the parties:
  • The respondent argued that it meant that the offer lapsed at the end of 21 days and was not open for acceptance after that.
  • The appellant's case was that the reference to 21 days was an expression of the relevant period for the purposes of Part 36 and that after that period the offer could be withdrawn.
Both meanings were feasible. However, applying Pagnan SpA and other established rules of construction, the court had to read the offer so as to bring rational sense and consistency to the whole. This required it to consider whether there was a reasonable construction of the offer that did not involve it being time-limited.
Rix LJ held that it was entirely feasible and reasonable to read the words as meaning that the offer would not be withdrawn within the 21 days referred to. Where possible, words should be construed so that they are effective, rather than ineffective. If the words were construed in this way (as the appellant contended they should be), the intention of making a Part 36 offer was fulfilled. The reference to the 21 days as the "relevant period" also supported this construction of the wording.
When the Part 36 regime is invoked, the construction of the timing of the offer must be construed with the regime in mind. The appeal was allowed on this point.
Rimer LJ identified this as the crucial issue to be determined. He made the point that it would be of no utility to consider the offer in isolation from the context in which it was made. There was no doubt that the offer in this case was intended to comply with Part 36. Although a stated bid to attain a particular goal will not always mean that the goal has been met and an offer described as a Part 36 offer should not, come what may, be "shoehorned into" its four corners, the question depended on how the reasonable man would read the offer. The expressed intention to make a Part 36 offer meant that any ambiguities would be interpreted by a reasonable man to make the offer compliant with Part 36. Objectively interpreted, the offer was not time limited, but complied with Part 36.

Did the terms of the offer or subsequent e-mails amount to a withdrawal of the offer?

Rix LJ did not accept that an express time limit would equate with a Part 36 withdrawal. In this case, if the offer itself had amounted to a withdrawal, it would not have been a valid Part 36 offer, so withdrawal would not be necessary. Nor did he accept that the e-mails in question amounted to a withdrawal of the offer, rather, they were all concerned with extending the 21-day period.
Rix LJ identified the importance, for the security of the Part 36 scheme, for the following points (all of which are supported by all the jurisprudence on Part 36) to be clearly understood:
  • A time-limited offer (one that will lapse of its own accord at the end of a specified period) cannot be a Part 36 offer.
  • An offer presented as a Part 36 offer (and otherwise complying with its form) will not readily be interpreted so as to prevent it from being a Part 36 offer.
  • If an offeror wants to bring a Part 36 offer to an end, a formal notice of withdrawal must be served.

Comment

This judgment reinforces the principles established by the Court of Appeal last year in Gibbon, not least the need for parties to keep Part 36 offers under careful review and to formally withdraw them (in accordance with CPR 36.9(2)), if they are no longer intended to be capable of acceptance. It also demonstrates that offers that are clearly intended as Part 36 offers are likely to be treated as such by the courts.
Parties who present offers as Part 36 offers must ensure that they are aware of the consequences.
Parties on the receiving end of offers described as Part 36 offers, but which raise ambiguities about whether they comply with the formal requirements, may be advised to raise any concerns at an early stage to avoid any unexpected penalties for failing to accept an offer that they did not consider to be a valid Part 36 offer, if the court decides otherwise.
Rix LJ and Stanley Burnton LJ both expressed regret that neither Part 36 nor PD 36A or 36B expressly address the issue of whether Part 36 permits time-limited offers. The Civil Procedure Rules Committee (CPRC) is currently working on changes to Part 36 to reverse the effect of Carver v BAA Plc [2008] EWCA Civ 412 and hopes that the changes will take effect as part of the autumn CPR update. We understand that, longer term, the CPRC hopes to undertake a full review of Part 36, so it seems likely that the wording of Part 36 will be adjusted to clarify this point, as part of that process.

Case

C v D [2011] EWCA Civ 646.