QBD (Simler J) 23/11/2015


COSTS : PART 36 OFFERS : CIVIL PROCEDURE RULES 1998 Pt 36, r.36.2, r.36.10(4)

The appellant appealed against an order concerning the costs consequences of two competing CPR Pt 36 offers.

The appellant and respondent had been parties to a settlement agreement. The appellant alleged that the respondent was in repudiatory breach of the agreement and terminated it. The respondent sent a letter before claim asserting that the appellant was in breach. The appellant then made a Pt 36 offer (the first Pt 36 offer) of £200,000. The offer letter stated that it did “not take into account any counterclaim”. The respondent requested clarification as to whether the appellant intended to bring a counterclaim and the appellant stated that he did not intend to. The respondent sought further information as to the basis of the valuation of the claim but that was not provided. The respondent refused the offer and issued proceedings, and the appellant defended the claim and added a counterclaim for a declaration that what was said in the defence was correct. The respondent then served a Pt 36 offer (the second Pt 36 offer) which offered to accept £185,000 and “took account of the entire claim and counterclaim”. The appellant accepted that offer outside the 21 day period and the appellant sought an order that the respondent pay his costs from 21 days after the first Pt 36 offer. The respondent sought an order that the appellant pay her costs up to the date of his acceptance. At the costs hearing the master held that she could not regard the offers as being on similar terms, as the respondent was proposing to settle the claim and counterclaim, thereby bringing finality, whereas an acceptance of the appellant’s offer would not necessarily have done so. In light of the fact that the first Pt 36 offer did not state whether it took into account any counterclaim, as required by CPR r.36.2, she declined to ‘order otherwise’ pursuant to CPR r.36.10(4) and ordered that the appellant pay the respondent’s costs of the claim.

The appellant submitted that the master’s decision was wrong as a matter of law in that whilst she appeared to have accepted that the clarification was part of the offer, it was clear that she had considered only the terms of the offer and not the clarification and had failed to read the clarification together with the request; she had failed to carry out an exercise of construing the offer as a whole applying the correct objective test under which a party might be bound if his conduct was such as to induce a reasonable person to believe that he intended to be bound; and that properly construed the appellant had provided clear information that he had no intention to make a counterclaim. The respondent submitted that the master had clearly considered the request and the clarification and that the appellant had chosen to invoke Pt 36, expressly excluding any counterclaim from the scope of the offer, such that his statement of intention did not resolve the issue. The respondent further argued that, even if the first Pt 36 offer was capable of direct comparison with the second Pt 36 offer, it did not make it unjust that the usual order under CPR 36.10 should apply because she had acted reasonably in not accepting the first Pt 36 offer.

HELD: (1) The master had taken account of the clarification but had concluded that it did not modify it and she was entitled to that view as a matter of law. However, in construing the first Pt 36 offer, the subsequent clarification had to be taken into account. The master had failed to adopt that approach and should have seen that, had the respondent accepted the first Pt 36 offer, the appellant would have been bound. The master had wrongly construed the first Pt 36 offer as excluding any counterclaim without having regard to the whole of the correspondence. The first Pt 36 offer had been modified so as to encompass any counterclaim. (2) It was unnecessary to show that the master’s exercise of discretion was wrong in law. The master was experienced and it was right to take her decision into account but the instant court was not bound by it. Even if the first Pt 36 offer had been capable of comparison with the second Pt 36 offer, the respondent had not acted unreasonably in refusing it. She had made reasonable requests for information that the appellant had not thought were relevant. The purpose of the Pt 36 regime was to encourage early settlement and allow the offeror costs if their offer was not accepted within 21 days. The appellant’s letter and first Pt 36 offer clearly explained the valuation of the respondent’s claim. It was reasonable for the respondent to seek further clarification but she had misunderstood the valuation. There was no doubt that that misunderstanding had been corrected by the appellant and the respondent had received all the information needed to understand the official valuation. The further information that the respondent requested was not relevant and it was not unreasonable of the appellant not to provide it. In light of the correspondence and history the respondent’s questions had been answered by the letter accompanying the first Pt 36 offer and she could have made an informed decision on that basis. It was not unreasonable conduct for the appellant to refuse to give further information and his actions were not unreasonable or obstructive. The respondent’s offer was a lower offer and the appellant had invoked the protection of Pt 36 at an early stage to avoid costs. The respondent could have accepted but had chosen not to do so. It would be unjust for the appellant to pay costs past the 21 day period following the first Pt 36 offer.

Appeal allowed