Open Offers - Navigating the Part 36 Minefield

CPR Part 36 ("Part 36"), under which litigants can make formal settlement offers for costs protection has given rise to a rash of court decisions over recent years.

The Part 36 regime is in many ways counter-intuitive.  In contrast to the usual rules on settlement offers, Part 36 offers can no longer be time-limited.  Unless a party formally withdraws a Part 36 offer, it will remain open for acceptance at any time up to (and potentially including) trial.

The recent Court of Appeal judgment of C v D [2011] EWCA Civ 646, overturning a much criticised first instance decision, is a good illustration of the courts’ policy now to do what it can to enforce Part 36 offers.  As it turned out in this case, the claimant was held to its offer, much as it protested that the defendant’s acceptance just before trial was out of time and opportunistic.  All in all, a salutary lesson for those making and receiving Part 36 offers.

Unsettling facts

In 2009, the claimant ("C") made the defendant ("D") a written settlement offer headed "Offer to Settle under CPR Part 36."  C stated that the offer would "be open for 21 days from the date of this letter."  C also specified that the offer was "intended to have the consequences set out in… Part 36 …".  The offer was not accepted initially, and there was correspondence between solicitors about extending the time for acceptance.  Almost a year later, however, some three weeks before trial, D sought to accept C’s offer.

C sought a declaration that its offer was no longer open for acceptance as it had lapsed after 21 days. At first instance, Warren J agreed that the offer had lapsed automatically after 21 days.  He said that it was a time-limited offer and, as such, it did not fall within the scope of Part 36 and was not still open for acceptance. D appealed.

The Court of Appeal ruled that C’s offer was in fact a Part 36 offer and that D’s acceptance was effective to settle the litigation:

• a time-limited offer, the Court said, cannot be a Part 36 offer.
• this was not a time-limited offer however. It was clear from its wording that this offer had been intended as a Part 36 offer.  "Open for 21 days" could mean simply that the offer would not be withdrawn for 21 days. As the offer was not time-limited, D could still accept it.
• if a party wishes to take its Part 36 offer off the table, it must serve a formal notice of withdrawal upon the recipient of the offer.  No such notice had been served by C. Implied withdrawal in correspondence is not enough.

Practical pointers

At first blush, one can have some sympathy for C.  It is perhaps surprising that a court should decide that "open for 21 days" means anything other than "not open after 21 days".  It was key here that the offer was said to be under Part 36 however.  It appears clear in that scenario that the court’s default position will be to take this intention at face value and construe the offer accordingly, even if the drafting is ambiguous.  As such, it is important that any party who wishes to make an offer under Part 36 fully understands the consequences of doing so, not only in relation to costs liability but also the open ended nature of the offer. 

As to the latter, this decision serves as a useful reminder of the principle set out most recently in Gibbon v Manchester City Council [2010] EWCA Civ 726 that a Part 36 offer may only be withdrawn upon service of a formal notice of withdrawal.  If no such notice is issued, a Part 36 offer will remain open for acceptance up to trial (a Part 36 offer can also be accepted at trial but only with the permission of the court).  It is therefore vital that parties keep Part 36 offers under review throughout the course of proceedings so that offers can be withdrawn or replaced if views as to the merits of the claim change.

Finally, while the decision in C v D is clearly a cautionary tale as to the importance of clear drafting in Part 36 offers, it also has implications for the recipients of such offers.  If a party receives an offer purportedly made pursuant to Part 36 but which does not appear fully compliant, it is good practice to clarify the offeror’s intention at an early stage. That said, if D had pressed too hard on the point in this case, the chance to accept the deal just before trial might have been lost.

Lawyers Andrew Howell, Sophie Cubbon