Van Oord UK Ltd and SICIM Roadbridge Ltd v Allseas UK Ltd [30.11.15]

Where a counterclaim exists, a Part 36 offer by a defendant will not automatically be treated as a claimant’s offer but will instead be construed on the facts.

Implications

Where a defendant has made a counterclaim and makes an offer to the claimant, a court will examine the offer made as a matter of construction. It will decide whether the offer is a claimant or defendant Part 36 offer.

This distinction is important as it dictates the types of consequences that flow from Part 36.17 of the Civil Procedure Rules (CPR).

In his judgment in this case, Mr Justice Coulson stated:

“it is vital that a party making a Part 36 offer spells out, in terms which are unequivocal and free from ambiguity, the nature of the offer being made and the consequences which it says will flow from its non-acceptance by the recipient. The recipient needs to be in no doubt as to what may happen if the offer is turned down.”

It would also aid construction if the offer stated whether it was a claimant’s or defendant’s Part 36 offer.

Finally, this decision shows that indemnity costs may be granted if a claimant pursues a hopeless case, the deficiencies of which it either knew or should have known.

Background

The Defendant’s pre-action Part 36 offer was for £259,161 to be paid by the Defendant to the Claimant. It also expressly stated that it took into account the potential counterclaim, (arising from money freely paid by the Defendant during the contract) but did not quantify the counterclaim. At trial the Defendant (having issued a counterclaim) was successful and was awarded £2,768,405.17.

Coulson J heard arguments as to whether the pre-action Part 36 offer made by the Defendant was a claimant’s offer or a defendant’s offer. The fact that the Defendant had a counterclaim meant that Part 36.2(3) of the CPR applied, meaning that the Defendant was also a Claimant. The question was whether or not the Part 36 offer was also a claimant’s offer.

Decision

Coulson J, following the Court of Appeal decision in AF v BG [2009], held that the offer was and/or should be treated as a defendant’s Part 36 offer, for the following reasons:

  • As a matter of common sense, it is important that the recipient of a Part 36 offer should know what sort of offer it is and the consequences of not accepting it.
  • Whether an offer by a defendant who has a counterclaim is treated as a claimant or defendant Part 36 offer “must always depend on its terms”. It is not automatically assumed to be a claimant offer just because the defendant has a counterclaim.
  • The offer in this case had all the hallmarks of a defendant’s Part 36 offer and was treated as such. It did not offer to accept an amount of money in settlement of the counterclaim but instead offered to pay an amount to the Claimant, taking into account the counterclaim but not quantifying it. It also offered to pay the other side’s costs, whilst failing to spell out the consequences of not accepting the offer. Also, the offer accepted that the Claimant could retain the sums already paid by the Defendant.

However, indemnity costs were granted to the Defendant on the basis that the claim was widely-drawn, hopeless and should not have been pursued. The deficiencies were, or should have been, apparent to the Claimant.

Coulson J commented that even if the offer was a claimant’s Part 36 offer, it would have been unjust to penalise the Claimant by imposing an interest rate higher than 2.5%, because:

  • The Defendant failed to warn the Claimant of the possible consequences of not accepting.
  • The Defendant freely paid over the money which was the subject of the counterclaim.

In addition, the fact that interest rates are currently at a historical low was a relevant factor to be taken into account when considering the interest rate uplift of up to 10%.