The High Court has held that an offer to settle was not a valid Part 36 offer since it related only to a claim put forward in draft amended particulars of claim: Hertel v Saunders  EWHC 2848 (Ch).
Since the proposed claim was not yet a part of the claim at the time the offer was made, the offer failed to comply with the mandatory requirement under Part 36 for the offer to "state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so which part or issue".
The decision appears to contrast with the approach taken by the Court of Appeal in AF v BG  EWCA Civ 757, where it was held that the defendant could be treated as having made a "claimant's Part 36 offer" in respect of its counterclaim even though the counterclaim had not yet been pleaded (see post).
CPR Part 36 sets out certain requirements for a Part 36 offer, including that it must "state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so which part or issue". For offers made before 6 April 2015, the relevant rule was CPR 36.2(2)(d) (now CPR 36.5(1)(d), which is in the same terms).
In the present case the claimants (an individual and a company) brought proceedings against the defendants (an individual and a company) seeking a declaration that there was a partnership or joint venture between the two individuals, together with other relief. The defendants denied the existence of a partnership or joint venture. The defendants' case was that the only agreement was between the two companies.
The claimants later served a draft amended claim form and particulars of claim which alleged, in the alternative, an agreement between the two companies under which certain sums were due.
In February 2015 the defendants put forward a purported Part 36 offer which was said to be "an offer in settlement of [the claimants’] proposed claim, by amendment, for an account based on an agreement". That offer was accepted by the claimants, who confirmed they would abandon the rest of their claim.
The claimants sought an order for payment of their costs, relying on CPR 36.10(2). This rule provided that where a defendant's Part 36 offer related to only part of the claim, and the claimant accepted within the relevant period and abandoned the balance of the claim, the claimant would be entitled to the costs of the proceedings up to the date of serving notice of acceptance unless the court ordered otherwise. (For offers made on or after 6 April 2015 the position is reversed; under CPR 36.13(2) the starting point is that the claimant will only be entitled to the costs of the relevant part of the claim.)
The deputy master ordered the defendants to pay the claimants' costs of the proceedings under CPR 36.10(2). The defendants appealed, arguing (contrary to their position before the deputy master as well as the wording of their own offer letter) that the offer was not a Part 36 offer.
The court (Morgan J) held that the offer was not a valid Part 36 offer. The proposed claim was not a part of the claim when the offer was made, and so the offer did not relate to part of the claim, nor to an issue that arose in the claim, as at that date. Accordingly, prima facie, the letter did not conform to CPR 36.2(2)(d).
The claimants sought to avoid this conclusion by pointing to CPR 36.3(2) (now CPR 36.7(1)) which provides that a Part 36 offer may be made at any time, including before the commencement of proceedings. The judge rejected the argument that, in light of that provision, the references in the rules to "the whole of the claim or to part of it" must include references to a claim which had not been brought when the offer was made but which was subsequently brought. The judge pointed out that Part 36 is a highly prescriptive and self-contained code. He was not prepared to add in further provisions on the basis that they would have an analogous effect to the express provisions of Part 36.
The judge concluded that the offer did not comply with the mandatory requirements of CPR 36.2(2)(d). It therefore followed, he said, that it was not a Part 36 offer.
Exercising his discretion on costs under CPR 44.2, the judge ordered the claimants to pay the defendants' costs of the proceedings. The only exception was that the defendants were to pay the claimants' costs (if any) relating to the proposed claim, as the defendants had offered to pay those costs.
The changes to CPR Part 36 introduced in April 2015 were aimed, in part, at avoiding excessive technicality in the interpretation of the rules. In particular, under the previous version of Part 36, an offer had to “state on its face that it is intended to have the consequences of Section I of Part 36”. That was interpreted literally in a number of cases, so that even where an offer was said to be made pursuant to Part 36, and was clearly intended to be a Part 36 offer, the court might find that it was not a valid offer because it did not use those specific words. To address this problem, the rules committee amended the relevant requirement so that now an offer must "make clear that it is made pursuant to Part 36".
The current judgment, however, illustrates that the requirements of Part 36 may still be open to a highly technical interpretation in some respects. There seems little logic in a situation where a Part 36 offer can be made before proceedings are commenced at all, but cannot be made in respect of a claim that is proposed to be brought but has not yet been brought in existing proceedings. There is no indication that the judge in the present case was referred to AF v BG, in which the Court of Appeal apparently did not see any difficulty with such an offer.