Jockey Club Racecourse Ltd v Willmott Dixon Construction Ltd 

Technology and Construction Court

4 February 2016

The issue of whether a Part 36 offer is a “genuine attempt to settle the claim” is not new. The Civil Procedure Rules Committee recognised its importance by including it in the 2015 amendments to Part 36 as a factor for determining whether it is unjust to award additional Part 36 benefits when an offer is beaten. Andrew Cousins reviews the judgment in Jockey Club Racecourse Ltd v Willmott Dixon Construction Ltd (2016) in which the High Court had to consider whether an offer for the defendant to accept 95% liability was a genuine one, even though a percentage split was not an available outcome at trial.

Background

The claimant had engaged the defendant to design and construct a new grandstand at Epsom racecourse. The roof system was damaged by high winds on two occasions and the claimant brought proceedings against the defendant for the costs and consequential losses associated with the repairs. On 30 January 2015, the claimant made a Part 36 offer to settle liability on the basis that the defendant would pay 95% of the damages to be assessed. The defendant did not respond to the Part 36 offer. After the 21 day period for acceptance had expired, the claimant served amended Particulars of Claim setting out for the first time the total cost of the replacement of the roof and an estimate of its consequential losses, which amounted to over £5 million. A split trial was ordered.

Before the split trial took place, the defendant conceded liability and the preliminary liability issues were settled, by consent, in the claimant’s favour. The claimant contended that it was entitled to the benefits conferred by Part 36 on the basis it had bettered its Part 36 offer. The issues were:

  1. whether the claimant’s offer fell within the meaning of Part 36 and was a genuine attempt to settle liability and reflected an available outcome of the litigation; and
  2. if so, whether it was unjust to make an order reflecting some or all of the incentives under Part 36.

Findings

Mr Justice Edwards-Stuart finding for the claimant, held:

There was never an issue as to whether contributory negligence would attach in this case and it was accepted that a decision that the defendant would pay 95% of the claimant’s damages was not one that would have been open to the court.

There were three issues to be determined:

  1. Was the claimant’s “Part 36 offer” an offer within the meaning of Part 36 at all?
  2. If so, was it a genuine attempt to settle liability?
  3. If the answer to (a) and (b) is yes, whether it would be unjust to make an order reflecting some or all of the incentives in Part 36.

Whilst a 5% reduction was not generous it was also not “all take and no give”. The defendant was being offered a real reduction if it accepted the offer. It was immaterial that the offer did not reflect an award that the court was ever going to make in the litigation as cases are frequently settled on the basis of an assessment of risk that combines both the risk of failure and the uncertainty of the true value of the claim.

Considering the authorities, the offer was a genuine offer of settlement. Had defendant accepted the offer, the reduction in damages would not have been insubstantial. Whilst the amended Particulars of Claim alerted the defendant to the fact that it was facing a much larger claim than first thought, that did not alter the liability position.

The claimant therefore succeeded and was awarded its costs of dealing with liability on the indemnity basis from May 2015 (when the court considered the defendant ought reasonably to have been able to make an informed decision on liability). Any decision as to whether it would be appropriate to award the claimant any other Part 36 enhancements was deferred until after the quantum issues had been resolved. 

Comment

It should be noted that the offer predated the amendments to Part 36 which came into effect on 6 April 2015. Under the amended rule (which the court gave some consideration to) CPR 36.17(5)(e) sets out that when deciding whether it is unjust to make an award giving the offeror protection for its Part 36 offer, the court now has to consider whether the offer was a “genuine attempt to settle the proceedings” and this can be a difficult point to determine.

There can be little doubt that the reduction amounted to a significant monetary sum that should have been worthy of consideration from the defendant’s perspective. H­owever an offer which only proposes to deduct a small percentage from the overall liability is an area that has caused the courts some difficulties in the past.

A purported offer which simply seeks the complete capitulation of the offeree is an invalid offer. For example, in AB v CD & Ors (2011) HC the court held that making a Part 36 offer to accept 100% of the claim was an abuse of Part 36.

The judgment of Parker LJ in Huck v Robson (2011) CA is still very relevant when examining whether an offer is a genuine offer of settlement, and when a Part 36 offer only reduces the overall liability by a small percentage. In Huck it was held that:

…in order to qualify for the incentives provided by paragraphs (2) and (3) of the rule a claimant’s Part 36 offer must represent at the very least a genuine and realistic attempt by the claimant to resolve the dispute by agreement. Such an offer is to be contrasted with one which creates no real opportunity for settlement but is merely a tactical step designed to secure the benefit of the incentives.

The April 2015 amendments to Part 36 do not affect the position that an offer which essentially requires complete capitulation is invalid. Indeed in the case of R (on the application of MVN) v London Borough of Greenwich (2015) the High Court reaffirmed this point (see DWF update on this decision).

The instant decision therefore follows the authority in Huck by holding that a 5% reduction can constitute a valid Part 36 offer. It is interesting to note that in the course of arguments the claimant conceded that a reduction of 2% might be difficult to defend. It should not however be taken as a matter of decided law that a reduction of 5% constitutes a “line in the sand” beyond which any offer would automatically be invalid, but a lower reduction would certainly be a much more difficult position for the party making the offer to defend. As set out by CPR 36.17 the court has to take into account all the circumstances when determining what order to make in a situation where a Part 36 offer has been beaten.

The court’s decision is therefore not determinative of the whole issue of what constitutes a “genuine attempt to settle the proceedings”, but it is a helpful indication of how the courts may approach such offers. However with litigants seeking more and more to gain the benefits afforded by Part 36 offers, as predicted, the issue of whether an offer is a “genuine attempt to settle the proceedings” will continue to generate some degree of satellite litigation.

What is also of interest is the way in which the decision is made. There is a question of whether the order reached by consent on the preliminary issues relating to liability was a "judgment" for the purposes of triggering the costs consequences pursuant to what was then CPR 36.14. From the judgment we do not know the exact reasons why no point was taken as to whether or not the order by which the preliminary issues were resolved is a judgment for the purposes of Part 36 and as such the comments in this regard are arguably obiter.

Furthermore we also do not know the reasons as to why a consent order formalising the liability terms was entered into. However as per the rule in Jolly v Harsco Infrastructure Services Ltd (2012) HC, acceptance of a Part 36 offer does not result in a judgment and the benefits afforded by, what was then, CPR 36.14 do not flow from a late accepted Part 36 offer, and the court’s judgment in this case does not displace this rule.