In the case of DB UK Bank Ltd (T/A DB Mortgages) v Jacobs Solicitors [2016] EWHC 1614 (Ch) it was held that a party who made a Part 36 offer in response to a “without prejudice save as to costs” offer had in law rejected the common law offer to settle and so a subsequent acceptance was not possible.

Prior to this recent decision many practitioners had operated under the belief that the Part 36 regime of the CPR was entirely separate to the common law regime of settlement offers. This view was in some respects affirmed in the dictum in cases such as Gibbon v Manchester City Council [2010] EWCA Civ 726, which expressly set out that Part 36 is a distinct procedural code and that common law principles cannot be imported to interpret a Part 36 offer.

It is well established that at common law, a counter-offer has the implied effect of rejecting the original common law offer, meaning that it can no longer be accepted. This is a basic rule of contract and of implied acceptance and rejection.

However, the position in relation to Part 36 offers is different, in that Part 36 offers remain open for acceptance until they are withdrawn, regardless of whether or not the Part 36 offer is rejected by the offeree or any counter-offers are made. This has led many practitioners to keep careful records of when they had made Part 36 offers and to withdraw them if the evidence in a case changed because they would not be impliedly withdrawn by later counter offers.

It has long been the position that, unless it is withdrawn, a Part 36 offer can be accepted notwithstanding any prior rejection or counter-offer: Sampla v Rushmoor Borough Council [2008] EWHC 2616 (TCC).

Is this new decision blurring the distinctions between Part 36 offers and common law offers and thereby confusing the two regimes? Practitioners now need to urgently re-assess their cases and consider the effect that any Part 36 counter offers may have had on any common law offers that were made or received. In practice many practitioners often make a mixture of without prejudice and Part 36 offers, and they now face a panicked review to see what offers are still open and which will have been impliedly withdrawn.

This decision may also discourage parties making settlement offers and have the very opposite effect that that Part 36 regime was designed for, which was to encourage parties to settle and make offers. For example, a party may be concerned about rejecting an early common law offer and therefore avoid making a Part 36 counter offer. This could slow negotiations and deter settlement. Some practitioners now feel that this decision restricts their settlement abilities and the use of dual offers, making a Part 36 offer and then a common law offer, is no longer viable because a later 36 Part offer will now reject a common law offer.

It is now a risky strategy for a party that receives an attractive common law offer to test the water to see whether better terms might be achieved by making a Part 36 offer in response. This is precisely what occurred and backfired in the case of DB UK Bank. A party made a Part 36 offer to see if they could tempt the other side in the mistaken belief that they were safe if it was not accepted and they could then go on to accept an earlier common law offer that would still be open for acceptance.

So, what should a practitioner do if they realise they want to accept a historic common law offer but they have already made a Part 36 counter offer, which now following this decision has rejected the original common law offer? They could perhaps make a Part 36 offer repeating the same settlement figure as was made in the common law offer back to the opposing party. However, this may be unlikely to be attractive if evidence has moved on and the merits of the offer have since changed. This may also make the offeror, in some circumstances, look weak and desperate to settle. Pressing for a mediation to compromise the claim may be a better option, as that way the party keen to accept the historic offer is not revealing their hand.

Commentators have noted that this decision is being appealed and therefore there may yet be further change to the position. However, in the meantime, some possible practical points to consider:

  • Review all files to consider the interplay with Part 36 and common law offers and work out which offers have been impliedly withdrawn and which remain open for acceptance.
  • Clients and insurers may need to be updated with a fresh review of the litigation risks of cases if offers practitioners thought were open and gave them protection have now been rejected.
  • Avoid risky strategies of testing the water with a counter offer where a good offer has been received, because if the opposing party do not accept the Part 36 counter offer, then the original offer is off the table.
  • If it’s too late and the original offer had been rejected, focus on mediation or perhaps consider making a Part 36 or common law offer back for the same amount as the original offer so see whether the opposing party are tempted.
  • Above all, have a strong and clear settlement strategy in place because settlement has now become more complex and risky.

This article was first published in the Practical Law dispute resolution blog.