The Court of Appeal has held that a Part 36 offer, expressed to be “open for 21 days”, remained open for acceptance nearly a year later. The decision highlights the need to draft Part 36 offers carefully and keep them under review at all times during litigation. Failing this, the court may interpret the Part 36 offer as having a different effect from the one intended.
C v. D
In C v. D, the parties were in dispute about an agreement for the purchase of land. On 10 December 2009, the claimant’s solicitors sent a letter containing a settlement offer (the “Offer”) to the defendant’s solicitors. The draftsman clearly intended the Offer to be a Part 36 offer with the cost consequences that flow from this.
The Offer provided that “the offer will be open for 21 days from the date of this letter”. Despite this language, the Court of Appeal held the defendant validly accepted the Part 36 offer when it purported to do so almost a year later. In making this decision, the Court had to consider two primary questions. First, whether a Part 36 offer could properly be time limited. Second, the effect of the statement that “the offer will be open for 21 days from the date of this letter”.
Time Limited Offers
The Court of Appeal was clear that a valid Part 36 offer cannot be time limited. Rix LJ, giving the leading judgment of the Court, stated the “…essence of a Part 36 offer is that it lies on the table until formally withdrawn [by service of notice].”
He concluded that it followed that a purported Part 36 offer cannot expire according to its own terms. Therefore any settlement offer that is time limited cannot amount to a Part 36 offer, although such an offer will remain valid at common law.
“open for 21 days”
Having decided that Part 36 offers could not be time limited, the Court of Appeal found itself grappling with the wording of the Offer. It followed from what they had already decided that if the term “the offer will be open for 21 days” had the effect of limiting the Offer in time then the Offer would fall outside of Part 36. Yet it was manifestly clear the draftsman intended the Offer should be a Part 36 offer.
At first instance, Warren J had decided the proper reading of the Offer was that it was, in fact, time limited and therefore fell outside Part 36. As such, it was not open for acceptance (outside of Part 36) at the time the defendant purported to accept it.
The Court of Appeal took a different view on this point. Rix LJ stressed the need to read the Offer in context and, in particular, in a way that gave effect to it as a Part 36 offer. The Court held that “the offer will be open for 21 days” meant the proper interpretation was the Offer would be open for at least 21 days. It did not mean that it was only open for 21 days. This was despite the fact that a majority of the Court of Appeal accepted the ordinary effect of this phrase, outside the Part 36 context, was to time limit an offer.
The Upshot for the Claimant
It appears from the decision that the claimant made the Offer before both disclosure and witness statements. The defendant accepted the Offer just three and a half weeks before the scheduled trial. The claimant’s view of its own case had improved during the intervening period and it no longer regarded the Offer as a fair settlement value. Yet the Court of Appeal’s decision meant the Offer remained open for acceptance and the claimant was bound by the defendant’s acceptance.
The case builds on the Court of Appeal’s decision in Gibbon v. Manchester City Council in which Moore-Bick LJ stated that:
“Basic concepts of offer and acceptance clearly underpin Part 36 […] It does not follow, however, that Part 36 should be understood as incorporating all the rules of law governing the formation of contracts […]”
In that decision, the Court held that a Part 36 offer remained open (unless expressly withdrawn by notice) even if: (i) a Part 36 offer was initially rejected; or (ii) the offeree had responded by making a counter-offer. Both rules are at variance with the position under a conventional contractual analysis.
The primary lesson for litigants, building on Gibbon, is that Part 36 comprises a distinct set of rules. In promoting Part 36 as a self-contained regime, which maximizes the chances of parties settling, the courts have refused to incorporate the technical rules of contract law.
The decision also indicates that litigants should ensure that they keep any Part 36 offers they make under review. Those that no longer represent a fair settlement value should be withdrawn by notice under Rule 36.9(2). To do otherwise risks an offeree accepting an offer that no longer represents a good settlement outcome. It is, however, also worth noting the decision leaves open the question of whether it is possible to structure a Part 36 offer so that it will be withdrawn automatically at a future date. In particular, there remains a question of whether it is possible to include a future dated notice with the Part 36 offer itself.
The decision also serves as a clear sign the courts will work hard to ensure that offers that purport to be made under Part 36 will be read to ensure their validity under this regime. Even if this runs contrary to the ordinary reading of the offer in question.