Hertel v Saunders [2015] EWHC 2848 (Ch) – Chancery Division appeal, 9 October 2015
Facts
The Defendants wrote an offer letter which was headed “Part 36 Offer – Without Prejudice Save as to Costs”. The terms of the offer were directed to proposed amendments which the Claimants had indicated they wanted to make. The Defendants offered that they would consent to the making of a declaration sought by the amendments and would make properly calculated payments consequent thereon. No offer was made in relation to the existing claim or the Defendants’ counterclaim.
The offer letter ended as follows:
“This offer is intended to have the consequences of Section
1 of CPR Part 36. If accepted within 21 days from the date of receipt, your
clients will be entitled to their costs (if any) relating to that part of the
claim which, by amendment, they have indicated an intention to plead. It does
not relate to any other part of the claim. It does not take into account the
counterclaim.”
The Claimants accepted the offer and on acceptance abandoned the balance of their claims. At a hearing before the Deputy Master (DM) to determine costs, the DM held that the offer letter was a Part 36 offer letter. He further held that in consequence of the Claimants’ offer in relation to the proposed amendments and abandonment of the balance of the claim, the provisions of CPR of the former 36.10(2) applied so that the Claimants were entitled to the costs of the whole of the proceedings including the abandoned claims and there was no proper basis for exercising his discretion in any other way.
Appeal
Following that hearing Charles Samek QC (who did not appear below) was instructed by the Defendants to seek permission to appeal and then conduct the appeal. Permission to appeal having been obtained from Proudman J, the appeal was heard by Morgan J. Charles argued that the purported Part 36 offer letter was not in fact a Part 36 offer for two reasons.
- the letter did not conform to r. 36.2(2)(d); and/or
- the letter did not conform to r. 36.2(2)(c). He also submitted that even if the offer was a Part 36 offer, nonetheless the DM should have exercised his discretion to award the costs of the abandoned claims to the Defendants.
Holding
Morgan J held that the offer was not a Part 36 offer; that costs fell to be determined by the application of CPR 44.2; that the successful parties were the Defendants and that the Claimants should pay them their costs of the abandoned claims. (Morgan J also held that, if he was wrong in his conclusion that the offer was not a Part 36 offer, then he would in any event have exercised his discretion to order that the first Defendant be awarded his costs of the abandoned claims but he preferred not to express any view about the incidence of costs vis-à-vis the second Defendant.) In holding that the offer was not a Part 36 offer, Morgan J concluded that:
- The fact that the offer was described as a Part 36 offer and was expressed to have the consequences of Part 36 was not determinative, because the central question was whether the offer complied with the five mandatory requirements of CPR 36.2(2) (now 36.5(1)). (Citing C v D [2012] 1 WLR 1962 per Rimer LJ at [75], Carillion JM Ltd v PHI Group Ltd [2012] EWCA Civ 588, [2012] C.P. Rep. 37 and Shaw v Merthyr Tydfil County Borough [2015] PIQR P8.)
- The letter failed to comply with CPR 36.2(2)(d) (now 36.5(1)(d)) because it did not 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 to which part or issue. The offer letter stated that it related to the Claimants’ proposed claim by amendment but it was plainly the case that such claim was not “the whole of the claim”. The question was whether that proposed claim was part of the claim or an issue which arose in the claim.
- There was no substance in the Claimants’ argument that since CPR 36.3(2) (now 36.7(1)) provides that a Part 36 offer may be made at any time, including before the commencement of proceedings, it followed that for the purposes of r. 36.2(2)(d) (now 36.5(1)(d), the references to the whole of the claim or to part of the claim included references to a claim which had not been brought when the offer was made but which was subsequently brought. He held that here the offer was not made before proceedings had started and that since “Part 36 is a highly prescriptive and self-contained code, it does not seem to me to be right to add in further provisions on the basis that they would have an analogous effect to the express provisions of Part 36.”(That was sufficient to determine the Part 36 issue in Charles’ clients’ favour. However, Morgan J went on to hold, narrowly, that the offer did comply with CPR 36.2(2)(c) (now 36.5(1)(c).)
Comment
Whilst it is the case that CPR 36.10(2) has been replaced by CPR 36.13(2) which has introduced the important change that the Claimant will now only be entitled to the costs of that part of the claim to which the Part 36 offer related unless the Court orders otherwise, Morgan J’s decision is helpful as it provides clear authority for the proposition that an offer letter which makes an offer after proceedings have commenced but only as regards intended claims will not be a Part 36 offer, even if it is described as such.
