Hertel & Anor v Saunders & Anor [2018] EWCA Civ 1831 upheld a first appeal decision made by the High Court Judge Mr Justice Morgan in which the defendants in the case managed to have their own Part 36 offer overturned. The Court of Appeal ruled last week that an offer made in respect of a claim was not a legitimate Part 36 offer because it was made in respect of an additional claim that had not been approved by the court. The Court of Appeal then went so far as to conclude that even if the offer had been considered valid in the context of Part 36, the claimants would have had to pay the defendants’ costs of the original claim in any event.

The claimants originally brought a claim for a declaration that there was a partnership or joint venture between Mr Hertel and Mr Saunders but this was denied by the defendants. The claimants then advised the defendants that they intended to apply to the court for permission to amend the Particulars of Claim to add a new claim regarding a declaration on accountability of particular expenses and remuneration share for collaborating on projects with third parties.  Prior to any actual amendment of the claim, the defendants wrote a letter of settlement to the claimants stating it was a Part 36 offer and that as pleaded the claim was bound to fail. The offer was however made on the basis of the proposed amendments and was subsequently accepted by the claimant.  Both parties agreed this was a Part 36 offer and Deputy Master Lloyd ruled that although the defendants did not have to pay the claimants’ costs of the proposed amendment to the claim the claimants were entitled to their costs of the initial claim to the date the Part 36 was accepted. This decision was then set aside on appeal, the defendants took the point that their offer was not a valid Part 36 offer and an order for costs was made in favour of the defendants in respect of the original and abandoned claim.

Dissatisfied with this decision the claimants brought the matter to the Court of Appeal where the offer was examined in relation to the Part 36 key words of ‘claim’, ‘part of a claim’ or ‘issue’.  Lord Justice Coulson set out that the claimants’ strongest argument in this appeal was that a Part 36 offer can be made at any time including prior to commencement of proceedings and therefore “’claim’, ‘part of a claim’ or ‘issue’ should not be construed by reference to the pleadings after commencement either”. Flaws in this argument were then considered, firstly in terms of the position pre-commencement being different to that after proceedings had been commenced and how pleadings and procedural rules post-commencement are designed to regulate proceedings fairly and efficiently. Coulson LJ stated that in a dispute like this “it would be wrong in principle to construe the rules in a way that ignored the certainty and clarity which they provide, and to approach the words in r.36.10(2) as if the proceedings had not yet begun”.  There seemed to be little sympathy for the claimants’ contention that costs should be dealt with differently and further went on to say:

“In effect, the claimants’ argument assumes that there may be no or little clarity pre-commencement, so that at that stage a claim/part/issue might be referable to any kind of communication, and then seeks to say that the same must apply after commencement as well. In this way, any certainty and clarity imposed post-commencement by the CPR (particularly by the pleadings) would be lost. In my view, that cannot be right as a matter of principle.”

Coulson LJ referred to the Pre-action Protocol process being applicable to most kinds of claims and therefore an assumption should not be made that there is a lack of clarity pre-commencement, and went on to say “in this way, claims/parts/issues are therefore not nearly so difficult to identify before commencement of proceedings as the submission presupposed”. He concluded this part of the judgement with the point:

“Accordingly, I do not think that the fact that r.36.2(2)(d) can also apply pre-commencement should affect the proper interpretation of the words ‘a claim’, ‘a part of a claim’ or ‘an issue’ in a situation like this, when the offer was made some time after the commencement of proceedings.”

Lord Justice Coulson went on to further describe Part 36 as being a “prescriptive regime which can have draconian consequences for those who fail to comply with it”. This serves as a reminder that an offer made with the intention of complying with Part 36 should be properly constructed in the context of the same. It should be viewed as more than simply a pragmatic solution to resolving a case and there should be no reliance placed upon it being liberally interpreted.

 

Anna Lockyer