Drafting Part 36: Getting it Right

28 JUNE 2012


Robert Vernon considers the Court of Appeal’s judgment in PHI Group Limited v Robert West Consulting on the requirements of Part 36 offers.

Those who remember the days before the Civil Procedure Rules will recall the number of times arguments of form prevailed (or appeared to prevail) over substance.  One area where such arguments still arise (or appear to arise) despite the CPR is in relation to offers to settle. 

Part 36.2 of the Civil Procedure Rules is entitled “Form and content of a Part 36 offer”.  Part 36.2(1) provides that “An offer to settle which is made in accordance with this rule is called a Part 36 offer.”  CPR 36.2(2) sets out the requirements of a valid Part 36 offer, namely that the offer must:

a) be in writing;

b) state on its face that it is intended to have the consequences of Section I of Part 36;

c) specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs in accordance with rule 36.10 if the offer is accepted;

d) 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; and

e) state whether it takes into account any counterclaim.

For the avoidance of doubt, CPR 36.1(2) provides that if an offer is not made in accordance with rule 36.2 it will not have the costs consequences set out in Part 36 in the event of acceptance (CPR 36.10) or following judgment (CPR 36.14).  The rationale for that rule must be that an offer which does not comply with the provisions of CPR 36.2 is not a Part 36 offer.

On occasion, the courts have done what they can to apparently relax the requirements of the rules.  It has been said that if there are formal or technical defects to a Part 36 offer, provided they cause no real uncertainty or other prejudice to the offeree, the court may order that the usual Part 36 costs consequences will follow.  For example, in Huntley v Simmonds [2009] EWHC 406, Underhill J found that a failure to include in an offer the statement required by CPR 36.5(4) (as to ensuring the continuity of periodical payments in a personal injury case) was a technical defect and should not prevent the court from making a costs order in the terms set out in CPR 36.14.

The courts have also attempted to find ways to prevent form prevailing over substance.  For example, in C v D [2012] 1 All ER 302, the Court of Appeal considered an offer to settle which said on its face that it was an offer to settle under Part 36 and was intended to have the consequences set out in the rule but which appeared to place a limit on the period in which it could be accepted which was inconsistent with the provisions of Part 36.  He said:

Of course, that does not mean that it did in fact comply with Part 36 and therefore must, come what may, somehow be shoehorned into the confines of its four corners: a stated bid to attain a particular goal does not also mean that the goal has been attained.  The answer to the critical question still turns on how the reasonable man would read the offer.  The relevance, however, of the claimant’s expressed intention to make its offer a Part 36 offer is that, if there are any ambiguities in it raising a question as to whether the offer does or does not comply with the requirements of Part 36, the reasonable man will interpret it in a way that is so compliant.  That is because, objectively assessed, that is what the offeror can be taken to have intended.

However, notwithstanding these efforts, the requirements of CPR 36.2 again fell to be considered by the Court of Appeal in PHI Group Limited v Robert West Consulting Limited [2012] EWCA Civ 588.  Both parties had been sued by Carillion JM Ltd for negligently carrying out their parts in the design and construction of a train servicing depot.  Each of the parties made their own claims against the other for an indemnity or contribution.  PHI made an offer to Robert West Consulting to settle the contribution claim which was not accepted.  Following trial, PHI sought to rely on its offer and invited the court to make an order for costs in accordance with Part 36.  He refused to do so because, amongst other things, he found that the offer did not comply with the provisions of CPR 36.2.  PHI appealed.

The leading judgment was given by Lloyd LJ (with which Rix LJ and Stanley Burnton LJ agreed).  Having considered the contents of the offer made by PHI he found that conditions (a), (b), (d) and (e) of CPR 36.2(2) were satisfied.  As to condition (c), the offer had included the following paragraphs:

4.5 This offer is made under Part 36 of the Civil Procedure Rules and the offer is intended to have the consequences of Part 36 of the Civil Procedure Rules.

4.6 Notwithstanding, in light of the pressing timescales in this claim, our client would be grateful if your client’s response to this offer could be provided within the next 7 days.

The letter had not, as required by CPR 36.2(2)(c), specified a period of not less than 21 days, or any period, within which the other party would be liable for the payment of costs if the offer was accepted.  The trial judge had found that that omission was fatal to any suggestion that the offer was a Part 36 offer.  Lloyd LJ agreed.  He said that the rule required “some explicit identification of a period of 21 or more days”.  If no period were specified, or a period of less than 21 days was specified, that would not comply with Part 36.  Equally, said Lloyd LJ, the letter must also identify some link between the specified time for acceptance and the costs consequences which may follow.  He said that if the offer referred to the 21 days as the “relevant period”, that would probably be sufficient.  However, if the offer were to identify a 21 day period for acceptance, but with nothing more said, that would probably not suffice.

In the words of Lloyd LJ, the clear message to all those making (or thinking of making) an offer to settle which they wish to have the costs consequences set out in Part 36 is as follows: “The safe course must be to be more specific, either by using the words of the rule or by including a reference to the relevant paragraph of the rule, in relation to the stated period.

Robert Vernon