Getting an offered settlement right

Litigation is expensive and time-consuming. It goes without saying that, if possible, it should be settled at the earliest opportunity. The court recognises this principle and encourages the making of offers to settle by either the claimant or the defendant. The rules governing such offers are set out in Part 36 of the Civil Procedure Rules (CPR).

The precise requirements for a Part 36 offer are set out in CPR rule 36.2(2). But what is the position if an offer is made which states that it is subject to Part 36 but fails to incorporate expressly all of the requirements of rule 36.2(2)? This was one of the issues that came before the Court of Appeal in Phi Group Ltd vs Robert West Consulting Ltd, heard on 26 April 2012.

This was an appeal from a decision of the Technology and Construction Court in the case of Carillion JM Ltd vs Robert West Consulting Ltd. I have written about this case in Building in the past (15 July 2011). Carillion had pursued both Phi and RWC and contribution proceedings had been started between Phi and RWC as a result. In February 2010 Phi made what it considered to be an offer under Part 36 to settle with RWC on the basis of an apportionment of liability of 70:30 in RWC’s favour. The letter stated that the offer was made under Part 36 and it included all of the requirements of rule 36.2(2) except that it did not specify that the offer would remain open for a period of not less than 21 days. RWC’s solicitors did not respond to this letter.

The judge had found that because the February letter did not specify the 21-day period, it could not be said to be a Part 36 offer. Importantly, on this point the Court of Appeal agreed in very plain terms

Subsequently, two further settlement offers were made by Phi to RWC on different and contradictory bases to that set out in the February 2010 letter. These offers were not stated to be made pursuant to Part 36.

At trial the apportionment of liability between Phi and RWC was found by the judge to be 60:40 respectively. Phi had therefore obtained a better result than that offered in settlement in its February letter. The issue was whether RWC was, as a consequence, required to pay Phi’s costs of the contribution proceedings as well as its own, either because the offer had in fact been made under Part 36 or it should in any event be treated as if it had been a Part 36 offer.

The judge had found that because the February letter did not specify the 21-day period, it could not be said to be a Part 36 offer. Importantly, on this point the Court of Appeal agreed in very plain terms: the requirements of rule 36.2(2) are mandatory and if they are not followed this is fatal. It is not sufficient to argue that the 21-day period has been implied: either this must be expressly stated or at the very least the relevant part of rule 36.2(2) must be expressly referred to in the offer letter.

In fact, although this is the main point for my purposes, it was not the end of the story. If a party makes an offer to settle that does not follow Part 36, the court is still required to consider that offer when assessing costs. The February letter was still an offer to settle which had to be read in the context of the two subsequent offers. The judge had found that the February letter was no longer open for acceptance after the subsequent offers were made but the Court of Appeal thought that, notwithstanding that the subsequent offers were inconsistent with the earlier offer, the earlier offer had not been withdrawn. It is not inconceivable to have a number of mutually inconsistent offers all on the table at the same time, and indeed this does happen in practice.

The court therefore came to the conclusion that the February offer still stood and that accordingly Phi had “beaten” RWC in that it had obtained a more favourable apportionment of liability than that offered in settlement. In the circumstances, the court exercised its discretion and decided that RWC should pay Phi’s costs of the contribution proceedings and bear all of its own, thus arriving at much the same conclusion as if the February letter had been a valid Part 36 offer.

Phi got what it wanted but it would have been safer not to rely upon the court’s discretion. The moral is: make sure your Part 36 offer is worded exactly as the rules require. Do not leave it to chance.

Simon Lewis is head of construction at Dickinson Dees