Part 36 Offer Was Not Effective Until Clarified
Throughout any litigation proceedings, Part 36 offers are one of the most important tactical steps a party can make towards achieving settlement or ultimately gaining costs protection. In making such offers, litigants need to be mindful not only of the timing of their offer, but also of ensuring the terms of the offer are practically capable of immediate acceptance.
Under Civil Procedure Rule 36.8, a party receiving a Part 36 offer from an opponent may seek clarification of that offer. Such a rule should be a reminder that in the drafting of a Part 36 offer there should be adequate information provided and the terms of the offer, if accepted, can enable a disposal of all matters in dispute.
The problems associated with a deficient Part 36 offer were evident in the recent Technology and Construction Court judgment of Linklaters Business Services v Sir Robert McAlpine Ltd & Others [2010] EWHC 3123 (TCC)(no. 2).
Linklaters moved into offices in the Barbican in London that were refurbished in the mid 1990’s. The air conditioning system was new and included insulated chilled water distribution pipework. As the occupier of the premises, Linklaters had the benefit of separate collateral warranties from both the Main Contractor and the mechanical Sub-Contractor involved in the refurbishment. When corrosion was discovered on the steel chiller pipework some 11 years after installation, Linklaters notified both the Main Contractor and the Sub-Contractor of a potential claim for damages.
To permit proper investigation of technical matters prior to litigation, a standstill agreement was entered into extending the limitation period. The Main Contractor gave notice to terminate the standstill agreement first, which prompted Linklaters to issue proceedings against the Main Contractor. The Sub-Contractor gave notice some months later. Instead of attempting to join the Sub-Contractor into the same proceedings, Linklaters commenced a separate action against the Sub-Contractor, essentially making exactly the same claim for the same damages. The Court subsequently ordered that the two actions be case managed together and heard at the same time.
The trials of both actions were listed for early October 2010. A mediation in July 2010 did not achieve settlement. Linklaters served separate but identical Part 36 Claimant offers on the Main Contractor and the Sub-Contractor in August 2010. If the offers were not accepted, the timing of the offers stood to give Linklaters the benefit of an uplift of costs for counsel’s brief fee for trial and solicitor’s preparation of the trial bundle. At the trial in October 2010, Linklaters was substantially successful in both actions. The Main Contractor was insulated from liabiity by a contractual indemnity from the Sub-Contractor. There was a separate Judgment that dealt with the costs issues arising out of the Judgment on liability and causation.
In handing down the costs Judgment, Mr Justice Akenhead needed to consider the effect of the Part 36 offers made by Linklaters approximately two months prior to trial. The separate but identical Part 36 Offers were couched in the following terms:- [Linklaters is] “willing to settle the whole of the claim against your client on the basis that your client pays to [Linklaters] within 14 days of accepting the Offer, the sum of £2.28m ("Settlement Sum”)…
The offers did not reflect that there were on foot two actions that concerned the same claim for damages.
Consequently, as the Main Contractor acknowledged in their letter to Linklaters two days after receipt, if both offers were to be accepted, Linklaters would be in receipt of £4.56M; a sum that exceeded by a large amount the total damages that Linklaters were alleged to have suffered. There was missing an overarching explanation that Linklaters were prepared to accept £2.28m in settlement of both actions.
The Main Contractor asked Linklaters to clarify the offer by confirming whether it was Linklaters’s intention to restructure the offer to explain how it related to both actions. As it transpired, the request was not answered as promptly as it ought to have been.
Linklaters took 21 days from the date of the request to respond. In their response they stated that the sum of £2.28m was the total sum for both actions, conditional upon both Defendants bearing their costs in both. Linklaters said they had simply sought to make offers which were compliant with Part 36 and they were “under no obligation to set out "mechanisms" to dispose of both actions”.
Mr Justice Akenhead did not dispute that the initial offers made separately to the parties each complied in their own right with CPR 36. However, he acknowledged the difficulty that the offers created and highlighted that it would “be in practical and commercial terms impossible” for the Main Contractor to accept Linklater’s offer without the Sub-Contractor’s agreement. This was not only because if both parties accepted the offer Linklaters would end up with double the amount that they were prepared to accept, but also because there was a contractual indemnity between the Main Contractor and Sub-Contractor where liability on the part of the Main Contractor passed onto the Sub-contractor. Mr Justice Akenhead concluded that the Main Contractor’s solicitors were correct to request clarification.
The Judge criticised the delay in responding to the Main Contractor’s request for clarification stating it “would have been very easy” to respond more promptly. As the Judge suggested, it could have been a deliberate tactical move to await the expiry of the initial offer or it could have been accidental. Either way, a Part 36 offer that could have been effective on 9 August 2010 did not become effective until 1 September. This delay could result in a significant negative financial impact on costs recovery if counsel’s brief fees were incurred prior to 1 September 2010.
For further information, please contact Philip Eyre at