What is "a claim" for the purpose of Part 36? Court of Appeal rejects liberal interpretation
Hertel & Anor v Saunders & Anor
Court of Appeal
31 July 2018
David Brown takes a look at the recent decision in Hertel v Saunders (2018) in which the Court of Appeal was asked to consider, once again, the scope of CPR Part 36, in particular the meaning of "the claim" in determining whether an offer was made in compliance with the rules.
The Court of Appeal has recently been asked to consider, once again, the scope of CPR Part 36, in particular the meaning of "the claim" in determining whether an offer was made in compliance with the rules.
In particular, could a Part 36 offer be made in respect of a "new" claim, following the commencement of proceedings, which the claimant intended to introduce by-way of amendment to the particulars of claim, but in respect of which permission had not yet been granted at the time the offer was made or accepted?
The court determined that "the claim" must be defined according to the scope of the existing pleaded case, as set out in the claimant's particulars of claim. To give the word a wider meaning, allowing Part 36 offers to be made in respect of intended claims, including those raised in correspondence during proceedings would "introduce unnecessary and unwelcome uncertainty if claims/parts/issues were given a wide definition that did not seek to anchor them to the pleadings which the parties have exchanged.”
It made no difference that the offer was expressly stated to be made in accordance with CPR Part 36 by the offeror: "if the offer letter fails to comply with a mandatory requirement of Part 36, it will not be construed as complying with the rule, whatever heading it bears and whatever the objective intention" per Rimer LJ in C v D (2011) at paragraph 75, and Carillion JM Limited v PHI Group Limited (2012).
The decision concerns a now superseded provision in the rule, governing the liability for costs of abandoned claims following acceptance of a Part 36 offer. It nevertheless serves as a useful reminder that the formal requirements of the rule are highly prescriptive and failure to comply will make an offer ineffective. It has implications not only for those cases where the claimant seeks to introduce new, or amended claims, but also where offers are made by defendants in respect of additional claims for contribution, prior to the issue of proceedings under CPR Part 20.
The original claim form sought a declaration that there was a partnership or joint venture between Mr Hertel, one of two claimants in the proceedings, and Mr Saunders, one of two defendants - a claim which was denied.
The claimant served amended particulars of claim upon the defendants' representatives, advancing a new claim (that there was an agreement between the parties, in addition to joint venture). The amendment was not actively opposed but the defendants reiterated their denial of the claims as originally pleaded. Before matters came before the court for further case management, and before the claimant was granted permission for the amendment (to which the defendants had not formally consented), the claim was settled.
The compromise was agreed on the basis of the defendants' Part 36 offer to settle part of the claim (in respect of the "the agreement", relied upon in the amended particulars). Upon accepting the offer, the claimant abandoned the remaining claims.
The costs order at first instance
At first instance, the parties accepted that the offer was made in accordance with Part 36. Deputy Master Lloyd ordered that, in consequence, the defendants should pay the claimant's costs of the abandoned claims pursuant to CPR 36.10(2), as in force at the time of the original decision.
That rule (which has since been superseded and modified by CPR Part 36.13(2)) provided as follows:
(a) a defendant's Part 36 offer relates to part only of the claim; and
(b) at the time of serving notice of acceptance within the relevant period the claimant abandons the balance of the claim,
the claimant will be entitled to the costs of the proceedings up to the date of serving notice of acceptance unless the court orders otherwise."
Appeal to the High Court
On appeal before Morgan J, the defendants argued that the offer, stated on the face of it to be a CPR Part 36 offer was not, on its proper construction, a valid offer in accordance with that rule because the claim which was the subject of the proposed amendment was not "a claim or part of the claim or an issue which arose in the claim"; rather, it was a proposed claim only and had never been the subject of a court order. It could not therefore be construed as a claim or part of a claim, and so did not conform to r.36.2(2).
Morgan J accepted that submission and found that the offer was not in accordance with Part 36 and that, because the defendants were the successful party, the claimant should pay the defendants' costs of the abandoned claims.
Cout of Appeal findings
The claimants appealed the decision of Morgan J and sought to have the decision of Deputy Master Lloyd reinstated. In giving the leading judgment, Lord Justice Coulson framed the question for determination as follows:
"whether, in a case where proceedings are ongoing, the words 'claim', 'a part of a claim' or 'an issue' should be construed as meaning claims, parts of claims or issues which can be identified in or which arise from the pleadings, or whether they...also include claims, parts of claims or issues which have not been pleaded but which, for example, may have been mentioned in correspondence or in an informal conversation between solicitors"
Whilst accepting that the issue was not "entirely clear cut", the court was in no doubt that in order for Part 36 to operate effectively, the words used in the rule, in particular "the claim", must be interpreted narrowly.
"In my view, this question only has to be posed for the answer to become immediately apparent. In civil proceedings, claims/parts/issues can only properly be defined by reference to the pleadings. Indeed, that is the principal purpose of pleadings. It would introduce unnecessary and unwelcome uncertainty if claims/parts/issues were given a wide definition that did not seek to anchor them to the pleadings which the parties have exchanged...
To take an extreme example, Mr Smith suggested in his oral submissions that, if the claimant's solicitor introduced a possible new claim in a letter to his opponent, then that would be caught by the words of the rule, even if it had not been the subject of any formal amendment, and even if it had not been the subject of any kind of response by the defendant. I consider that such an interpretation would lead to uncertainty and confusion; it may even encourage the potential abuse of the Part 36 regime...
I would construe the words 'claim', 'part of a claim'; and 'issue' as referring to pleaded claims, parts of claims or issues, and not other claims or issues which may have been intimated in some way but never pleaded. Once proceedings have started, the certainty required for Part 36 to operate properly can only be achieved by this interpretation. A new claim which has been intimated, but which is not part of the pleadings, is not therefore caught by r.36.2(2)(d) (current r.36.5(2)(d))".
The claimants argued that CPR Part 36 expressly permits an offer to be made in accordance with that rule at any time, including before the commencement of proceedings, at which point "the claim" could not be construed by reference to the pleadings. Coulson LJ found that the circumstances which exist post-proceedings, by which stage the parties have been required to plead their positions are "inevitably different". It would be wrong in principle to accord offers made post-commencement, in respect of proposed claims, the same status as pre-proceedings offers.
It followed that the defendants' accepted offer was not a valid Part 36 offer, despite being clearly treated as such by the parties. The decision by Morgan J that the defendants were the "successful party" in relation to the abandoned parts of the claim was correct. Accordingly, the costs order by Morgan J, requiring the claimant to pay the defendants' costs of the abandoned claims was upheld.
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