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Defendants masquerading as claimants for Part 36

Albeit a decision on its own facts, Mr Justice Coulson’s decision in Van Oord UK Ltd (OSR) v Allseas UK Ltd (AUK) offers food for thought for a defendant with a counterclaim or potential counterclaim.

Benefits of making a claimant’s Part 36 offer

Readers may recall the Court of Appeal’s decision in AF v BG, which appears to have been the first time that the courts were called upon to consider the circumstances in which a Part 36 offer made by a defendant will be treated as a claimant’s Part 36 offer. As is well known, the consequences of making a successful claimant’s Part 36 offer are much more advantageous than those that follow from a successful defendant’s Part 36 offer. A successful claimant’s Part 36 offer results (unless the court orders otherwise) in:

  • An order for interest on damages (up to 10% above base rate).
  • Costs on the indemnity basis from the date of expiry of the offer.
  • Interest on those costs (up to 10% above base rate).
  • An additional amount (not exceeding £75,000).

In AF v BG, the defendant to the original claim was found to have made a claimant’s Part 36 offer in respect of its counterclaim.

Facts of Van Oord v Allseas

In Van Oord, Coulson J rejected AUK’s argument that its offer was to be construed as a claimant’s Part 36 offer. OSR had sent a letter before claim to AUK in a construction dispute. AUK had responded and denied the claims and noted that because large sums had been paid to OSR on an interim basis in respect of those very claims, OSR had been overpaid. However, AUK did not at that stage, prior to the commencement of proceedings, assert any separate counterclaim.

AUK subsequently sent a Part 36 offer letter to OSR (prior to the issue of proceedings) which offered to pay OSR a sum of money “in full and final settlement of all claims which OSR has or may have against AUK in this matter”. The letter went on to say, “This offer takes account of any counterclaim AUK may have in relation to matters addressed in the claims.” The letter further said that AUK would be liable to OSR’s costs up to the date of the notice of acceptance for a maximum period of 21 days. AUK did much better out of the litigation than the offer made in this letter. AUK was a net payee, rather than a net payer and was not liable for any part of OSR’s costs.

Status of an offer depends on the terms

Coulson J held (contrary to submissions by AUK) that it did matter, as a matter of construction, whether an offer was a claimant’s Part 36 offer or a defendant’s Part 36 offer; the issue was whether it was a valid Part 36 offer. The judge found that it is important that the recipient knows what sort of offer is made because the consequences differ. Further, the fact that a defendant with a counterclaim is treated as a claimant in accordance with CPR 36.2(3) (which refers to CPR Part 20, which treats counterclaims as claims) was not enough to make the offer a claimant’s offer, that always depended on the terms.

AUK’s Part 36 offer

AUK’s offer was found on the facts not to be a claimant’s offer because the letter:

  • Did not say expressly that it was a claimant’s offer (unlike the offer letter in AF v BG).
  • Did not offer to accept an amount of money in settlement of the claim and counterclaim (unlike the offer letter in AF v BG).
  • Offered to pay the other side’s costs (unlike the offer letter in AF v BG).
  • Did not spell out the enhanced consequences of non-acceptance in the event that AUK did as well or better than the offer at trial (unlike the offer letter in AF v BG). In fact, in terms of costs consequence of non-acceptance, AUK’s letter referred to the costs consequences that follow from a defendant’s Part 36 offer (seeking an order that OSR pay AUK’s costs from the date of expiry of the offer if OSR did not do better than the offer at trial)
  • Did not set out in the offer letter the sum representing the liquidated amount of the counterclaim (unlike the offer letter in AF v BG).

Silver lining

When you read the judge’s list of reasons for refusing to treat the offer as a claimant’s Part 36 offer, it seems that AUK had little hope of persuading a court that it had made such an offer. However, on the facts AUK did not come out of it too badly because the judge made an order in its favour for indemnity costs on its costs (save for one element) on usual principles and ordered interest on the judgment sum and costs at the rate of 2.5%. The outcome did not fall that that far short of CPR 36.17(4) consequences. The judge also said that he would not have ordered interest at a rate higher than 2.5% even if he had concluded that it was a claimant’s Part 36 offer.

Genuine counterclaim

So it is worthwhile for a defendant with a counterclaim to think about framing its offer as a claimant’s Part 36 offer. However, the courts will be alert to whether there is a genuine counterclaim. In the absence of identifying the nature of the counterclaim and its amount in the letter (in cases where a counterclaim has not been pleaded), it will be hard to persuade a court to treat it as a claimant’s offer. The offer letter will also need to look and read like a claimant’s Part 36 offer. It doesn’t follow from the wording of CPR 36.17(1)(b) that a counterclaim will have to exceed the value of the claim so that the offer is to accept a sum (rather than pay a sum taking into account the counterclaim), although that was one of the reasons that Coulson J relied on for refusing to treat AUK’s offer as a claimant’s offer.

A defendant would be well advised that this is a classic situation where a court may decide not to award all of the consequences set out in CPR 36.17, even if the offer is construed as a claimant’s Part 36 offer.

39 Essex Chambers Nicola Greaney

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