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Do general contractual principles apply to the making and acceptance of Part 36 offers?

It is a truth universally acknowledged that litigation in which costs are significant must be in need of a carefully considered Part 36 offer. Nothing more need be said about the general importance of Part 36. However, together with all of its strategic utility, Part 36 comes bundled with a host of technicalities which are not always easily navigated. Even if all those technicalities are complied with, mistakes can be made at a more fundamental level: the basic terms of the offer. What, then, can a litigator do if such a mistake is made? There is real debate about the interaction between the technical aspects of Part 36 and the inherent injustice such a situation can create, and that is the focus of this blog.

This situation arose in an unreported case in which we recently advised. An order stated that interest in the case should run at the very generous Judgment Act rate of 8% per annum from 2007, making it a significant part of the claim. A Part 36 offer from the claimant then erroneously stated itself to be inclusive of interest, rather than exclusive. The effect of this was to make the offer over £40,000 lower than intended, and significantly lower even than the most recent offer from the defendant. The defendant sent a notice of acceptance within five minutes.

The applicable contractual doctrine in this case was that of unilateral mistake, the principles of which may be summarised briefly. When a unilateral mistake is operative, the mistaken party will not be held to the objective meaning of the words used. A mistake is operative when the other party is (or ought to have been) aware that a mistake has been made. The mistake must also relate to the terms of the contract.

The main issue in a case like this is whether general contractual principles may apply to the making and acceptance of Part 36 offers, or whether the provisions of Part 36 oust all other legal doctrines. After all, CPR 36.1 states that Part 36 is a “self-contained procedural code”.

This self-described hermeticism was introduced as part of the significant amendments to Part 36 in April 2015, and effectively codified earlier case law. The majority of these (now redundant) authorities focused on the application to Part 36 of common law rules on offer and acceptance. For example, there are decisions that a counter-offer does not have the effect of withdrawing an earlier Part 36 offer (in contrast with the common law position), and that time-limited offers could not be validly made under Part 36 at a time when the rules did not specifically provide for that. The essence of the cases is that a Part 36 offer may well give rise to a contract, but that the regime “does not depend on contract law” (Orton v Collins).

Against this, there are also authorities which state that some principles of contract law may apply to Part 36. However, the precise ambit of these statements is unclear, particularly in light of subsequent amendments to the rules. For example, the contractual principle that an offer may be withdrawn is now explicitly enshrined in Part 36, so a statement that this principle has not been excluded by the rules is of limited assistance (see Scammell v Dicker).

As to the question whether broader contractual principles may apply to Part 36 offers, there is no case law directly on point. Pending further authority, that question cannot be answered definitively. It is our view that the better analysis is that Part 36 is subject to the contractual doctrine of unilateral mistake, along with other common law doctrines that may sensibly be grouped together with it. There is a more substantive dimension to these doctrines, as opposed to the purely mechanistic principles considered in previous authority and contemplated in the amendments to the rules in April 2015. Further, it could be said that these common law doctrines are merely aids to the process of interpreting whether there has been a “meeting of minds”. Nothing in Part 36 or the case law appears to exclude that.

This view is intuitively appealing. It seems artificial to suggest that a Part 36 agreement must always stand, to the total exclusion of any legal principle not found in Part 36 itself. There appears to be no great risk of destabilising Part 36 and the certainty it aims to achieve: any common law doctrine which might apply contains somewhere in it a high threshold to cross for the party seeking to rely on it. It is no easy thing to establish fraud, for example.

This conclusion was borne out in the case in which we advised. Following a contested application hearing, the Part 36 offer was declared void, and the opportunistic defendant ordered to pay the claimant’s costs of the application on the indemnity basis. This stands as a cautionary tale for those seeking to rely on the technicalities of Part 36 to excuse what would otherwise unarguably be unconscionable behaviour.

Hardwicke PJ Kirby QC Ryan Hocking

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