Part 36 revisited: The judicial oracle gives his decision

There is an art in writing judgments. Some judges have it. Others do not. In the latter category, judges have not necessarily been assisted by today’s simple electronic access to the law reports, which permits lengthy chunks of marginally relevant earlier authorities to be incorporated easily into them. The consequence is that it is now commonplace for wordy judgments to run into hundreds of paragraphs.

How times have changed. Without the luxury of being able to draw on cases online, nor to be able to pre-read counsel’s perfectly manicured skeleton arguments, the judgments of the Victorian judges are a model of precision, combining brevity with an ability to get straight to the point. Little wonder, then, that many of the Victorian costs judgments such as London Scottish Benefits Society v Chorley have stood the test of time.

A century later, it was Lord Denning who became famous for his ability to express his thoughts in short sentences, with such clarity that even lay readers could understand them. Consider Bundy v Lloyds Bank:

“Broadchalke is one of the most pleasing villages in England. Old Herbert Bundy was a farmer there. His home was at Yew Tree Farm. It went back for 300 years. His family had been there for generations. It was his only asset. But he did a very foolish thing. He mortgaged it to the bank. Up to the very hilt. Not to borrow money for himself, but for the sake of his son. Now the bank have come down on him. They have foreclosed. […] At the trial his plight was plain. The Judge was sorry for him. He said he was a “poor old gentleman” […] Yet the Judge felt he could do nothing for him. […] He ordered Herbert Bundy to give up possession of Yew Tree Farm to the bank.”

Little wonder, with that introduction, that Old Herbert Bundy won his appeal!

Moving on another 50 years, so much has changed that Lord Denning perhaps would not recognise today’s legal system, with COVID-19 having involuntarily compelled the courts to dispense justice remotely.

Also different are the rules of court, the Civil Procedure Rules (CPR) having replaced the Rules of the Supreme Court some 20 years ago. These rules introduced Part 36, which permits any party to make an offer to settle, in contrast to Lord Denning’s day, when only defendants could do so.

It is Part 36 which has produced more cases and challenges than any other section of the CPR. Indeed, the rule had to be rewritten in 2014, under the direction of Edward Pepperall QC, in the Civil Procedure (Amendment No.8) Rules 2014.

Essex County Council v UBB Waste (Essex) Ltd (No. 3)

Six years on, Pepperall J has just delivered a tour de force judgment about Part 36, covering massive ground but simultaneously incorporating the simplicity and elegance of those Victorian judgments, and the clarity of Lord Denning himself.

At first blush, Essex County Council v UBB Waste (Essex) Ltd (No.3) merely appears to be another high-value Commercial Court case. The Council had granted UBB a 25-year, £800 million contract for waste processing. Due to breaches of contract following UBB’s failure to pass various acceptance tests, Pepperall J awarded the Council damages of £9 million, with continuing losses at £99,500 per month. He also dismissed UBB’s counterclaim for £77 million, but found that the company was entitled to compensation of £745,000 under clause 39 of the contract.

So far, so clear and having dealt with interest, the vexed question of costs fell to be considered.

It was common ground that the Council was the winner. However, issues then arose about a Part 36 offer letter from the Council, and whether its form and content complied with CPR 3.5.

The Council’s Part 36 letter

The letter was dated 7 March 2019, and expressed the period for acceptance as being “21 days from the date of this letter”. However, the letter had been sent by email at 4.54 pm, and since “closing time” for service is 4.30 pm, the offer was deemed to have been served the following day, in which case (so UBB argued) it had failed to specify a “relevant period” of not less than 21 days for acceptance under CPR 36.5(1)(c). That being so, it was ineffective to convey the benefits payable to a claimant who has beaten their own offer under CPR 36.17(4), namely:

  • Interest on the damages (and costs) at up to 10% over base rate.
  • Indemnity basis costs.
  • An additional sum of 10% of damages up to £75,000.

Pepperall J disagreed. He held that the 21 days ran from the date when the offer was made and that “it is not a forced construction to describe the date of the making of an offer contained in a letter, as the date of the letter.”
That construction was preferable, since it was consistent with the clear intention to make a Part 36 offer, and to ensure that the offer was effective rather than ineffective. It followed that the offer was compliant with Part 36.

Round one to the Council, but what if that was incorrect? Would any non-compliance have been de-minimis so that the court could overlook it?

The answer was no. The consequence of any failure to comply with the mandatory requirements of CPR 36.5 would have meant that under CPR 36.2(2), there was no possibility that such an offer could be treated as a Part 36 offer. It followed that none of the CPR 36.17(4) “special advantages” would have been available, but like any other settlement offer, the non-compliant offer would have to have been taken into account when the court exercised its general discretion as to costs under CPR 44. In doing so, however, the court could not treat an offer that was a “near miss” as if it were a compliant Part 36 offer. In any case, such difficulties would be avoided if parties wishing to make compliant Part 36 offers, did so using form N242A.

Round two to UBB. Next was the question of estoppel.


The argument here was that UBB’s rejection of the 7 March offer had not taken a point about compliance with Part 36. That was a representation upon which the Council had relied, so that UBB was now estopped from making a technical challenge about its validity under CPR 36.5(1).

Following a refreshingly brisk review of the authorities, Pepperall J held that: “[…] estoppel should play no part in the Part 36 regime […] Part 36 is a self-contained procedural code […] Introducing the rules of estoppel would breach this core principle.”

He continued:

“[…] parties cannot agree that an offer is in accordance with Part 36, if, on analysis, it is not. If they cannot agree that a non-compliant offer is a Part 36 offer then, in my judgment, still less can one party be estopped from taking the point about the defect.”

Round three to UBB, but a hollow victory since the ruling in round one had already delivered a knockout blow in the Council’s favour.

Had the Council obtained a judgment “at least as advantageous” as its Part 36 offer?

Pepperall J held that it had, so that it could now access the Part 36 benefits. All were available under CPR 36.17(4) (including the additional sum of £75,000), so the only issue was the rate of interest payable from the last date on which the offer should have been accepted by UBB (that was 29 March 2019). Given that UBB had unreasonably refused to engage with the Part 36 offer and had pursued a counterclaim based upon wholly unwarranted allegations of lack of good faith, that interest was to be paid on damages at 10% over base rate, likewise the interest on costs.

Basis of assessment

The Council argued for indemnity costs, arguing that UBB’s case was not just speculative, weak, opportunistic and thin, but also that UBB knew or ought to have known that to be the case. UBB disagreed, arguing that this had simply been hard-fought commercial litigation in which it had acted reasonably in putting forward its defence and counterclaim.

Avoiding the temptation to import large tracts of earlier judgments into his decision, Pepperall J instead referred concisely to those authorities of importance, enabling him to conclude his exemplary judgment by finding that:

  • Parties cannot make unjustifiable allegations of lack of good faith with impunity.
  • The counterclaim had been speculative, weak, opportunistic and thin.
  • UBB should have recognised that its expert witness had obvious and serious conflicts of interest.

Accordingly, UBB had no answer to the application for indemnity costs.

Should UBB’s £745,000 “success” in its counterclaim be reflected in the costs order?

Sensibly recognising that issue-based costs orders can cause havoc at detailed assessment, Pepperall J decided that it should, but proportion based to the extent of 5%. He also ordered an interim payment of £8 million to be paid on an account of the costs of the action, which UBB was to pay the Council as to 95%.

The end?

Not quite. There is a sting in the tail! The costs arguments were heard on 13 and 14 July, with judgment being given on 11 September. On 27 July, UBB appointed an Administrative Receiver, meaning that the Council will be unlikely to recover any of the damages, still less its expenditure in costs.

If ever there was a Pyrrhic victory in the Commercial Court, this case must be a worthy contender.

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