Interpreting part 36 offers

One of the perennial areas of work in costs litigation concerns disputes over part 36 offers. Even now, in November 2017, some 18 years after the introduction of part 36 CPR there remains fruitful scope for satellite litigation over their (mis)use.

One area that arises from time to time, is construing what a part 36 offer actually means, as sometimes a dispute can ensue over whether a claim has been compromised, or whether if there has been a compromise it includes all or only part of the claim or what the terms of the compromise are.

It should be noted that part 36 offers may be made at an early stage of litigation, but subsist for a number of years before the offeree decides that it may be better to accept for one reason or another, a part 36 offer that has been made. At that time the litigation may have entirely changed in nature or scope.

The conceptual difficulty that arises, however, is that a part 36 offer can only ever have one meaning: the rules in part 36 provide for it to be “clarified” at the offeree’s request, but it can only have one true meaning. Logically, the offer must mean the same thing when it is made, whilst it exists and when it is accepted even though that period might span years.

It follows in turn, logically, that events or negotiations or documents, created subsequent to the making of the part 36 offer can have no bearing on what the offer meant when made. How could they? They were not in existence or were unknown factors when the part 36 offer was made.

When identifying what a part 36 offer means, it is entirely appropriate to apply by analogy, the general principles of contractual interpretation but suitably modified to take account of the self contained nature of part 36. In C v D itself, the Court of Appeal observed:

45 It follows from my answer to the first issue that there is a necessary inconsistency between an offer being both time-limited and a Part 36 offer. An offer may be one or the other, it cannot be both. That is the objective context in which the offer in this case was made by the claimant’s solicitors to the defendant’s solicitors. Both the writer and the reader of that offer must be taken, objectively, to know the legal context. Of course, mistakes occur and must be allowed for. However, the question is how a reasonable solicitor would have understood the offer in that context, including the known context of the dispute as it stood at that time: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896.

(emphasis added)

This passage makes it plain that although the contractual rules of construction are adopted by way of analogy, the point in time whereby the court construes the background matrix of fact, is the date when the offer is made, not as in a contractual compromise, the date the contract is made. This in turn is a logical approach to adopt. Unlike a contractual compromise, which might be contained in a number of interlocking documents, a compromise brokered through part 36 will only consist of the part 36 offer, and a simple acceptance of it.

It follows, that this is one of the differences between the part 36 regime the self-contained code, and the general law of contract: when the court construes a contract, it is concerned to construe the contract at the date it is made.

In cases where disputes arise under part 36, because a part 36 offer is either accepted or it is not, the court is concerned not to construe the compromise, but rather to construe the offer and then see whether that has been accepted or not. This is a subtle but very important difference. Because at a stroke, the subsequent events to the making of the part 36 offer become irrelevant.

The exclusion of subsequent material once, it is accepted that the material date is the date of making the part 36 offer, rather than the date of acceptance of it, to determine what the compromise means is supported by the analogous position in contract law: per Union Insurance Society of Canton Limited v George Wills and Co [1916] 1 AC 281

“It is immaterial to the construction of the contract to consider subsequent events. The intention of the parties must be gathered from the language of the contract, the subject matter, and the circumstances in existence at the time it was made.”

If you ignore all events after the making of a contractual compromise, because the compromise was frozen in amber, at the time it was made, logically you must also ignore all events after the making of a part 36 offer, which is similarly frozen in amber. Otherwise as noted you reach the problem in James Miller and Partners Limited v Whitworth Street Estates (Manchester) Limited [1970] AC 583

I must say that I had thought it now well settled that it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that a contract meant one thing the day it was signed, but by reason of subsequent event meant something different a month or a year later.

The law has moved on from ICS Ltd.v.West Bromwich Building Society [1998] WLR 896 in that Lord Hoffmann’s principles have been expanded, and explained in a series of further cases, before the House of Lords and Supreme Court. The most recent of these is Arnold.v.Britton [2015] AC 1619.

Reference is made to Lord Neuberger’s restatement of principles in paragraphs 14 to 22: those principles demonstrate a re-emphasis on the importance of the language used, and count against broad, sweeping constructions which do violence to the language used by the parties.

It follows that construction of a part 36 offer can be just as involved as construction of a contractual compromise, where there may be little doubt that a claim has been compromised, but a real dispute as to the terms of that compromise.

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