Contribution proceedings Ð Part 36 offer – Civil Procedure Rules – Main contractor obtaining damages against subcontractors in proportionate amounts – Parties making cross claims in contribution proceedings – Appellant’s offer to settle contribution proceedings being refused – Court ordering appellant to pay proportion of respondent’s costs of contribution proceedings – Whether judge erring in finding appellant’s offer not satisfying Part 36 – Whether judge correctly exercising discretion on costs – Appeal allowed C was the main contractor engaged to carry out the design and construction of a train servicing depot. The appellant was the specialist design and build contractor for the “soil nailing work”. The respondent was the consulting engineer and lead consultant for the overall works. In April 2009, C sued the appellant for damages for negligence. The appellant notified the respondent of a contribution claim towards any sums for which it might be held liable to C. In February 2010, the appellant made an offer to the respondent to settle the contribution claim, which was not accepted. C’s claim against the appellant was due to be tried in May 2010, by which time the appellant had commenced Part 20 proceedings against the respondent in the 2009 claim, to be tried separately. Shortly before the trial, C settled with the appellant for £3.8 million, by which time C’s total claim was for around £7.2 million. In March 2010, C brought proceedings against the respondent for the balance of its claim. The respondent amended its defence to the appellant’s contribution claim to seek an indemnity or contribution from the appellant against sums for which it might be held liable to C. In anticipation of a mediation between C and the respondent, the appellant made further offers to the respondent in November 2010 which were refused. The mediation was unsuccessful and, at trial, the judge held that the respondent had been negligent and that the appellant and the respondent had been responsible as to 60% and 40% respectively: [2011] EWHC 1379 (TCC). He then made an order for costs including, inter alia, an order that the appellant should pay 30% of the respondent’s contribution proceedings against it but made no order as to the costs of the appellant’s contribution proceedings: [2011] EWHC 1581 (TCC). The appellant appealed, seeking an order that the respondent should pay the appellant’s costs of both sets of contribution proceedings and that the respondent should bear its own costs of both those proceedings. It contended that the February offer had been a Part 36 offer under the civil procedure rules or, if not, it should have the same cost consequences. Held: The appeal was allowed. CPR, r. 36.2(2), which set out the requirements for a Part 36 offer were mandatory. As regards those requirements in the present case, the offer was in writing and stated on its face that it was intended to have the consequences of Part 36. The offer plainly related to the whole of the appellant’s claim, but it took into account any reciprocal claim that the respondent might have against the appellant for a contribution. Therefore all of r. 36.2(2)(a), (b), (d) and (e) were satisfied. However, the offer letter had not specified a period of not less than 21 days, or any period, in compliance with r. 36.2(2)(c) which was fatal to the appellant’s argument that it constituted a Part 36 offer. It was not part of the mandatory requirements of the rule, once the period had been specified, to state expressly that this was the period within which the appellant would be liable for the respondent’s costs in accordance with r. 36.10 if the offer was accepted. However, the letter did not specify any period for the purposes of the rule. The requirement was there, and nothing in the letter could be read as satisfying it: Onay v Brown [2009] EWCA Civ 775; Gibbon v Manchester City Council [2010] 3 EGLR 85, [2010] 36 EG 120; and Epsom College v Pierse Contracting Southern Ltd (formerly Biseley Construction Ltd) (in liquidation) [2011] EWCA Civ 1449 considered. Part 36 was prescriptive as regards the use of its own provisions but it did not prohibit the making of offers which did not come within the Part. Therefore, once the judge had decided that the offer was not a Part 36 offer, he had to consider how it bore on the exercise of his discretion under r. 44.3 to give the offer substantially the same effect as a Part 36 offer would have had. In the present case, it could not be said that the offer related only to the threatened contribution claim by the appellant against the respondent and not to any potential contribution claim by the respondent against the appellant. The settlement offered must have been taken to cover all issues of contribution to C’s claim by either the appellant or the respondent. There was no inherent reason why a party should not make two different offers to the opposing party to settle litigation, either of them being capable of acceptance, though not both. Normally, with offers made at the same time, the economic substance of the two was likely to be the same or comparable. But if two different offers, inconsistent with each other in that both could not be accepted, could be made in one offer document, there was no reason in principle why one party should not make different offers successively, leaving it open to the opposing party to choose which to accept. In the present case, looking at the matter overall, the judge had been wrong to conclude that, because the later offer was not consistent with the earlier offer, the earlier offer was necessarily withdrawn by implication. Each offer could have been beaten by either side, in which case the costs consequences could have been different. That was, in itself, a reason for treating both offers as being open at the same time. The judge had been wrong to approach the exercise of his discretion on the footing that the earlier offer, which was more favourable to the respondent than the eventual outcome, was no longer open for acceptance after the November offers had been made. It was therefore for the appeal court to exercise the discretion itself and, on the facts, the position was relatively simple. If the first offer had been accepted, the respondent would have been significantly better off, as regards its net liability to C, than it was after judgment. Even though it was not a case within Part 36, the appropriate order was that the respondent should pay to the appellant the latter’s costs of the contribution proceedings, and should bear all of its own. Nigel Jones QC (instructed by Wright Hassall) appeared for the appellant; Martin Bowdrey QC and R—n‡n Hanna (instructed by Mills & Reeve LLP) appeared for the respondent. Eileen O’Grady, barrister
Contribution proceedings Ð Part 36 offer – Civil Procedure Rules – Main contractor obtaining damages against subcontractors in proportionate amounts – Parties making cross claims in contribution proceedings – Appellant’s offer to settle contribution proceedings being refused – Court ordering appellant to pay proportion of respondent’s costs of contribution proceedings – Whether judge erring in finding appellant’s offer not satisfying Part 36 – Whether judge correctly exercising discretion on costs – Appeal allowed
C was the main contractor engaged to carry out the design and construction of a train servicing depot. The appellant was the specialist design and build contractor for the “soil nailing work”. The respondent was the consulting engineer and lead consultant for the overall works. In April 2009, C sued the appellant for damages for negligence. The appellant notified the respondent of a contribution claim towards any sums for which it might be held liable to C. In February 2010, the appellant made an offer to the respondent to settle the contribution claim, which was not accepted.
C’s claim against the appellant was due to be tried in May 2010, by which time the appellant had commenced Part 20 proceedings against the respondent in the 2009 claim, to be tried separately. Shortly before the trial, C settled with the appellant for £3.8 million, by which time C’s total claim was for around £7.2 million.
In March 2010, C brought proceedings against the respondent for the balance of its claim. The respondent amended its defence to the appellant’s contribution claim to seek an indemnity or contribution from the appellant against sums for which it might be held liable to C. In anticipation of a mediation between C and the respondent, the appellant made further offers to the respondent in November 2010 which were refused.
The mediation was unsuccessful and, at trial, the judge held that the respondent had been negligent and that the appellant and the respondent had been responsible as to 60% and 40% respectively: [2011] EWHC 1379 (TCC). He then made an order for costs including, inter alia, an order that the appellant should pay 30% of the respondent’s contribution proceedings against it but made no order as to the costs of the appellant’s contribution proceedings: [2011] EWHC 1581 (TCC).
The appellant appealed, seeking an order that the respondent should pay the appellant’s costs of both sets of contribution proceedings and that the respondent should bear its own costs of both those proceedings. It contended that the February offer had been a Part 36 offer under the civil procedure rules or, if not, it should have the same cost consequences.
Held: The appeal was allowed.
CPR, r. 36.2(2), which set out the requirements for a Part 36 offer were mandatory. As regards those requirements in the present case, the offer was in writing and stated on its face that it was intended to have the consequences of Part 36. The offer plainly related to the whole of the appellant’s claim, but it took into account any reciprocal claim that the respondent might have against the appellant for a contribution. Therefore all of r. 36.2(2)(a), (b), (d) and (e) were satisfied.
However, the offer letter had not specified a period of not less than 21 days, or any period, in compliance with r. 36.2(2)(c) which was fatal to the appellant’s argument that it constituted a Part 36 offer. It was not part of the mandatory requirements of the rule, once the period had been specified, to state expressly that this was the period within which the appellant would be liable for the respondent’s costs in accordance with r. 36.10 if the offer was accepted. However, the letter did not specify any period for the purposes of the rule. The requirement was there, and nothing in the letter could be read as satisfying it: Onay v Brown [2009] EWCA Civ 775; Gibbon v Manchester City Council [2010] 3 EGLR 85, [2010] 36 EG 120; and Epsom College v Pierse Contracting Southern Ltd (formerly Biseley Construction Ltd) (in liquidation) [2011] EWCA Civ 1449 considered.
Part 36 was prescriptive as regards the use of its own provisions but it did not prohibit the making of offers which did not come within the Part. Therefore, once the judge had decided that the offer was not a Part 36 offer, he had to consider how it bore on the exercise of his discretion under r. 44.3 to give the offer substantially the same effect as a Part 36 offer would have had. In the present case, it could not be said that the offer related only to the threatened contribution claim by the appellant against the respondent and not to any potential contribution claim by the respondent against the appellant. The settlement offered must have been taken to cover all issues of contribution to C’s claim by either the appellant or the respondent.
There was no inherent reason why a party should not make two different offers to the opposing party to settle litigation, either of them being capable of acceptance, though not both. Normally, with offers made at the same time, the economic substance of the two was likely to be the same or comparable. But if two different offers, inconsistent with each other in that both could not be accepted, could be made in one offer document, there was no reason in principle why one party should not make different offers successively, leaving it open to the opposing party to choose which to accept.
In the present case, looking at the matter overall, the judge had been wrong to conclude that, because the later offer was not consistent with the earlier offer, the earlier offer was necessarily withdrawn by implication. Each offer could have been beaten by either side, in which case the costs consequences could have been different. That was, in itself, a reason for treating both offers as being open at the same time. The judge had been wrong to approach the exercise of his discretion on the footing that the earlier offer, which was more favourable to the respondent than the eventual outcome, was no longer open for acceptance after the November offers had been made.
It was therefore for the appeal court to exercise the discretion itself and, on the facts, the position was relatively simple. If the first offer had been accepted, the respondent would have been significantly better off, as regards its net liability to C, than it was after judgment. Even though it was not a case within Part 36, the appropriate order was that the respondent should pay to the appellant the latter’s costs of the contribution proceedings, and should bear all of its own.
Nigel Jones QC (instructed by Wright Hassall) appeared for the appellant; Martin Bowdrey QC and R—n‡n Hanna (instructed by Mills & Reeve LLP) appeared for the respondent.
Eileen O’Grady, barrister