Civil procedure – CPR 36 offer – Settlement – Appellant engaging respondent to carry out works of refurbishment – Works being delayed – Ingress of water causing damage to property – Appellant bringing action for damages – Respondent offering to settle action and counterclaim yet to be pleaded – Offer including term as to interest at end of relevant period – Appellant rejecting offer – Court ruling in favour of respondent – Appellant appealing – Whether offer valid in accordance with Civil Procedure Rules – Appeal dismissed
The respondent carried out works in connection with the extension and refurbishment of a residential property at 12 Calonne Road, Wimbledon. The appellant was set up as a special purpose vehicle to manage the works. The respondent was engaged by the appellant. The works were subject to delays and the contractual completion date was not met. Practical completion was certified, conditional on certain outstanding works being completed. A storm caused water ingress into the basement of the property. The appellant issued proceedings against the respondent seeking declarations as to the sums due under the contract and damages for defective and incomplete work which had allegedly allowed water to enter the property.
Before it served a defence and counterclaim, the respondent made an offer, described as a Part 36 offer, indicating that it would accept £100,000 in settlement of both the claim and its counterclaim which had not yet been issued. The offer indicated that the settlement sum included interest until the expiry of the relevant period as defined by CPR rule 36.3(g), but that thereafter interest would be added at 8% per annum. The offer was not accepted, the respondent served its defence and counterclaim. The matter went to trial and judgment was entered for respondent in the sum of £116,616.89 plus interest of £11,751.78. Costs were awarded on the basis that the respondent had beaten its Part 36 offer.
The appellant appealed contending that, following the decision of the Court of Appeal in Hertel v Saunders [2018] EWCA Civ 1831; [2018] 1 WLR 5832, the inclusion of a counterclaim which had yet to be pleaded was fatal to the validity of the offer as a Part 36 offer. The respondent argued that, as a result of CPR Part 20, rule 20.2 and 20.3, a counterclaim was treated as a separate claim. Rule 36.7 provided that a Part 36 offer could be made at any time, including before the commencement of proceedings. Therefore, the offer was not invalidated even though the counterclaim had yet to be pleaded.
Held: The appeal was dismissed.
(1). The express purpose of Part 20 was to enable counterclaims and other additional claims to be managed in the most convenient and effective way. As a result of rule 20.2 and 20.3, a counterclaim was treated as a claim for the purposes of the Civil Procedure Rules except as expressly provided in Part 20 and Part 36 was not excepted from those provisions. Furthermore, the sentence in parenthesis at the end of rule 36.2(3) made clear that rule 20.2 and 20.3 applied for the purposes of Part 36, and rule 36.2(3)(a) provided that a Part 36 offer might be made in respect of the whole or part of or any issue that arose in a claim, counterclaim or additional claim. Accordingly, a defendant’s proposed counterclaim had to be treated as if it were a claim for the purposes of Part 36. In those circumstances, and in the light of the fact that a party was entitled to make a Part 36 offer at any time, including before commencement of proceedings (rule 36.7), a Part 36 offer could be made in relation to a counterclaim before that claim had been pleaded. To conclude otherwise would derogate from both rule 20.3 and rule 36.7. The offer was not invalidated by reason of a reference to the proposed counterclaim which was not pleaded until some ten days later and CPR rule 36.5(2)(d) and (e) had to be construed in a way which enabled such an offer to be made despite the fact that the counterclaim had yet to be commenced. It could not be correct that the defendant had to go to the expense of pleading the counterclaim and if necessary, obtaining permission in relation to it, or alternatively, issuing separate proceedings in order to be able to make a Part 36 offer in relation to it or which took the counterclaim into account. Such a consequence would be contrary to the policy behind both Part 20 and Part 36 itself. AF v BG [2009] EWCA Civ 757 considered.
(2) The inclusion of a term as to interest after the expiration of the relevant period did not render an offer invalid for the purposes of Part 36. There was nothing in rule 36.5 in particular which precluded the inclusion of terms as to interest in a Part 36 offer which were intended to apply after the relevant period had expired. The only express provision in relation to interest was rule 36.5(4) which provided that offers to pay or accept a sum of money would be treated as inclusive of interest essentially until the relevant period expired. There was nothing which expressly precluded the inclusion of terms in addition to the requirements in rule 36.5(2). Rule 36.2(2) expressly preserved the ability to make an offer to settle in whatever way the party chose, although if rule 36.5 was not complied with, the offer would not have the costs consequences set out in that section.
(3) The judgment in Hertel was primarily concerned with the effects of CPR rule 36.10(2), a provision which was no longer within the CPR and had been reversed. No consideration was given to the effect of rule 36.7 in relation to a counterclaim which was to be treated as a separate claim by virtue of rule 20.2 and 20.3 and had yet to be commenced. In fact, rule 36.7 was only addressed in the context of a submission that “claim”, “part of a claim” or “issue” should not be defined too narrowly because a Part 36 offer could be made at any time, including before commencement of proceedings and, accordingly, should not be construed by reference to the pleadings after commencement either. The position pre-commencement was inevitably different to that after commencement of proceedings. Therefore, the decision in Hertel was not directly relevant to the circumstances of the present appeal and did not address them: Hertel v Saunders distinguished.
Alexander Cook (instructed by Candey) appeared for the appellant; Robert Stokell (instructed by DJM Law) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript ofCalonne Construction Ltd v Dawnus Southern Ltd
