The dangers of not accepting a Part 36 offer


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The timing and content of a Part 36 offer will often form a crucial step in settlement discussions. A Part 36 offer will, even if not accepted, protect to some extent the offeror’s position on costs.  It will also force the recipient of the offer to focus their mind on settlement.

The recent decision of Edwards-Stuart J in the Technology and Construction Court in Jockey Club Racecourse Ltd v Willmott Dixon Construction Ltd [2016] EWHC 167 (TCC) provides a good illustration of the dangers of failing to accept a Part 36 offer.  More interestingly, the judgment confirmed that it was not necessary for a valid Part 36 offer to reflect an outcome that would be possible at trial. The decision dealt with a number of other issues, but this article will focus on the effect of the decision in relation to the commercial considerations parties face when presented with a well-timed Part 36 offer.

The facts

The Jockey Club engaged Willmott Dixon to design and build a new grandstand at Epsom Racecourse. The project ran into difficulties and the roof of the grandstand was damaged by wind during 2012 and 2013.  The winds were described in the judgment as ‘high, but not unexpectedly so’.  Willmott Dixon carried out repairs to the roof following both incidences of damage.

The Jockey Club brought proceedings against Willmott Dixon. In January 2015, the Jockey Club made a Part 36 offer to settle.  The Part 36 offer was made to ‘settle the issue of liability for losses arising out of defects in the roof’ on the basis that Willmott Dixon would ‘accept liability to pay 95% of the claim for damages to be assessed’.

Willmott Dixon did not respond to the offer. In March 2015, the Jockey Club amended their particulars of claim.  The amended particulars raised the value of the claim from £400,000 to over £5 million, as they claimed for the cost of totally replacing the roof, rather than simply repairing the damage caused by the wind.

The decision

At the pre-trial review, Willmott Dixon admitted liability for damages to the roof. The issue of liability was settled by consent with the Jockey Club.  However, Willmott Dixon disputed the validity of the Part 36 offer at the pre-trial review, in an effort to avoid some or all of the costs consequences set out above.  Willmott Dixon contended that the Part 36 offer was not valid.  Their main ground of objection was that the offer did not reflect a possible outcome at trial.

Willmott Dixon had already admitted at the pre-trial stage that they were liable for 95% of the damages to the roof. However, the Part 36 offer was made without any reference to the likelihood or possibility of contributory negligence proceedings being brought.  Willmott argued, therefore, that the only possible outcomes at trial were that they were either: (i) wholly liable for the damage as a result of their design and building of the roof; or (ii) that they were not liable for the damages.  Willmott contended that a judge could not find that they were liable for 95% of the damages and the Jockey Club for the other 5%, so the Part 36 offer was invalid.

Edwards-Stuart J rejected Willmott’s argument on the issue of the invalidity of the offer. In doing so, he clarified that Part 36 offers do not have to reflect an outcome that might be achieved at trial.  Indemnity costs were awarded to the Jockey Club, with interest to be decided at a subsequent trial.

Implications

In his decision, Edwards-Stuart J acknowledged the commercial nature of, and implications for parties in making and responding to, Part 36 offers. He tacitly acknowledged that it would defeat the object if offers made in an attempt to settle litigation were found to be invalid. The judgment would, therefore, appear to widen the scope of the validity of Part 36 offers.

The decision makes commercial sense for parties seeking to make genuine settlement offers. Given that Willmott Dixon had already admitted liability for 95% of the damages, Edwards-Stuart J’s decision in effect penalised Willmott for not accepting an offer earlier in the court process in an effort to avoid trial.  Edwards-Stuart J also stressed in his judgment that the Jockey Club’s Part 36 offer represented a genuine concession:

‘I am persuaded by the authorities that the offer in this case was a valid offer within the meaning of Part 36 and that it was a genuine attempt to settle the claim. Whilst the discount was very modest, even in the context of a claim of some £400,000 it amounted to £20,000, which in my view cannot be described as derisory’.

This is important for any party to consider when making Part 36 offers: they must be made in a genuine attempt to settle, and must not be merely cynical or tactical ploys designed to inconvenience or intimidate the recipient.

The decision also reflects the overriding objective to deal with cases justly and at proportionate cost. It acknowledged that the Jockey Club recognised they were not liable for 5% of the damages, and the Part 36 offer was an attempt to avoid trial by sacrificing 5% of their claim.

It remains to be seen what effect the decision will have on parties’ conduct in relation to Part 36 offers, but it will surely focus the minds of recipients of such offers, and will raise the stakes when considering how to respond.

For further information, please contact David Weare, Partner, Fladgate LLP (dweare@fladgate.com)

 

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