One of the main factors behind many settlements of civil claims is that settlement will achieve certainty for the parties. Further, the settlement of civil disputes is encouraged at every stage of the litigation (and pre-action) process. Parties to disputes have also been equipped by the Civil Procedure Rules (CPR) with powerful settlement weapons, in the shape of formal offers under Part 36 of the CPR, with which to apply pressure to their opponents to settle. There has been a series of decisions about the operation of Part 36 since its inception and, in the past 18 months, several cases concerning the validity of offers and purported acceptances have been before the court.
The settlement of a claim, whether recorded in a formal settlement agreement or agreed in a telephone conversation is, in reality, simply a contract between the parties and the usual contractual principles apply. However, those principles are of limited effect when the parties attempt to use the provisions of the CPR. The CPR are statutory rules made under the authority of s1 of the Civil Procedure Act 1997 and the boundary between this statutory regime and the common law continues to provide fertile ground for issues to arise in ways that are often not always fully appreciated by parties (or their advisers). Careful consideration of the position is needed when negotiations involve offers under both regimes, as is often the case.
The relevant rules of the CPR are:
‘36.3(5): Before expiry of the relevant period, a Part 36 offer may be withdrawn or its terms changed to be less advantageous to the offeree, only if the court gives permission.
36.3(6): After expiry of the relevant period and provided that the offeree has not previously served notice of acceptance, the offeror may withdraw the offer or change its terms to be less advantageous to the offeree without the permission of the court.
36.3(7): The offeror does so by serving written notice of the withdrawal or change of terms on the offeree.
36.9(1): A Part 36 offer is accepted by serving written notice of acceptance on the offeror.
36.9(2): Subject to rule 36.9(3) a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer) unless the offeror serves notice of withdrawal on the offeree.
36.9(3): The court’s permission is required to accept a Part 36 offer whenever:
(d) the trial has started.’
Francis Whistance v Valgrove Ltd; Susan Gibbon v Manchester City Council 
These conjoined appeals related to the acceptance and withdrawal of Part 36 offers in personal injury claims, but the points raised apply to all Part 36 offers.
In the Whistance claim, the claimant made a Part 36 offer that Valgrove rejected. Once proceedings had been issued, Whistance made an increased Part 36 offer, without expressly withdrawing or even referring to the first offer. Valgrove purported to accept the first, lower Part 36 offer made by Whistance and because Whistance refused to accept this, applied to the court. The deputy district judge hearing the application granted it and Whistance appealed.
In Gibbon, the defendant, Manchester City Council (Manchester), had rejected Gibbon’s Part 36 offer and made two Part 36 counter offers of its own, the latter of which was for the same figure as Gibbon’s original offer. Gibbon rejected those offers and invited Manchester to make an increased offer. Subsequently, when it seemed the value of the claim had increased due to further medical evidence, Manchester purported to accept Gibbon’s Part 36 offer. Gibbon asserted this was not possible because the offer had been rejected. Manchester issued an application for a declaration that the claim had been compromised by valid acceptance of Gibbon’s Part 36 offer.
HHJ Holman held that the Part 36 regime was not directly analogous to contract law. Parties were to be encouraged to use Part 36 because making a sensible offer could give an offeror significant costs protection. Settlement could be achieved by a variety of routes but, if parties used Part 36, its structure must be applied even where contract law would produce a different result. When considering the CPR, the overriding objective should be borne in mind at all times and caution should be exercised in adopting too technical an approach.
Part 36 made it clear that an offer could be withdrawn by notice (CPR 36.3(5) and 36.3(7)) but was silent as to the situation in which a party simply made another Part 36 offer. It would be preferable for a party making a second Part 36 offer to make clear that the previous offer was withdrawn or amended. However, common sense implied that Whistance’s second Part 36 offer necessarily replaced the previous offer and no other interpretation of the second offer was possible. It would be unnecessarily confusing if Whistance’s second offer was held to co-exist with the first offer. Therefore, it was not open to Valgrove to accept Whistance’s earlier Part 36 offer, as it had been impliedly withdrawn. The case therefore continued.
In Gibbon, it was held that CPR 36.9(2) made it clear a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer) unless the offeror serves notice of withdrawal on the offeree. Further, the CPR required the offeror to serve written notice of withdrawal of the offer on the offeree (CPR 36.3(7), even if the offeree had made a counter-offer. The onus was firmly on the offeror to take the offer out of play. Although it was clear that Gibbon now wanted more than her original offer it would have been easy for her solicitors to make a revised Part 36 offer or to serve notice saying the old Part 36 offer was withdrawn. They had done neither. They had simply rejected the defendant’s counter offer albeit of the same amount. Manchester could therefore accept the old Part 36 offer.
Sampla & Ors v Rushmoor Borough Council & anor 
A claim, which arose out of damage to property owned by Mr Sampla and others, and allegedly caused by paving works undertaken by Mr Crowley (Crowley) for Rushmoor Borough Council (Rushmoor), had been settled after Crowley agreed to pay the claimants £384,500. The only live issue was the respective contributions to this sum by Crowley and Rushmoor.
Crowley made a Part 36 offer to Rushmoor that it pay a 25% contribution to the settlement sum, which Rushmoor rejected. Crowley’s better Part 36 offer of only a 20% share was also rejected by Rushmoor. The trial, limited to the contribution issues, began and after two days of evidence there were without prejudice discussions between the parties at court. Rushmoor now wanted to accept Crowley’s 20% offer but Crowley refused to agree to this and also rejected Rushmoor’s offer of a 33.3% contribution but indicated he would accept a contribution of 40%. Rushmoor hit on the idea of making an application to the court for permission to accept Crowley’s last Part 36 offer, of a 20% contribution, out of time.
Coulson J held that, as a matter of principle, a party can accept a Part 36 offer, even if they have previously rejected it. There was no direct analogy between Part 36 and contract law signifying that a rejection kills an offer because:
- The concept of a rejected offer was not recognised anywhere in Part 36, whereas a withdrawn offer and a changed offer were. This suggested that an initial rejection of an offer does not preclude its subsequent acceptance.
- CPR 36.9(2) made it clear an offer can be accepted ‘at any time’ and, giving those words their natural meaning, that included when it had previously been rejected.
- CPR 36.9(2) also expressly allowed an offeree to make a counter offer without that killing the original offer as it would in contract law. No rational distinction could be drawn between a counter offer and a rejection.
- It would be unwise to conclude that the Part 36 system was entirely analogous to contract law because this would make it less flexible than the pre-CPR regime.
- Providing they were willing to take the costs consequences, it would be contrary to the overriding objective not to allow a party to change their mind and to settle a dispute.
However, there was a final hurdle for Rushmoor to overcome because the trial had already started. Under Part 36.9(3)(d) they required the court’s permission to accept the offer and this would be a matter of discretion for the court. The court therefore needed to consider whether there had been a sufficient change of circumstances to make it unjust to allow Rushmoor to accept the offer. The judge felt both parties’ perceptions of the likely outcome of the trial had been altered significantly by the two days of evidence. The changes in the parties’ settlement positions was evidence enough of this and therefore it would be unjust to let Rushmoor accept Crowley’s offer out of time.
It seems unlikely that these cases will go to further appeal. In Gibbon, the parties attempted to take the point straight to the Court of Appeal under CPR 52.14 but the Court of Appeal sent the case back.
What lessons can be drawn from these decisions?
Significant thought is usually applied to the decision as to whether to make an offer ‘without prejudice’, ‘without prejudice save as to costs’ or a Part 36 offer. Each of these offers operates in a slightly different way, and each has its pros and cons. A without prejudice offer is more flexible than a Part 36 offer but comes within the ambit of the common law of contracts. In the hurly burly of negotiations with offers and counter offers there is some comfort to be gathered from knowing that, once rejected, previous offers cannot be accepted without specific agreement.
However, without prejudice correspondence will not be admissible before the court when dealing with issues of costs. Making correspondence ‘without prejudice save as to costs’ cures this last problem but leaves the impact of the offer on the question of costs entirely within the discretion of the court under CPR 44.3(4)(c). It would, of course, still be prudent for parties in ‘ordinary’ without prejudice negotiations to make clear if older offers are withdrawn or to make offers time limited at the outset.
The costs pressure on an opponent is the big advantage of Part 36 and the Part 36 regime is more flexible than the pre-CPR, defendant’s only, payment into court. However, the lesson from these cases is that the Part 36 regime is only analogous to the contractual regime in the true sense of the word, the Oxford English Dictionary definition being ‘similar’ or ‘parallel’. It does not mean that the Part 36 regime is the same and the court was at pains to stress this in each case.
If you make a Part 36 offer and then go on to make a further offer, the wise course is to withdraw the earlier offer formally. It was clear in the Whistance decision that the later offer was meant to replace the earlier offer, in more complex proceedings the interpretation question may not be so easy. In addition, parties should keep under review their last Part 36 offer as matters progress and withdraw them if they do not want them accepted late. Although the withdrawal of a Part 36 offer means it will not attract the same costs consequences, the court can consider these offers in relation to costs generally under CPR 44.3.
As Mr Crowley and Ms Gibbon discovered, an old un-withdrawn or un-amended Part 36 offer is still capable of acceptance, even though settlement on those terms may no longer be acceptable. In Rushmoor, intervening without prejudice negotiations rejecting the offer did not have the effect of making the last Part 36 offer unavailable for acceptance. In Gibbon, there were intervening Part 36 offers by the other side but these Part 36 offers also did not have the effect of killing Ms Gibbon’s last outstanding Part 36 offer because she had not withdrawn it or made a revised Part 36 offer herself.
It is also notable that Part 36 requires all offers, withdrawals, changes and acceptances to be in writing to be effective.
The simple lesson to be drawn from these decisions is to be careful what you say and to be clear what you mean when making settlement offers.
A concluded agreement under the contractual regime or an accepted Part 36 offer brings an end to the proceedings. However, the rules as to whether an agreement has been reached differ in each of these parallel but interrelated universes.
By James Robins, partner, and Justin Tivey, senior associate, Bond Pearce LLP.
Francis Whistance v Valgrove Ltd; Susan Gibbon v Manchester City Council (2009, unreported)
Sampla & ors v Rushmoor Borough Council & anor  EWHC 2616 (TCC)