AF v BG

A Part 36 offer may validly be made by a defendant as claimant on a proposed counterclaim, even before that counterclaim has been pleaded. An offer expressed on a net basis may settle both the original claim and the counterclaim.

Under Civil Procedure Rules Part 20, references to claimants and defendants must be adjusted when Part 36 is applied to an additional claim. Accordingly, acceptance of such an offer may stay the entire proceedings and make the original claimant liable for the offeror’s costs of both prosecuting the counterclaim and defending the original claim. Those costs consequences follow without discretion upon acceptance. The discretionary consequences of non-acceptance are a separate question.

In confidential proceedings pending before the Court of Appeal, the respondent made a letter headed as a Part 36 offer. The letter proposed a net settlement of the applicant’s existing claim and the respondent’s intended but unpleaded counterclaim. A dispute arose over whether the correspondence created a binding compromise.

This edited judgment addresses the court’s jurisdiction to determine that incidental dispute and the interpretation of Civil Procedure Rules Part 36. The principal questions were whether the letter qualified as a Part 36 offer, whether it related to the whole proceedings, and what costs consequences acceptance would produce. The court also recorded that the offer had not been accepted, so the underlying proceedings would continue.

1. No binding compromise arose, and the proceedings would continue. The Court of Appeal had jurisdiction to determine the issue because an appellate court may resolve questions arising incidentally to proceedings properly before it. The question determined whether the existing stay should continue or the pending hearing should be relisted.

2. The letter was a valid offer under Civil Procedure Rules Part 36. Its description as a claimant’s offer did not prevent compliance with rule 36.2(2)(b). Read as a whole, the letter stated that it was intended to have Part 36 consequences. Describing it as a claimant’s offer communicated the offeror’s contention that rules 36.14(1)(b) and 36.14(3) would apply if it were not accepted; the description did not determine its legal character.

3. The fact that the proposed counterclaim had not been pleaded did not invalidate the offer. Rule 36.3(2) permits an offer before proceedings begin. The proposed counterclaim was genuine, its nature was clear, and its amount was stated. Whether permission to plead it would ultimately be granted did not require determination.

4. The offer related to the entire proceedings. It expressly proposed full and final settlement of both the proposed counterclaim and every claim advanced by the applicant. Consequently, “the proceedings” in rules 36.3(4) and 36.10(1) included both claims. Acceptance would stay the whole proceedings and make the applicant liable for the respondent’s costs of asserting the counterclaim and defending the original claim.

5. Part 20 required the proposed counterclaim to be treated as a claim and its maker as a claimant. Corresponding adjustments had to be made to rule 36.10(6), so its reference to a defendant’s counterclaim encompassed the original claim as the cross-claim to the counterclaim. This construction applied Part 36 evenly and avoided arbitrary consequences depending on which party commenced proceedings.

6. The consequences of non-acceptance remained distinct. Whether enhanced interest and indemnity costs under rule 36.14(3) would be just could be decided only if the eventual result was at least as advantageous to the respondent as the offer. By contrast, the costs consequences of acceptance involved no discretion.

Rimer LJ agreed with Lloyd LJ.

• Court of Appeal (Civil Division): In [2009] EWCA Civ 757, the court determined an incidental application arising during pending appellate proceedings. It held that no binding compromise had been concluded and that the proceedings would continue.
• Earlier proceedings: The nature and procedural history of the underlying proceedings were withheld from the edited judgment to preserve confidentiality concerning the Part 36 offer.