PHI Group Ltd v Robert West Consulting Ltd

A purported Part 36 offer must satisfy every mandatory requirement of the rule. An expressed intention to comply can resolve ambiguity, but cannot supply an omitted requirement. In particular, the offer must explicitly identify a period of at least 21 days for the purposes of the costs regime.

A non-compliant offer has no automatic Part 36 consequences. It remains relevant to the general costs discretion, which must be exercised on its own principles. Successive and inconsistent settlement offers may remain open concurrently. A later offer does not impliedly withdraw an earlier formal, unlimited offer unless the circumstances compellingly demonstrate withdrawal.

Following a construction dispute, the main contractor recovered damages from a specialist contractor, PHI, and a consulting engineer, RWC. Reciprocal contribution proceedings resulted in responsibility being apportioned 60% to PHI and 40% to RWC.

Before trial, PHI had offered to accept 70% of the parties’ combined liability. Akenhead J held that the offer was not compliant with Part 36, had later been withdrawn by implication, and concerned only PHI’s contribution claim in the earlier proceedings. By a costs judgment, [2011] EWHC 1581 (TCC), he ordered PHI to pay 30% of RWC’s costs and made no order concerning PHI’s contribution-proceedings costs.

PHI appealed. The principal issues were whether its offer complied with Part 36, what significance it had under the general costs discretion, whether later offers withdrew it, and whether it encompassed both parties’ potential contribution liabilities.

1. Appeal allowed unanimously. The February 2010 letter was not a Part 36 offer. Rule 36.2(2)(c) imposed a mandatory requirement to specify a period of at least 21 days. Although an expressed intention to invoke Part 36 assists in resolving ambiguity, it cannot supply an entirely omitted period. The letter’s request for a response within seven days did not satisfy the rule.

2. A non-compliant offer cannot acquire Part 36 consequences merely because its defect appears technical. It may instead be considered under the court’s general costs discretion in rule 44.3. The mechanistic Part 36 regime and the broader Part 44 discretion remain distinct. The appeal could therefore succeed only if the judge had materially misdirected himself when exercising that discretion.

3. Because the February offer fell outside Part 36, ordinary contractual principles governed withdrawal. Nevertheless, inconsistency between successive offers does not necessarily revoke the earlier offer. Parties may leave alternative settlement offers open concurrently, although only one can be accepted. The February offer was formal and unlimited in time. Compelling circumstances were consequently required before withdrawal could be implied, and neither November letter supplied them. The first November offer was conditional and lapsed when the mediation failed; the second was silent about the earlier offer. The February offer remained available until trial.

4. Properly construed, the February offer addressed the sharing of all liability to the main contractor between PHI and RWC. It made no commercial sense to confine it to PHI’s contribution claim while excluding RWC’s reciprocal claim. Acceptance would have fixed their respective contribution percentages for sums due by agreement or judgment.

5. The judge had therefore exercised his costs discretion on two materially incorrect premises: that the offer had been withdrawn and that its scope was confined to one contribution claim. The Court of Appeal re-exercised the discretion. Since the continuing offer was more favourable to RWC than the result it obtained at trial, RWC was ordered to pay PHI’s costs of the contribution proceedings and to bear its own costs. Paragraphs 2 and 3 of the order dated 23 June 2011 were replaced accordingly.

1. Court of Appeal (Civil Division): By [2012] EWCA Civ 588, unanimously allowed PHI’s appeal against the contribution-proceedings costs order. It substituted an order requiring RWC to pay PHI’s costs and bear its own.

2. Technology and Construction Court: In the costs judgment [2011] EWHC 1581 (TCC), Akenhead J ordered PHI to pay 30% of RWC’s contribution-proceedings costs and made no order concerning PHI’s costs. Permission to appeal was refused by the judge but later granted by Tomlinson LJ.

3. Technology and Construction Court: In the liability judgment [2011] EWHC 1379 (TCC), Akenhead J apportioned responsibility between PHI and RWC at 60% and 40% respectively and ordered PHI to make a contribution to RWC.