Hertel & Anor v Saunders & Anor

After proceedings have commenced, a Part 36 offer can relate only to a claim, part of a claim or issue identifiable from the pleadings. A proposed new claim does not qualify until the amendment introducing it has been permitted or validly consented to. An indication that an application to amend will not be opposed is insufficient.

An offer which fails a mandatory Part 36 requirement cannot acquire Part 36 status through its label, the parties’ intention or their common understanding. Under the former costs rule governing acceptance of an offer concerning part of a claim, the court retained a wide discretion to order otherwise. The ordinary assessment of which party succeeded could justify awarding the costs of abandoned claims to the defendant.

The claimants alleged a partnership or joint venture and later proposed an amendment introducing a claim for an account based on a direct agreement. Before permission to amend had been granted, the defendants offered to resolve only the proposed claim. The claimants accepted the offer and abandoned their pleaded claims.

Deputy Master Lloyd treated the offer as a Part 36 offer and ordered the defendants to pay the claimants’ costs of the abandoned claims. Morgan J allowed the defendants’ appeal in [2015] EWHC 2848 (Ch). He held that the unpermitted new claim was not a claim, part of a claim or issue within Part 36 and awarded the defendants the costs of the abandoned claims.

The central questions were whether an offer concerning a proposed but unpermitted amendment complied with Part 36 and, if it did, whether the defendants should nevertheless receive their costs.

1. Appeal dismissed unanimously. After proceedings have commenced, the words “claim”, “part of a claim” and “issue” in the applicable Rule 36.2(2)(d) refer to matters identifiable in or arising from the pleadings. Pleadings provide the certainty necessary for the prescriptive Part 36 regime. A wider construction encompassing claims merely intimated in correspondence or conversation would create uncertainty and could encourage abuse.

2. The ability to make a Part 36 offer before proceedings does not alter that conclusion. Before commencement, claims are ordinarily identifiable through the applicable pre-action process. Once proceedings have begun, the procedural rules and pleadings regulate what constitutes the claims and issues.

3. The proposed amendment did not make the new claim part of the proceedings. It would do so only if and when permission to amend was granted. Nor did the defendants’ indication that they would not oppose a future application amount to consent under Rule 17.1(2). There is a material difference between consenting to an amendment and stating an intention not to oppose an application for permission.

4. Part 36 is a highly prescriptive, self-contained regime capable of producing severe consequences. Its requirements should not be liberally construed merely to reach a pragmatic result. Although both parties initially regarded the letter as a Part 36 offer, their shared intention and the letter’s label could not cure its failure to satisfy a mandatory requirement. The offer therefore did not comply with Part 36, and former Rule 36.10(2) did not apply.

5. In any event, the costs outcome would have been the same if the offer had complied. Former Rule 36.10(2) gave only a gentle steer towards awarding the claimants the costs of the proceedings and preserved a wide discretion to order otherwise. The defendants successfully resisted the pleaded partnership and joint-venture claims, which the claimants abandoned. They were therefore entitled to the costs of those claims under either former Rule 36.10(2) or Rule 44.2.

1. Court of Appeal (Civil Division): The claimants’ appeal was dismissed unanimously. The court affirmed Morgan J’s conclusion that the offer did not comply with Part 36 and his order awarding the defendants the costs of the abandoned claims.
2. High Court, Chancery Division: Morgan J allowed the defendants’ appeal in [2015] EWHC 2848 (Ch). He set aside Deputy Master Lloyd’s costs order and ordered the claimants to pay the defendants’ costs of the abandoned claims.
3. High Court, Chancery Division: Deputy Master Lloyd permitted the proposed amendment, treated the defendants’ offer as compliant with Part 36 and ordered the defendants to pay the claimants’ costs of the abandoned claims, while excluding the costs of amending the claim form and particulars of claim.