Calonne Construction Ltd v Dawnus Southern Ltd

A Part 36 offer may settle an existing claim together with a proposed counterclaim which has not yet been pleaded. A counterclaim is treated as a separate claim for the purposes of the Civil Procedure Rules, and an offer may be made before proceedings on that claim commence.

An offer also remains valid where it provides for interest to accrue after the relevant period. Part 36 requires a monetary offer to include interest until that period expires, but does not prohibit additional terms governing later interest. Interest accruing after the relevant period is ignored when determining whether the judgment was at least as advantageous as the offer.

Calonne Construction Ltd engaged Dawnus Southern Ltd to undertake residential building works. Following disputes about payment, delay, defects and water damage, Calonne commenced proceedings. Before pleading its counterclaim, Dawnus offered under CPR Part 36 to settle both Calonne’s claim and its proposed counterclaim for a payment of £100,000 to Dawnus. The offer included interest until the relevant period expired and provided for interest at 8% thereafter.

The Technology and Construction Court entered judgment for Dawnus and treated the offer as valid when determining costs. Its substantive judgment was reported at [2018] EWHC 1634 (TCC). Calonne appealed on the ground that the offer was invalid because the counterclaim was unpleaded and because it included post-relevant-period interest.

1. Appeal dismissed. The offer was not invalidated by its inclusion of Dawnus’s proposed counterclaim, although that counterclaim was not pleaded until ten days later.

2. Rules 20.2 and 20.3 require a counterclaim to be treated as a claim for the purposes of the Civil Procedure Rules, and Part 20 contains no exception for Part 36. Rule 36.2(3) expressly applies Part 36 to claims, counterclaims and additional claims. Rule 36.7 permits an offer at any time, including before proceedings commence. Read together, those provisions permit an offer concerning a counterclaim before it is pleaded. Rules 36.5(1)(d) and (e) must be construed consistently with that conclusion.

3. The observations in AF v BG [2009] EWCA Civ 757 concerning an unpleaded counterclaim were obiter, but their reasoning was relevant and persuasive. Hertel v Saunders [2018] EWCA Civ 1831 did not govern the present circumstances. It concerned a defendant’s offer relating to a proposed amendment to an existing claimant’s pleaded case, rather than a counterclaim treated as a separate claim under Part 20. It also arose in the context of a former costs provision which had since been reversed.

4. The provision for interest at 8% after the relevant period did not invalidate the offer. Rule 36.5(4) treats an offer to pay or accept money as inclusive of interest until the relevant period expires, but neither that rule nor any other provision prohibits terms governing interest thereafter. Such a term compensates an offeror for delay before later acceptance.

5. Interest accruing after the relevant period should be ignored when assessing under rule 36.17 whether the judgment was at least as advantageous as the offer. An unusually high post-period rate therefore risks no distortion of the statutory comparison. The offeree may also respond with its own offer omitting the provision.

6. Asplin LJ delivered the judgment. Flaux and Hamblen LJJ agreed. The respondent’s notice and any alternative exercise of the costs discretion under Part 44 did not require determination.

1. Court of Appeal (Civil Division): Dismissed Calonne’s appeal and upheld the treatment of Dawnus’s offer as a valid Part 36 offer. Calonne was ordered to pay Dawnus’s appeal costs on the standard basis.
2. High Court, Technology and Construction Court: In [2018] EWHC 1634 (TCC), HHJ McKenna entered judgment for Dawnus. By the consequential order dated 25 July 2018, he treated Dawnus as having beaten its Part 36 offer and ordered Calonne to pay 75% of Dawnus’s costs, with post-offer costs assessed on the indemnity basis.