The Court of Appeal has held that an offer to settle which left some matters to be resolved could nonetheless be treated as a valid Part 36 offer. The court distinguished between purely contractual offers and Part 36 offers which, it pointed out, have their own self-contained code: Adams v Options UK Personal Pensions LLP  EWCA Civ 1188.
The Court of Appeal accepted that, while there may be circumstances where a purported Part 36 offer was so lacking in certainty that it would be rendered invalid, where an offer merely left some matters of mechanics to be further defined, and otherwise satisfied each of the conditions set out in CPR 36.5(1), it could still be a valid offer under Part 36.
While this case suggests that a court may treat a Part 36 offer that contains elements of minor uncertainty with more latitude that a purely contractual offer, it is by no means clear that the alleged defects in the offer in the present case would have been fatal even for a contractual offer. In any event, practitioners should ensure that all offers are drafted carefully, not only to minimise the risk of challenge on the basis that the offer is void for uncertainty but also, of course, to ensure that the terms of settlement are clear.
The decision is also of interest for the Court of Appeal’s view that it would have been unjust to apply one of the available Part 36 costs consequences – the additional percentage of damages (which in this case would have been an extra 10%) – but it was just to applying the other enhancements under Part 36 (ie indemnity costs and enhanced interest on damages and costs). This may be seen to contrast with the Court of Appeal’s approach in Telefonica UK Ltd v The Office of Communications  EWCA Civ 1374 (considered here) which suggested that it would be unusual for the court to conclude that it is just to award a claimant some but not all of the Part 36 enhancements.
In 2012 the claimant transferred £55,766.50 into a self-invested personal pension (or “SIPP”) operated by the defendant. The monies were invested in a storage pod business whereby the claimant became the owner of various “storepods” that he leased out. This was not a successful investment and generated little more than a few hundred pounds in rental income.
The claimant brought proceedings against the defendant in 2015 on various grounds including that the agreement with the defendant was unenforceable under section 27 of under the Financial Services and Markets Act 2000 (FSMA).
On 3 March 2016 the claimant’s solicitors sent a letter to the defendant’s lawyers headed “Without prejudice save as to costs” and “Part 36 offer” (the Offer). The Offer provided that the defendant would pay the claimant damages of £63,124 and the claimant’s reasonable costs, to be assessed if not agreed, and would take ownership of the storepods in question. The defendant rejected the Offer.
The claim was dismissed at first instance, but was allowed by the Court of Appeal. The defendant was ordered to pay approximately £90,000 into the claimant’s SIPP.
In deciding costs, the Court of Appeal considered the status of the Offer. The claimant argued that the Offer was a valid Part 36 offer and, since he had received more in damages than the amount he had offered to settle for, he should receive the favourable costs consequences as set out in CPR 36.17(4) including costs on the indemnity basis and enhanced interest on both damages and costs.
The defendant argued that the Offer was not a valid offer for the purposes of Part 36, as it was never capable of being accepted and put into effect. In particular, it would have resulted in funds which should have been in a registered pension scheme being put into the claimant’s hands, and it did not explain how the defendant should take ownership of the storepods.
In the alternative, the defendant argued that it would be unjust to award the claimant the Part 36 costs consequences, on the basis that: he had not detailed his loss until shortly before the trial; the litigation had come to be seen as a test case; and the claimant had lost on two of his three heads of claim.
The Court of Appeal held that the Offer was a valid Part 36 offer, which the claimant had beaten, and the claimant was therefore entitled to be awarded the Part 36 costs consequences. Newey LJ gave the leading judgment with which Rose and Andrews LJJ agreed.
Lord Justice Newey expressed the view that a Part 36 offer can potentially leave more to be resolved than a contractual offer could: while contractual principles can be relevant to the interpretation of a Part 36 offer, CPR 36.1 makes it clear that Part 36 contains a “self-contained code” and nowhere does it stipulate that a Part 36 offer must have the certainty that a contractual offer requires. He pointed out that CPR 36.8 enables a party to seek clarification of the terms of a Part 36 offer, which presupposes that an offer can be valid under Part 36 even if it is not clear in every respect. While he accepted that an offer can be so lacking in certainty as not to represent a Part 36 offer, a valid Part 36 offer could still leave some matters (especially of mechanics) to be further defined.
Regarding the two alleged defects which the defendant had identified in the Offer:
- Although the Offer said nothing about how the storepods would be put into the defendant’s ownership, if an assignment was needed nothing in the leases suggested it would have been problematic to put into effect.
- While the Offer referred to paying the claimant rather than paying into the SIPP, this would not have been an unlawful “pension liberation” as the claimant had turned 55. In any event the essence of the offer was the figure proposed, not whether it was to be paid to the claimant personally or into his SIPP, and the defendant had not raised this point as an objection at the time the Offer was made.
As to whether the Part 36 costs consequences should apply, Newey LJ found that none of the circumstances cited by the defendant made it unjust for the court to award the claimant indemnity costs or enhanced interest under CPR 36.17(4)(a) to (c). A litigant should be able to seek to settle even a test case, and the starting point for the purposes of CPR 36.17(4) was that a claimant who beats a Part 36 offer should have all their costs on the indemnity basis. The fact that the claimant had provided his schedule of losses late in the proceedings was immaterial as the defendant already knew how much the claimant had transferred into his pension and could have worked out the losses.
Newey LJ noted that the defendant’s counsel “did not press to any real extent for relief under CPR 36.17(4)(d)”, namely an additional percentage of damages (up to a maximum £75,000) – which would have been an additional 10% on the facts of this case. Newey LJ said he would regard it as unjust to make such an order when the claimant was already to receive full compensation, by reference to the considerable returns which his pension would have enjoyed had he not transferred out of it.