AF v BG

This is an edited version of a judgment handed down in private, which must for the time being remain confidential. It has been agreed that the confidential elements include the identity not only of the parties but also of the lawyers involved.

The application before the court arose from a dispute as to whether proceedings pending in the Court of Appeal had been the subject of a binding compromise or not. The outcome of the application is that there had not been a binding compromise, so the proceedings will continue. In the meantime secrecy is needed because a Part 36 offer was made on one side, and courts which have to deal with the continuing proceedings (not only the Court of Appeal but also at first instance) should not know of the fact, still less of the details, of the offer, and of the response to it.

However, the arguments put before the court raise issues which seem to be of potentially wider significance as to the interpretation of Part 36. So, in order to balance the need for others to know what we decided about Part 36, on the one hand, and the need to keep secret the fact and details of the offer from courts who may come to deal with the proceedings in future, this heavily edited version of the judgment is made available at this stage. The full judgment will be published when the continuing proceedings have reached a stage at which the Part 36 offer does not need to be kept secret for the future. This version of the judgment is restricted to the discussion of Part 36 and its application to the offer actually made, to a brief discussion of the court's jurisdiction, and to such other material as is necessary to understand the points. Part of the letter by which the Part 36 offer was made is quoted, but in a form edited to conceal any distinguishing characteristics, though not to eliminate any feature necessary for the understanding of the points argued.

I refer to the parties, purely for convenience and anonymity, as the Applicant and the Respondent. The offer was made on behalf of the Respondent.

Jurisdiction

The jurisdiction of this court is statutory, and (subject to an anomalous exception, or apparent exception, in the field of judicial review) only appellate. However, if it needs to do so, the Court of Appeal can resolve issues that arise incidentally to proceedings properly brought before it: c.f. Ocean Software Ltd v Kay [1992] QB 583, at 588. The present issue is just such an incidental question. According to how it is resolved, the proceedings in the Court of Appeal, initiated by both parties, will either be stayed, under Part 36, or will continue to an oral hearing; in turn the same will apply to the proceedings generally. This court can, and has to, decide all issues on which may depend the question whether it should order that the stay of the proceedings (which has been in place since the point was raised) is to continue, or whether, instead, to relist the oral hearing which had been due to take place. The primary question is that of construction of the exchange of letters.

The exchange of letters

I must set out much of the offer letter. The letter is marked "without prejudice save as to costs" and "Part 36 offer". It is headed in relation to the proceedings which are referred to and defined as "the Claim". At the beginning of the letter, the writer refers to a collateral agreement between the parties and asserts that, in the events which had happened, the Applicant was obliged to reimburse the Respondent for certain expenditure under that agreement. The letter continues as follows:

"Accordingly, our client has a counterclaim against you in the Claim for the debt [giving the amount] plus interest. Such counterclaim has not yet been pleaded in the Claim but our client intends to amend his pleadings to incorporate this counterclaim in the future, if required.

For the reasons set out previously in correspondence with you and in our client's submissions to the Court, we do not consider that the claims you are pursuing against our client have any reasonable prospect of success.

However, our client realises that significant cost and inconvenience will be caused to all parties concerned if this matter is taken any further. Our client is, therefore, willing to accept payment of [a specified sum, smaller than that identified above as the subject of the intended counterclaim] ("the Sum") in full and final settlement of the whole of our client's claim and the whole of your claim against our client. For the avoidance of doubt, this offer includes all of the claims you have advanced against our client in the Claim.

This letter is intended to have the consequences of a claimant's offer to settle in accordance with Part 36 of the Civil Procedure Rules. In particular, you will be liable for our client's costs up to the date of written notice of acceptance, in accordance with CPR 36.10, if the offer is accepted within 21 days of service of this letter on you ("the Relevant Period").

Our client will be entitled to withdraw or amend this offer without the permission of the Court if this offer is not accepted within the Relevant Period. However, if the offer remains open and is accepted after the expiry of the Relevant Period, the Court will make an order as to costs unless the parties agree liability as to costs.

As required by CPR 36.3(3)(a), the Sum is inclusive of interest up until the expiry of the Relevant Period. Thereafter interest, calculated at 1% above Bank of England base rate from time to time, will accrue on the Sum.

We should point out that you will face potentially adverse costs consequences in the event that you choose not to accept the proposal set out in this letter and any judgment subsequently awarded is at least as advantageous to our client as the offer set out in this letter. In these circumstances our client will seek:

1 his costs on the indemnity basis with interest at 10% above base rate on those costs; and

2 interest on his damages at 10% above base rate, from the date on which the Relevant Period expired.

If you are not entirely clear about any of the terms of this offer, please notify us of this in writing within 7 days, setting out clearly which points you believe to be ambiguous or unclear. Failure to provide such notification will, in our view, preclude you from seeking to avoid the adverse costs consequences outlined above by referring to any alleged ambiguities or technical errors in this letter.

For the avoidance of doubt, this Part 36 offer is intended to be entirely independent of any other settlement discussions between the parties."

For present purposes what happened next does not matter, save that the offer letter was answered in terms which gave rise, eventually, to a dispute as to whether it had been accepted.

The Applicant argued that the offer was not a Part 36 offer at all. For that reason, and because of the detailed points taken as to the effect if it is a Part 36 offer, I need to refer to some of the terms of Part 36 as it now stands. The rule was amended into its present form in April 2007. We had some submissions by reference to the former versions of the rule and to the papers to do with the preparation for the amendment in 2007 but it seems to me that nothing turns on any of that.

CPR Part 36

The purpose of Part 36 is to prescribe, or allow for, certain consequences if an offer is made within its terms and is, or is not, accepted. Rule 36.1(2) makes it clear, on the one hand, that parties can make offers to settle in any way but, on the other hand, that an offer not made in accordance with rule 36.2 will not have the particular consequences specified in rules 36.10, 36.11, and 36.14. Rule 36.2(1) and (2) are as follows:

"(1) An offer to settle which is made in accordance with this rule is called a Part 36 offer.

(2) A Part 36 offer must

(a) be in writing;

(b) state on its face that it is intended to have the consequences of Part 36;

(c) specify a period of not less than 21 days within which the defendant will be liable for the claimant's costs in accordance with Rule 36.10 if the offer is accepted;

(d) state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue; and

(e) state whether it takes into account any counter claim."

Rule 36.3 makes it clear, among other things, that a Part 36 offer may be made at any time, including before the commencement of proceedings. It also prescribes the effect of a Part 36 offer to pay or to accept a sum of money as regards interest. Rule 36.3(4) is in the following terms:

"A Part 36 offer shall have the consequences set out in this part only in relation to the costs of the proceedings in respect in which it is made, and not in relation to the costs of any appeal from the final decision in those proceedings".

The rule also provides that during the 21 day, or longer, specified period, during which the offer is to be open for acceptance, the Part 36 offer may not be withdrawn or its terms changed to the disadvantage of the offeree unless the court gives permission for that. Rule 36.8 allows the offeree, within seven days of receipt of a Part 36 offer, to request the offeror to clarify the offer. If the offeror does not give the clarification requested, the offeror may apply to the court for an order that he should do so; if the court makes such an order it must...