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Cite as: [2018] EWCA Civ 1831, [2018] 4 Costs LR 879, [2018] WLR(D) 498, [2018] 1 WLR 5852

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Neutral Citation Number: [2018] EWCA Civ 1831
Case No: A3/2015/3581

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT, CHANCERY DIVISION
Mr Justice Morgan
CH/2015/0269

Royal Courts of Justice
Strand, London, WC2A 2LL
31/07/2018

B e f o r e :

LORD JUSTICE LEWISON
LORD JUSTICE DAVID RICHARDS
and
LORD JUSTICE COULSON

____________________

Between:
(1) Tim-Alexander Gunther Nikolaus Hertel
(2)
Artemis International SARL
Claimants/
Appellants

- and –


(1) John Francis Saunders
(2)
Liquid Strategies Limited
Defendants/
Respondents

____________________

Mr Mark Smith (instructed under the Direct Access Scheme) for the Appellants
The Respondents did not appear and were not represented

Hearing date: Tuesday 24th July 2018

____________________

HTML VERSION OF JUDGMENT APPROVED
____________________

Crown Copyright ©

    Lord Justice Coulson :

    Introduction

  1. In this appeal I shall refer to the appellants as 'the claimants', and I shall refer to the respondents as 'the defendants'. Save on one or two specific issues, identified below, it is unnecessary to differentiate between the two claimants and the two defendants.
  2. This appeal raises a potential point of importance regarding the meaning of 'claim or part of [a claim] or an issue' as these words are used in CPR Part 36. It arises in circumstances where an offer was made by the defendants in respect of a new claim which had been indicated by the claimants by way of a proposed amendment to the particulars of claim, but which had not yet been the subject of a court order granting permission. All the pleaded claims were abandoned when that offer was accepted by the claimants. Deputy Master Lloyd said that the offer was in accordance with Part 36 and ordered that, in consequence, the defendants should pay the claimants' costs of the abandoned claims. Morgan J allowed the appeal, finding that the offer was not in accordance with Part 36 and that, because the defendants were the successful party, the claimants should pay the defendants' costs of the abandoned claims. The claimants appeal to this court, originally seeking to reinstate the order of Deputy Master Lloyd.
  3. The structure of this Judgment is as follows. I set out first the relevant parts of Part 36 in force at the time of the offer, cross-referring (where appropriate) to the current version of the CPR. I then set out the factual background and the course of the dispute about costs. Having dealt briefly with the authorities, I then analyse the two issues which arise on this appeal: was the offer in accordance with Part 36 and, even if it was, was Morgan J wrong to exercise his discretion in favour of the defendants?
  4. The Relevant Parts of Part 36

  5. The version of Part 36 which applied to this case was the version that existed prior to the amendments which came into force in April 2015 (set out in the 2014 edition of the White Book).
  6. Rule 36.2 dealt with the form and content of a Part 36 offer. R.36.2(2) provided:
  7. "A Part 36 offer must –
    (a) be in writing;
    (b) state on its face that it is intended to have the consequences of Section I 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 r.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 which part or issue; and
    (e) state whether it takes into account any counterclaim."

    It should be noted that the wording of r.36.2(2)(d) – the rule in issue in this appeal - is preserved by the current r.36.5(1)(d).

  8. Rule 36.3(2) made plain that a Part 36 offer could be made at any time, including prior to the commencement of proceedings. That rule is preserved by the current r.36.7(1).
  9. Rule 36.10(2) provided:
  10. "Where
    (a) a defendant's Part 36 offer relates to part only of the claim; and
    (b) at the time of serving notice of acceptance within the relevant period the claimant abandons the balance of the claim,
    the claimant will be entitled to the costs of the proceedings up to the date of serving notice of acceptance unless the court orders otherwise."
  11. R.36.10(2) has not been preserved. On the contrary, current rule 36.13(2) expressly states that, where a Part 36 offer relates to part only of the claim, "the claimant will only be entitled to the costs of such part of the claim unless the court orders otherwise". In other words, whilst the version of the CPR with which we are concerned provided a steer towards allowing the claimant to recover all of the costs of the proceedings (unless the court ordered otherwise), the steer in the current rule is only as to the costs of that part of the claim which has been compromised, again unless the court orders otherwise. It might be thought that this is a change for the better, because it more closely accords with simple justice. The change also means that, if the current rule had applied to these proceedings, this costs dispute would not have arisen.
  12. The Factual Background

  13. The original claim form sought a declaration that there was a partnership or joint venture between Mr Hertel and Mr Saunders. This was denied by the defendants. On 11 July 2014, before Master Teverson at a case management conference, the claimants indicated that they wished to serve amended particulars of claim. Master Teverson ordered that the claimants were to serve copies of the proposed amendments by 25 July and that the defendants were to indicate, by 1 August, whether they accepted the proposed amendments. He ordered that, if they did not, the claimants had to make an application for permission to amend. He omitted to make any order about what was to happen if the amendments were agreed.
  14. The claimants served a draft amended claim form and draft amended particulars of claim on 25 July. This added a new claim for a declaration that there was an agreement between Mr Hertel and Mr Saunders under which the defendants were to account to the claimants in relation to certain matters. The existing claims (in respect of the alleged partnership and joint venture) were maintained.
  15. The defendants' solicitors replied to the proposed amendments on 30 July 2014. No copy of the letter was before Morgan J or before us, but it was cited by Deputy Master Lloyd in these terms:
  16. "Thank you for providing your draft Amended Claim Form and Particulars of Claim upon which we have taken instructions from our clients. Without prejudice to our clients' case and the complete denial of the claims you make by Amendment (and otherwise) we see no value in opposing the Amendment in the terms you have sought but this is strictly without prejudice to our client's full defence to the claim as made and as Amended. For the present purposes however we have no issue with you moving your Amendment in front of the Court on the next occasion."
  17. There were mediations in November 2014 and again in January 2015 but the proceedings were not compromised. The next court hearing was due on 30 March 2015. However, before that, there was an exchange of correspondence which I should set out in full.
  18. On 17 February, the defendants' solicitors wrote to the claimants' solicitors the offer letter, in these terms:
  19. "Our Clients: Mr John Saunders/Liquid Strategies Limited
    Your Clients: Mr Tim Hertel/Artemis International SARL
    Claim No: HC13E02592
    PART 36 OFFER
    WITHOUT PREJUDICE SAVE AS TO COSTS
    We write on behalf of our clients to make an offer in settlement of your client's proposed claim, by amendment, for an account based on an agreement. We do so before the case begins its next stage and with a view to conserving the costs that will otherwise be incurred consequent upon the amendment and the orders likely to be made by Master Teverson on 30 March.
    Our offer is predicated upon the basis that your clients' currently pleaded claim based [on] a partnership or joint venture is going to fail. Our clients have always denied that there was any such partnership and that the only genuine claim your clients have is the one based on an agreement between Messrs Hertel and Saunders for and on behalf of their respective companies, Artemis International SARL ("Artemis") and Liquid Strategies Limited ("LS"). That remains our clients' position and our clients are confident that, if and when this matter goes to trial, that position will be vindicated.
    The claim which your clients are now seeking permission to bring is one for a declaration that there was an agreement whereby LS was to account to Artemis for Mr Hertel's expenses and share of remuneration for collaborating on projects with third parties. Our clients are willing to consent to the making of a declaration. They will consent to the making of a declaration that there was an agreement between LS and Artemis whereby LS agreed to account to Artemis on the following basis:
    1. LS would pay to Artemis any direct project-related expenses recovered from third party clients on projects on which Mr Hertel worked.
    2. LS would pay to Artemis 66.66% of any remuneration recovered from third party clients on projects on which Mr Hertel worked.
    3. LS would deduct or be paid by Artemis 50% of its operating costs during the period in which Mr Hertel worked on third party client projects.
    The result of this is that Artemis will become entitled to a substantial payment (by our calculations £130,303 but the precise figures will hopefully be uncontroversial) and 2/3 of the shares which have been recovered from BRG pursuant to the settlement agreement. Artemis will also become entitled to further sums from LS as and when further sums are received from BRG.
    This offer is made without prejudice to the existing claims and counterclaims of the parties made in these proceedings. It is a matter for your clients as to whether they want to pursue their existing claim. It is a matter for LS as to whether it wishes to pursue its existing counterclaim.
    This offer is intended to have the consequences of Section 1 of CPR Part 36. If accepted within 21 days from the date of receipt, your clients will be entitled to their costs (if any) relating to that part of the claim which, by amendment, they have indicated an intention to plead. It does not relate to any other part of the claim. It does not take into account the counterclaim.
    We await hearing from you."
  20. On 10 March, the claimants' solicitors replied in these terms:
  21. "Our Clients: Mr Tim Hertel
    Artemis International S.A.R.L.
    Your Clients: Mr John Saunders
    Liquid Strategies Limited
    Matter: (1) Hertel (2) Artemis – v- (1) Saunders (2) Liquid
    Claim No: HC13E02592
    We refer to your letter dated 17th February 2015 comprising your Clients' "Without Prejudice Save as to Costs" offer of settlement made in these above-captioned Proceedings and expressed to be made pursuant to the provisions of Part 36 of the Civil Procedure Rules 1998 (as amended). Your Clients' offer of settlement is expressed to relate only to part of our Clients' Claim.
    We write on behalf of our Clients to confirm their acceptance of your Clients' offer of settlement comprised in your letter under reply.
    We further confirm that, upon acceptance of your Clients' offer of settlement, our Clients have abandoned the balance of their Claim.
    Please be advised that we intend to write to you shortly with our clients' proposals, including a draft order and directions to be made at the forthcoming CCMC, as to how these Proceedings and this matter should now, in the circumstances, continue."
  22. Accordingly, when the matter came before Deputy Master Lloyd on 30 March 2015, the principal issue between the parties was costs. The claimants said that, pursuant to Part 36, they were entitled to their costs of the proceedings, including the costs of the new claim indicated by way of amendment (which would have been very modest, because they would have been limited to the costs associated with the proposed amendment), and the costs of all the original claims which had been abandoned (which would have been the vast bulk of the costs of the proceedings). The defendants said that the claimants should pay their costs because the agreement which was the subject of the proposed amendment had never been denied, whilst the costs of the proceedings had been incurred in respect of those claims which had been abandoned by the claimants.
  23. In a judgment and order dated 8 May 2015, the Deputy Master said that the defendants did not have to pay the claimants' costs of the proposed amendment (for which he also gave permission). But as to the abandoned claims, he concluded that everything was governed by r.36.10(2) and that, because the claimants had accepted the defendants' Part 36 offer, r.36.10(2) entitled the claimants to their costs of the abandoned claims down to the date of acceptance. This was then framed in an order requiring the defendants to pay the claimants' costs, "excluding the costs of amending the claim form and the particulars of claim".
  24. The defendants appealed. At the hearing of the appeal before Morgan J, the defendants took the point for the first time that their offer was not a valid Part 36 offer because the claim which was the subject of the proposed amendment (the claim based on the direct agreement) was not "a claim or part of the claim or an issue which arose in the claim". The argument was that, because the amendment introducing the new claim was a proposal only and had never been the subject of a court order, it could not therefore be construed as a claim or part of a claim, so did not conform to r.36.2(2). If that was right, the defendants said that r.36.10(2) was irrelevant and that, on an exercise of discretion under Part 44, it was the defendants who should be regarded as the successful party as regards the abandoned claims and who were therefore entitled to their costs of the proceedings.
  25. Morgan J upheld the argument that the offer was not compliant with Part 36 in his judgment at [2015] EWHC 2848 (Ch). The core of his reasoning can be found at paragraphs 39-41 as follows:
  26. "39. I have already set out the terms of the letter of 30 July 2014. The letter stated that the Defendants saw no value in opposing the proposed amendment. The letter went on to refer to the Claimants "moving your Amendment in front of the court on the next occasion". The quoted words are somewhat unusual in this context but I consider that the Defendants were referring to the Claimants applying to the court for permission to amend. Of course, the Claimants would not need to apply to the court for permission to amend if permission had already been obtained pursuant to the written consent of all other parties for the purposes of r. 17.1(2). It might be possible to argue that the letter of 30 July 2014 was indeed a written consent for the purposes of r. 17.1(2) and that the Defendants' solicitors had misunderstood the rule and wrongly thought that it was still necessary for the court to give permission to amend. However, I consider that the overall sense of the letter was that the Defendants were not giving a consent at that point but instead expressed the intention that there would only be a permission to amend when the court granted it on a future occasion, at which time the Defendants would raise "no issue" i.e. not oppose the grant of permission. This reading of the letter is strengthened by the consideration that the letter did not say anything about the costs of and occasioned by the amendment. It is well known by solicitors that it is standard practice when the court gives permission to amend for it to direct that the costs of and occasioned by the amendment be paid by the amending party in any event. If the Defendants had wanted to say that the Claimants should have permission to amend as a result of the terms of the letter alone and without there being any need for the Claimants to obtain an order from the court granting permission, then one would have expected the letter to state that the proposed amendment was permitted on the usual terms as to the costs of the amendment, or some similar provision. The fact that the letter is silent as to costs is consistent with a reading of the letter expressing the intention that the question of permission was to be the subject of a court hearing; at that court hearing, the Defendants would be in a position to ask for the usual order as to costs and it is to be expected that the court would make such an order. I conclude that the letter of 30 July 2014 was not a written consent for the purposes of r. 17.1(2).
    40. It follows from the above reasoning that the proposed claim in paragraph 20A of the draft Amended Particulars of Claim was not a part of the claim on 17 February 2015 so that the offer in the letter did not relate to part of the claim, nor to an issue that arose in the claim, as at that date. Accordingly, prima facie, the letter did not conform to r. 36.2(2)(d).
    41. The Claimants sought to avoid this prima facie result by relying on r. 36.3(2) which provides that a Part 36 offer may be made at any time, including before the commencement of proceedings. The offer letter in this case was not sent before the commencement of proceedings so that this rule has no direct application in this case. However, it was argued that if it were right that it is possible to make a Part 36 offer in relation to a claim before proceedings are commenced then it followed that for the purposes of r. 36.2(2)(d), the references to the whole of the claim or to part of the claim included references to a claim which had not been brought when the offer was made but which was subsequently brought. It was then submitted that (on the basis of my findings as to when the amendment to the claim was made in this case) the offer was made in relation to a part of the claim which although it was not part of the claim at the date of the offer, it later became part of the claim when the Deputy Master granted permission to amend. It was said that what had happened was essentially what was covered by r. 36.3(2). I do not accept that argument. R. 36.3(2) does not in terms cover this case. To deal with the circumstances of the present case, there would need to be a further provision which extended that rule to a case like the present. As Part 36 is a highly prescriptive and self-contained code, it does not seem to me to be right to add in further provisions on the basis that they would have an analogous effect to the express provisions of Part 36."
  27. Morgan J then went on to consider, in the light of this ruling, what the right order for costs should be under the general discretion provided by Part 44.2. His detailed reasoning for why the defendants were entitled to costs orders in their favour can be found at [54] – [62] inclusive. He pointed out at [54] that the offer that Mr Saunders had made was an offer under which he had no liability to either Mr Hertel or Artemis. He concluded at [55] that Mr Saunders was the successful party because he had been sued by two claimants and in the event was not held liable to either of them. He said that it remained to be seen whether a judgment against Liquid would result in a payment to Artemis. He explained at [56] that there was nothing in Mr Saunders' conduct which would weigh against an order for costs in his favour. He had denied the allegations by the claimants of a partnership or a joint venture and those claims had now been abandoned. Moreover, the defendants' pleadings set out the relevant contract and it was on that basis that the claim had settled. At [58]-[60] the judge reached similar conclusions in relation to Liquid. He did however at [61] give effect to that part of the offer letter which indicated that the defendants would pay the claimants' costs of the new claim.
  28. In consequence, Morgan J set aside the order of Deputy Master Lloyd and instead ordered that the claimants should pay the defendants' costs of the abandoned claims. It is that part of the order against which the claimants now appeal.
  29. The Authorities

  30. It has been repeatedly said that Part 36 is a carefully structured, highly prescriptive and self-contained code: see, for example, Gibbon v Manchester City Council [2010] 1 WLR 2081.
  31. If a party makes an offer which is intended to be an effective Part 36 offer, and a point arises as to the construction of the language of the offer, and if one possible interpretation would result in an effective Part 36 offer, and another possible interpretation would mean that the offer was not an effective Part 36 offer, then the former interpretation is to be preferred: see C v D [2012] 1 WLR 1962. At paragraph 55 of his judgment in that case, Rix LJ said:
  32. "Another principle or maxim of construction which is applicable in the present circumstances is that words should be understood in such a way that the matter is effective rather than ineffective (verba ita sunt intelligenda ut res magis valeat quam pereat). If the words "open for 21 days" are given the meaning for which the respondent contends, then the offer, intended to take effect as a Part 36 offer, fails as such. If, however, the words are given the meaning for which the appellant contends, then the intention of making a Part 36 offer is fulfilled. There are numerous instances of the application of this maxim. This is how Chitty on Contracts, 30th ed, 2008, Vol 1, at para 12-081 refers to this rule:
    'If the words used in an agreement are susceptible of two meanings, one of which would validate the instrument or the particular clause in the instrument, and the other render it void, ineffective or meaningless, the former sense is to be adopted…'"
  33. However, the parties cannot agree that an offer or an acceptance is in accordance with Part 36 if, on analysis, it is not. In particular, if the offer letter fails to comply with a mandatory requirement of Part 36, it will not be construed as complying with the rule, whatever heading it bears and whatever the objective intention: see Rimer LJ in C v D at paragraph 75, and Carillion JM Limited v PHI Group Limited [2012] EWCA Civ 588, [2012] CP Rep.37.
  34. There is no specific authority dealing with the superseded r.36.10(2) and the indication that a claimant can recover the costs of the proceedings "unless the court orders otherwise". However, the notes in the White Book 2014 indicate that under this rule the court has a complete discretion to deal with what it calls the costs at large. The discretion relates to the costs of the whole action: see E. Ivor Hughes Educational Foundation v Leach [2005] EWHC 1317 (Ch). Furthermore, the 'steer' provided by the wording of r.36.10(2) might be regarded as relatively gentle; it is, for example, to be contrasted with the much firmer guidance in existing r.36.17(3) and (4), which requires the court to order costs in favour of the defendant and the claimant respectively, "unless it considers it unjust to do so".
  35. Was the offer of 17 February 2015 in accordance with Part 36?

  36. I have not found this issue entirely clear-cut; indeed, my initial view was that, by concentrating simply on what was formally within the pleadings, Morgan J may have adopted an overly technical approach to the meaning of 'claim' for the purposes of r.36.2(2)(d). But I have concluded that, on analysis, Morgan J was right to decide that the offer was not in accordance with Part 36. My reasons are set out below.
  37. Mr Smith's best point in support of his submission that 'claim', 'part of a claim' or 'issue' should not be defined too narrowly, was that, pursuant to r.36.3(2) (current r.36.7(1)), a Part 36 offer can be made at any time, including before the commencement of the proceedings. At that point, of course, the claim/part/issue could not be defined by reference to any pleadings because there would not be any. So, the argument goes, 'claim', 'part of a claim' or 'issue' should not be construed by reference to the pleadings after commencement either.
  38. I consider that there are two flaws in that argument. First, the position pre-commencement is inevitably different to that which exists after commencement of proceedings. Once proceedings have started, there are pleadings and procedural rules designed to regulate the proceedings in a fair and efficient way. In a dispute like this, about the application of Part 36 after commencement, it would be wrong in principle to construe the rules in a way that ignored the certainty and clarity which they provide, and to approach the words in r.36.10(2) as if the proceedings had not yet begun. In effect, the claimants' argument assumes that there may be no or little clarity pre-commencement, so that at that stage a claim/part/issue might be referable to any kind of communication, and then seeks to say that the same must apply after commencement as well. In this way, any certainty and clarity imposed post-commencement by the CPR (particularly by the pleadings) would be lost. In my view, that cannot be right as a matter of principle.
  39. Secondly, I do not accept the assumption (that there will be a lack of clarity pre-commencement about the claims being made) in any event. These days, in respect of most kinds of claim, the pre-commencement period will be taken up with the Pre-Action Protocol ("PAP") process. Depending on the precise nature of the claim, the relevant PAP insists on the provision of a detailed claim letter and even the supply of supporting evidence. Even where there is no PAP applicable to a particular claim, the parties must comply with the Practice Direction – Pre-Action Conduct and Protocols (page 2577 of volume 1 of the White Book 2018). In this way, claims/parts/issues are therefore not nearly so difficult to identify before commencement of proceedings as the submission presupposed.
  40. Accordingly, I do not think that the fact that r.36.2(2)(d) can also apply pre-commencement should affect the proper interpretation of the words 'a claim', 'a part of a claim' or 'an issue' in a situation like this, when the offer was made some time after the commencement of proceedings.
  41. The next question is whether, in a case where proceedings are ongoing, the words 'claim', 'a part of a claim' or 'an issue' should be construed as meaning claims, parts of claims or issues which can be identified in or which arise from the pleadings, or whether they would also include claims, parts of claims or issues which have not been pleaded but which, for example, may have been mentioned in correspondence or in an informal conversation between solicitors.
  42. In my view, this question only has to be posed for the answer to become immediately apparent. In civil proceedings, claims/parts/issues can only properly be defined by reference to the pleadings. Indeed, that is the principal purpose of pleadings. It would introduce unnecessary and unwelcome uncertainty if claims/parts/issues were given a wide definition that did not seek to anchor them to the pleadings which the parties have exchanged.
  43. To take an extreme example, Mr Smith suggested in his oral submissions that, if the claimant's solicitor introduced a possible new claim in a letter to his opponent, then that would be caught by the words of the rule, even if it had not been the subject of any formal amendment, and even if it had not been the subject of any kind of response by the defendant. I consider that such an interpretation would lead to uncertainty and confusion; it may even encourage the potential abuse of the Part 36 regime.
  44. Accordingly, like Morgan J, I would construe the words 'claim', 'part of a claim'; and 'issue' as referring to pleaded claims, parts of claims or issues, and not other claims or issues which may have been intimated in some way but never pleaded. Once proceedings have started, the certainty required for Part 36 to operate properly can only be achieved by this interpretation. A new claim which has been intimated, but which is not part of the pleadings, is not therefore caught by r.36.2(2)(d) (current r.36.5(2)(d)).
  45. Does it make a difference that, in this case, the new claim had been the subject of a proposed amendment and/or that the defendants' solicitors had indicated that they would not oppose that amendment. On analysis, I do not think it does.
  46. The fact that the new claim was the subject of a proposed amendment makes no difference. That simply demonstrated that there was a new claim based on the direct agreement which, if and when permission to amend was granted, would become one of the claims in the proceedings. It could not be a claim within the rule until the amendment was allowed: that was doubtless part of the reason why the claimants were seeking to amend the particulars of claim in the first place.
  47. As to the point about the defendants' lack of opposition to the amendment, Morgan J demonstrated that the defendants' solicitors had had the opportunity to consent to the amendment (in which case a consent order could have been provided to the court and the new claim would have become formally part of the proceedings) but declined to take it. They indicated that they would not oppose the application, but they said (in accordance with the original order of Master Teverson) that there would have to be an application to amend and a court hearing to determine the matter. If, at that hearing, there had been some reason why the court had refused to allow the amendment, the defendants would have been perfectly entitled to rely on that refusal, and the proposed new claim would never have become part of the proceedings. There is plainly a difference between consenting to an amendment, on the one hand, and indicating a future intention not to oppose an application to amend, on the other.
  48. More widely, it seems to me that this approach to interpretation is consistent with the particular status of Part 36. It is a prescriptive regime which can have draconian consequences for those who fail to comply with it. That tends to suggest that the court should be wary of liberally construing the rules within Part 36 simply to achieve what might appear, at first glance, to be a pragmatic answer on the facts of a particular case. For similar reasons, this court has very recently eschewed what might be called a liberal interpretation of other parts of Part 36 (Hislop v Purde [2018] EWCA Civ 1726), and adopted a similar approach when dealing with the related section of Part 44 dealing with qualified one way costs shifting (Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654).
  49. The Part 36 regime is also relevant to Mr Smith's other substantive argument, which was to the effect that it would be illogical for Part 36 to operate in proceedings prior to the intimation of a new claim, only to be then effectively suspended for a period until after permission to make the amendment introducing the new claim had been granted. In my view, that is not a correct characterisation of the position. In the circumstances he postulated, Part 36 would not be suspended; it would be operative throughout the proceedings, but only ever in relation to the pleaded claims. That is a perfectly coherent outcome and, as I have said, it provides the necessary certainty for both parties.
  50. Of course, it must be acknowledged that this conclusion is contrary to the original views of the parties. They both considered that this was a Part 36 offer, and maintained that understanding before Deputy Master Lloyd. It was only when the defendants lost, and were faced with what the Deputy Master considered were the consequences of r.36.10(2) that they sought to argue that the offer was not in accordance with Part 36. It may well be that, in those circumstances, the claimants should have objected to the point being raised before Morgan J. But they did not, and it is too late for that procedural argument to be revisited now.
  51. As to the substance of the point that both parties originally accepted that the offer was a valid offer under Part 36, the answer can be found in C v D and Carillion (paragraph 23 above). If an offer was not, on analysis, a Part 36 offer, then it cannot be made one simply because that was how it was originally labelled.
  52. For all these reasons, therefore, I consider that Morgan J was right to conclude that the offer was not in accordance with Part 36, and that therefore r.36.10(2) did not apply. That in turn means that this appeal should be dismissed.
  53. What was the right costs order?

  54. However, on the assumption that Morgan J was wrong, and the offer had been in accordance with r.36.2(2)(d) (current r.36.5(2)(d)), Part 44.2 would have been inapplicable, and this court would have had to exercise its discretion afresh under r.36.10(2). But in my view, that would have made no difference to the outcome.
  55. Under r.36.10(2), there is a gentle steer that the appellants should recover their costs of the proceedings but, as noted at paragraph 24 above, the court had a wide discretion to order otherwise. In my view, the reasoning set out by Morgan J at [54] – [62], in which he explains in detail why the defendants are the successful party, is unassailable. It applies whether or not the Part 36 offer was legitimate. They are therefore the reasons why the court would "order otherwise" under superseded r.36.10(2).
  56. Furthermore, Mr Smith seemed to accept that proposition, at least in part, during his oral submissions. Although he had originally indicated that he wanted Deputy Master Lloyd's order re-instated, in answer to questions from the court, he accepted that (even if he was right about Part 36) he could not argue that the claimants were entitled to recover their costs of the abandoned claims from the defendants. And yet, that was what Deputy Master Lloyd had ordered, before his order was overturned by Morgan J.
  57. In the light of that realistic concession, the only remaining part of the appeal concerned whether the claimants should pay the defendants' costs of the abandoned claims. Morgan J said they should because the defendants were the successful party. As I have explained, I agree with that outcome.
  58. In this way, even if the offer was a valid Part 36 offer, Deputy Master Lloyd was wrong to order that the defendants should pay the claimants' costs of the abandoned claims, and Morgan J was right to order that the claimants should pay the defendants' costs of those claims.
  59. Conclusions

  60. For the reasons set out above, I consider that Morgan J was right to conclude that the offer was not a legitimate Part 36 offer. But even if he was wrong about that, on a proper consideration of the merits under either superseded r.36.10(2), or under Part 44.2, the inescapable conclusion is that the defendants were the successful party and were therefore entitled to their costs of the proceedings.
  61. For these reasons, if my Lords agree, this appeal will be dismissed.
  62. Lord Justice David Richards :

  63. I agree.
  64. Lord Justice Lewison :

  65. I also agree.


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URL: http://www.bailii.org/ew/cases/EWCA/Civ/2018/1831.html