High Court: part 36 offer extinguished earlier common law offer

Hough: parties must think carefully

Hough: parties must think carefully

A part 36 offer acts as a counter-offer that extinguishes an earlier offer based on common law principles, the High Court has ruled in a decision that one of the solicitors involved said “could influence settlement techniques and tactics in many commercial disputes in future”.

The decision of Mr Andrew Hochhauser QC came in DB Mortgages v Jacobs Solicitors, which involved an allegation of negligence made against Jacobs on the basis that it failed to report to DB Mortgages that their borrower was buying a new build property by way of sub-sale.

In August 2015, Jacobs made an offer to settle the claim. This was stated not to be a part 36 offer because the firm’s insurer, Balva, had gone under, and although the Financial Services Compensation Scheme (FSCS) had said it would cover 90% of the claim – with Jacobs agreeing to make up the difference – the time the FSCS would take to do this meant the payment would not be made within 14 days.

Nonetheless, Jacobs said that if the offer was not accepted, it would seek the part 36 consequences should the case go to trial.

Mr Hochhauser QC said that in any case the offer did not comply with part 36 by failing to specify a time for acceptance. This meant it was a common law offer.

The offer was re-stated in March 2016 and again in early May 2016. In the same month, DB issued a part 36 offer which was not accepted by Jacobs.

DB subsequently accepted the August 2015 offer in June 2016, five days before trial. However, Jacobs argued that its offer had been extinguished by DB Mortgages’ part 36.

The court ruled that the part 36 offer operated as a rejection of Jacobs’ offer. “In my judgment, because one is dealing with an initial common law offer, the impact on it of any counter-offer has to be addressed by reference to common law principles,” the judge said. “A part 36 counter-offer is still a counter-offer.” That meant the claim had not been settled.

This disposed of the issue, but because it had been fully argued, Mr Hochhauser QC went on to consider the question of whether the acceptance would have been valid, had the August 2015 remained capable of it.

Jacobs argued that although there was no explicit time for acceptance, the fact it would have been a part 36 offer had there not been the problem with the FSCS existed, DB only had 21 days to accept. Being a common law offer, it had then lapsed.

The judge disagreed. He said there was no basis for implying any time limit for acceptance.

“One cannot on one hand seek to take advantage of the fact that this is not a part 36 offer, for the purpose of invoking the common law rule of rejection by reason of making a counter-offer, and then, when it suits, pray in aid the part 36 regime to import a time period of 21 days.

“Further… there is no default position of 21 days in part 36… Unlike a common law offer, a part 36 offer may still be accepted after the date of expiry. If a party wishes to make a non-part 36 offer, it can do so without any time limit, and it will still be efficacious from a business perspective, because it can always be withdrawn at any time prior to acceptance.”

Simon Hough, partner at London firm Rosling King, which acted for DB, said the ruling is now subject to potential appeal.

He added: “Although this is a first instance decision, it could influence settlement techniques and tactics in many commercial disputes in future…

“What is clear, however, is that parties must think carefully about whether an offer they have made remains available months or even years after it has been made and when to use part 36 to settle their differences.”

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