Part 36 offer that included unpleaded counterclaim ruled valid

Interest: Making provision for rate after acceptance period not prohibited

A part 36 offer made by a defendant in respect of both a claim and a proposed counterclaim which has yet to be pleaded is valid, the Court of Appeal has ruled.

Making provision for interest to accrue at a particular rate after the expiry of the ‘relevant period’ to accept the offer also did not make it invalid.

Calonne Construction Ltd v Dawnus Southern Ltd [2019] EWCA Civ 754 concerned a dispute over allegedly negligent works carried out by the defendant building contractor and its claim for unpaid fees.

Dawnus made a part 36 offer, saying it would accept £100,000 to settle the whole of Calonne’s claim and its counterclaim – which it only pleaded 10 days later – and set interest at 8% per annum from when the period for acceptance ended.

At trial, His Honour Judge McKenna entered judgment for Dawnus at £128,000, meaning it had beaten its offer.

On costs, he rejected the argument that the inclusion in the offer of a counterclaim which had yet to be pleaded rendered it invalid, saying he was bound by the Court of Appeal 2009 decision in AF v BG.

Further, he said including the provision relating to the rate of interest complied with the provisions of part 36.5.

The Court of Appeal agreed. Lady Justice Sharp, giving the ruling of the court, said rules 20.2 and 20.3 applied in these circumstances and meant a counterclaim was treated as a claim for the purposes of the CPR.

“Accordingly, it seems to me that a defendant’s proposed counterclaim must be treated as if it were a claim for the purposes of part 36.

“In those circumstances, and in the light of the fact that a party is entitled to make a part 36 offer at any time, including before commencement of proceedings (rule 36.7), it seems to me that it cannot be correct that a part 36 offer cannot be made in relation to a counterclaim before that claim has been pleaded.”

To rule otherwise would mean a defendant would have to “go to the expense of pleading the counterclaim and if necessary, obtaining permission in relation to it, or alternatively, issuing separate proceedings” in order to be able to make a part 36 offer in relation to it or which takes the counterclaim into account.

“Such a consequence would be contrary to the policy behind both part 20 and part 36 itself.”

She distinguished the case from the appeal court’s ruling last year in Hertel & Anr v Saunders, in which it held that a purported part 36 offer did not comply with the rule because it referred to an additional claim which had been mooted but not approved by the court.

Sharp LJ said: “It seems to me that Hertel was primarily concerned with the effects of rule 36.10(2), a provision which is no longer within the CPR and, in fact, has been reversed.

“Furthermore, it was concerned with a defendant’s offer in relation to part of a claim intended to be contained in a proposed amendment to the claim in proceedings which had already been commenced…

“No consideration was given to the effect of rule 36.7 in relation to a counterclaim which is to be treated as a separate claim by virtue of rules 20.3 and 20.3 and has yet to be commenced.”

Sharp LJ went on to find no problem with including the term as to interest, with her reasons including that there was nothing in part 36 to preclude it.

Further, “if a party could not provide for interest to run after the end of the relevant period, it would not be compensated with interest for any delay between the end of that period and a subsequent acceptance of the offer”.

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