WHEN TWO RULES COLLIDE:PART 36 OFFER DOES NOT OVERRIDE NEED TO SERVE THE CLAIM FORM

In The Former Owners of the Motor Vessel “Melissa K” -v- The Former Owners of the Motor Tanker “Tomsk” [2015] EWHC 3445 (Admlty) Mr Justice Males considered the interplay between Part 36 and the need to serve. It is an Admiralty case, however there are important points of general principle.

KEY POINTS

  • Acceptance of the Part 36 offer in this case, after the time had passed for service of the claim form, did not lead to a binding agreement.
  • The offer had made it clear that the claimant was still required to serve the claim form in time if the offer was not accepted.
  • The court would not exercise its discretion under CPR 3.10 to assist the claimant.

PRACTICE POINTS

  • The key point here is obviously serve on time. 
  • Service should always be at the forefront of any litigator’s mind.
  • This case does not decide the issue totally, however there may be considerable problems in purporting to accept an offer after the expiry of a limitation period or when a case has not been served.

THE CASE

Following a collision between two vessels the defendant put forward an offer to settle.  The parties had agreed an extension of time for service to the 28th October 2014. A second agreement to extend referred, expressly to the extension being to the 28th April 2015 for”issue and service of each ship’s claim form upon the other.”

  • The defendant made an offer to settle under CPR Part 64 (a specific Admiralty rule) and Part 36.
  • A letter was subsequently written by the defendant
  1. “Paragraphs 1 to 4 of this email confirmed that the Offer would remain in force unless withdrawn by the defendants or by order of the court. On the other hand, paragraphs 5 to 7 set out a clear warning that if proceedings were not served (and not merely issued) by 28 April 2015, the claimants’ claim would be time barred, but that this consequence could be avoided by acceptance of the Offer before that date. In fact, although the email does not say so, and it may be that Mr Moloney had not focused on this point, by this date it was already too late for proceedings to be served by 28 April 2015 if the defendants used the full 14 days to which they were entitled before nominating their solicitors in response to any request to do so. Clearly, however, Mr Moloney was not seeking to take unfair advantage of a time bar which would enable the North of England to avoid payment under their Letter of Undertaking. On the contrary he was encouraging the claimants to preserve their claim by accepting the Offer before the deadline, as he continued to do.”
  • A claim form was issued on the 28th April 2015 but not served.
  • The claimant then purported to accept the offer.
  • The claimant served the claim form on the 24th June.
  • The defendant filed an acknowledgment stating that intended to contest jurisdiction.

THE APPLICATIONS BEFORE THE COURT

  • The claimant sought an order that the claim had been settled upon the basis of their acceptance of offer.
  • Alternatively the claimant sought an extension of time.
  • The defendant sought a declaration that the claim was not served and the court had no jurisdiction to hear the claim.
HAD THERE BEEN SETTLEMENT WHEN THE PART 36 OFFER WAS ACCEPTED?
Construction of the Offer
  1. The correct approach to the construction of an offer made or intended to be made under Part 36, which applies equally to an offer made or intended to be made under CPR 61.4(10) to (12) (see MIOM 1 at [10]) appears from the decision of the Court of Appeal in C v D [2011] EWCA Civ 646,[2012] 1 WLR 1962. In that case an offer was expressed to be “open for 21 days from the date of this letter” and was “intended to have the consequences set out in” CPR 36. If that meant that the offer was no longer open for acceptance after 21 days, it would not be in accordance with CPR 36, which does not apply to a time limited offer. On the other hand, if it meant that the offer was open in the sense that it could not be withdrawn for 21 days and remained open thereafter unless expressly withdrawn, it would comply with CPR 36.
  2. The Court of Appeal adopted the latter construction, applying a principle that an offer stated to be made in accordance with CPR 36 should so far as reasonably possible be construed as complying with CPR 36 (see Rix LJ at [52] to [55], Rimer LJ at [75] and Stanley Burnton LJ at [84]). This principle was an aspect of two more general principles of construction: first, the principle stated in cases such as Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 WLR 896 that the meaning of a contractual document is what the parties using those words against the relevant background would reasonably have been understood to mean; and second, the principle that words should where reasonably possible be understood in a way which renders them effective rather than ineffective.
  3. Rimer LJ put the matter in these terms at [75]:
“In the present case, therefore, it is not of utility to consider the meaning of the offer paragraph in isolation from the context in which the offer was made. Whatever else may be in dispute, there is no dispute that the offer was intended to comply with Part 36. It was expressly stated to be an ‘Offer to Settle under CPR Part 36’ that was ‘intended to have the consequences set out in Part 36….’ Of course, that does not mean that it did in fact comply with Part 36 and therefore must, come what may, somehow be shoehorned into the confines of its four corners: a stated bid to attain a particular goal does not also mean that the goal has been attained. The answer to the critical question still turns on how the reasonable man would read the offer. The relevance, however, of the claimant’s expressed intention to make its offer a Part 36 offer is that, if there are any ambiguities in it raising a question as to whether the offer does or does not comply with the requirements of Part 36, the reasonable man will interpret it in a way that is so compliant. That is because, objectively assessed, that is what the offeror can be taken to have intended. That is also in line with the principle of construction to which Rix LJ referred in paragraph [55].”
  1. Thus the true meaning of an offer is to be ascertained applying ordinary principles of construction without attempting to shoehorn it into some particular category, at any rate if the shoe would then pinch unacceptably. Those principles include the importance of taking account of the relevant background and context, including where appropriate the fact that an offer is intended to be effective in accordance with CPR 36 or CPR 61.4(10) to (12) and should if reasonably possible be given such effect. Ultimately, however, the question is how the reasonable person would read the offer, taking account of the background and context.
  2. In the present case there are three features of the background which the reasonable recipient of the Offer would need to take into account.
  3. The first such feature is the Second Extension Agreement. As explained above, that agreement included a clear deadline of 28 April 2015 for service of any claim form. That was a binding and mutual agreement. It applied to a claim by the “TOMSK” as well as by the “MELISSA K”. It was a sensible commercial agreement which would enable both parties (and their respective P&I insurers) to close their books if proceedings had not been served by the stipulated deadline. It would be possible for an offer to be made which demonstrated an intention to depart from that agreement, but if that were intended it would usually be expected that some other agreement about the time for commencement of proceedings would be put in its place. The claimants’ case is that the Offer had the effect that there was no deadline in place for issue or service of proceedings and that it could be accepted “at any time” regardless of issue or service of proceedings. That in my judgment would be an uncommercial result. It is not what a reasonable person reading the Offer against the background of the Second Extension Agreement would have understood.
  4. The second feature is the covering email to which the Offer was attached. As set out above, this stated among other things that:
We are also instructed to advise you that unless this offer is accepted, no further time-extensions will be granted. If this offer is accepted before expiration of the present time-extension on 28th April 2015 then we are instructed to agree a mutual, three-month time extension until 28th July 2015 during which time the parties can address the quantum of each claim.
If the offer on liability is accepted, we will seek instructions to travel to Istanbul to negotiate quantum in good faith and without delay.”
  1. This made it crystal clear that the Offer was not intended to displace the terms of the Second Extension Agreement in any way and that the deadline remained in place and would not be extended unless the Offer was accepted before its expiry. Faced with this, Miss Selvaratnam argued that the Offer had to be read in isolation, without regard to the covering email, but that is unrealistic. No reasonable recipient of the Offer would read it in that way. The Offer and its covering email must be read together.
  2. The third feature is the stated intention that the Offer was made “in accordance with CPR Part 61.4(10) – (12) and/or Part 36”. The question arises whether effect can be given to this intention consistently with the continuing validity of the Second Extension Agreement. If so, such a construction would satisfy the effectiveness principle discussed in C v D and, in the absence of any good reason to the contrary, should be adopted. If not, the question arises whether the need to give effect to that stated intention can properly be regarded as overriding the offeror’s other stated intention that the deadline contained in the Second Extension Agreement should remain in force, or whether that would amount to shoehorning an offer into CPR 61.4 (10) to (12) which could not reasonably be made to fit there.
  3. Putting to one side the objection that an offer cannot be made in accordance with both CPR 61.4(10) to (12) and Part 36, and thus that on any view the stated intention could not be fully achieved, in my judgment the Offer was consistent with the requirements of CPR 61.4(10) to (12) and with the continuing validity of the Second Extension Agreement. How a reasonable person would understand the Offer must be assessed at the date when it was made. At that stage there was still plenty of time, in the event that they did not wish to accept the Offer, for the claimants to request the defendants to instruct solicitors so that service of proceedings could be effected before the now final deadline. The covering email put the claimants on notice that before this deadline expired they should either accept the Offer or issue and serve proceedings. If they accepted the Offer, a three month extension would be agreed. But proceedings would still need to be issued and served within that further extension if no agreement on quantum was reached within that period. If they issued and served proceedings, the Offer would remain open for acceptance thereafter and, in accordance with the term required by CPR 61.4(12)(d), could not be withdrawn without the permission of the court. But if they neither accepted the Offer nor served proceedings, the covering email made it clear that it would be too late to do so thereafter.
  4. In my judgment that is the clear effect of the Offer, read as a whole and in the light of the relevant background. In my view this is in accordance with the requirements of CPR 61.4(10) to (12) so far as applicable. If those provisions are capable of applying to a pre-action offer, it must be open to the parties to continue to require proceedings to be issued and served in accordance with the applicable limitation period and procedural rules together with any extensions of time agreed for those steps to be taken. That is what a reasonable person would expect. The statements in the Offer that it would remain open for acceptance after 21 days from receipt of the letter and that it could be accepted after commencement of the trial with the permission of the court are consistent with this. They assume that proceedings will have been validly issued and served. But even if that is wrong, and the continuing validity of the deadline is not consistent with the requirements of CPR 61.4(10) to (12), it is so clear here that the defendants intended the deadline to continue in force that to construe the Offer as not having that effect would indeed constitute unacceptable shoehorning.
  5. I reach this conclusion as a matter of the construction of the Offer read in the light of the relevant background, without deriving much assistance from three cases cited by the parties. These were Lubovsky v Snelling [1944] 1 KB 44, The Sauria & The Trent [1957] 1 Lloyd’s Rep 396 and The Pamela [2013] EWHC 2792 (Admlty), [2013] 2 Lloyd’s Rep 596. These cases demonstrate that it is possible for an agreement to settle liability to amount to an agreement not to rely on any limitation defence, but that this is not necessarily so, and that examples can be found of cases falling on each side of the line. What matters, however, are the terms of the particular agreement (or offer) as they would be understood by reasonable parties with knowledge of the relevant background.
  6. If, as I have concluded, the effect of the Offer was that it would no longer be open for acceptance after 28 April 2015 if no proceedings had been served, nothing happened thereafter to vary the terms proposed. In particular, the statement in paragraph 2 of Mr Moloney’s email dated 16 April 2015 that “the TOMSK Part 61/36 offer does not have an automatic expiry date. It remains in force unless withdrawn by TOMSK or by order of the Court” did not have such an effect. On the contrary the email as a whole reiterated in clear terms the need for proceedings to be served by 28 April 2015 if the Offer was not accepted by that date. As with the statement in the Offer itself, the statement in this email that the Offer would remain in force was predicated on such proceedings having been served.

OTHER ARGUMENTS PUT FORWARD BY THE CLAIMANT

The judge rejected arguments based on waiver and an extension of time under section 190 of the Merchant Shipping Act 1995.

CPR 3.10: AN ERROR OF PROCEDURE

The judge also rejected an argument that the claimant could rely on CPR 3.10
  1. Finally the claimants rely on CPR 3.10 which provides:
“Where there has been an error of procedure such as a failure to comply with a rule or practice direction—
(a) the error does not invalidate any step in the proceedings unless the court so orders; and
(b) the court may make an order to remedy the error.”
  1. The argument is that the claimants’ failure to serve proceedings by 28 April 2015 was an “error of procedure”, specifically (as Miss Selvaratnam put it) a failure to comply with CPR 2.11, which can be remedied under CPR 3.10. However, CPR 2.11 does not require the parties to do anything. It merely permits them to vary the time specified for the doing of any act, as they did in this case by agreeing on 28 April 2015 as the deadline for service.
  2. It is clear, however, that CPR 3.10 cannot be used to circumvent the requirements of CPR 7.6(3) (or, I would add, of section 190(5) of the Merchant Shipping Act 1995). In Vinos v Marks & Spencer Plc [2001] 3 All ER 784 May LJ said at [20]:
“The general words of r.3.10 cannot extend to enable the court to do what r7.6(3) specifically forbids, nor to extend time when the specific provision of the rules which enables extensions of time specifically does not extend to making this extension of time. What Mr Vinos in substance needs is an extension of time – calling it an error does not change its substance. … The first question for this court is not whether Mr Vinos should have a discretionary extension of time, but whether there is power under the CPR to extend the period for service of a claim form if the application is made after the period has run out and the conditions of r7.6(3) do not apply.”
  1. The answer to that question was No. The same answer must be given here.”

RELATED POSTS ON SERVICE

PART 36

 

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