CLAIMANT’S ACCEPTANCE OF PART 36 OFFER DOES NOT LEAD TO JUDGMENT ON COUNTERCLAIM: A MARATHON EFFORT BUT TO NO AVAIL

In Marathon Asset Management LLP -v- Seddon [2016] EWHC 2615 (Comm) Mr Justice Leggatt rejected an argument that the claimant’s  acceptance of a Part 36 offer meant that a defendant was entitled to judgment on its counterclaim.

KEY POINTS

  • The claimantsaccepted an offer of £1,500.000 made by defendants.
  • The defendants were bringing a counterclaim. The offer stated that it “did not concern” the counterclaim.
  • The defendants argued that the claimants’ acceptance of the offer meant that the issues had been settled and could not be tried over again as a defence to a counterclaim.
  • It was common ground that, after accepting the defendants’ offer (and paying paid) the claimant could not rely on the defence of set off.

PRACTICE POINT

If there is a claim and counterclaim it may be prudent, in some, cases to rely on CPR 36.8 and make a request that the offer be clarified.

THE PART 36 OFFER

The Part 36 offer
  1. The Part 36 offer was made in a letter dated 3 February 2016 written on behalf of all the defendants then remaining in the action – that is to say, Mr Seddon, Mr Bridgeman, Ms Buchanan and GIM. The relevant part of the letter stated:
“There are three discrete components to these proceedings. The first is your clients’ claim for damages against all the Defendants for breach of contract, inducing breach of contract and/or fiduciary obligation, unlawful means conspiracy and the intentional infliction of harm by unlawful means (and all possible relief claimed in respect of those claims) (the ‘Common Design Claim’) (loss in respect of which is pleaded at paragraph 177 of your Amended Particulars of Claim). The second is your clients’ claim for damages and/or an account against our client and the First Defendant for misuse of its confidential information (the ‘Misuse Claim’) (loss in respect of which is pleaded at paragraph 178 of the Amended Particulars of Claim). The third is the Sixth Defendant’s counterclaim against your clients for Success Fees due and owing to it from the Second Claimant for the period from 1 October 2012 (the ‘Counterclaim’).
This offer relates to the Common Design Claim. It does not concern the Counterclaim or the Misuse Claim. The Counterclaim is a relatively straightforward contractual matter which can, if necessary, be determined by a Court with a minimum of expense. Equally, it can be compromised on a separate basis. The Misuse Claim is not pursued against the Fifth or Sixth Defendant. For this reason, the offer contained in this letter does not relate to those matters. They will be dealt with separately.
The Defendants offer to settle the Common Design Claim, together with any non-pecuniary relief claimed, on the following terms:
  • The Defendants pay your clients the sum of £1,500,000 to be paid in full within 14 days of acceptance of this offer by electronic transfer to an account specified by you in your notice of acceptance.”
  1. This offer was not accepted immediately, but it was eventually accepted by a letter from Marathon’s solicitors dated 19 September 2016.

THE DEFENDANTS’ ARGUMENT

The argument was only raised by one of the defendants who argued that:-

 “… on a proper interpretation of the offer letter, the offer to settle the “Common Design Claim” comprised all the allegations of wrongdoing on the part of Ms Buchanan and GIM on which Marathon’s defence to the counterclaim is founded and, since those allegations have been settled, they cannot be tried over again as a defence to the counterclaim. Secondly, he submitted that Marathon’s defence to GIM’s counterclaim involves claiming “relief” in respect of claims pleaded in the amended particulars of claim which undoubtedly formed part of the “Common Design Claim”. The defence to the counterclaim therefore falls within the definition of the “Common Design Claim” and/or the extension of the offer to “any non-pecuniary relief claimed” and has accordingly been settled by the acceptance of the defendants’ offer. Mr Griffiths submitted that, for either or both of these reasons, Marathon has no answer to the counterclaim and judgment should be entered against it in the sum of US$1,990,748.”

THE CORRECT APPROACH TO CONSTRUCTION OF THE OFFER

“Approach to interpretation
  1. It is common ground that the letter containing the defendants’ Part 36 offer is to be interpreted by applying the same well established principles of interpretation as are applied to ascertain the meaning of any contractual document. The aim is to identify what the language of the document, in its context, is reasonably understood to mean. The fact that the offer was made under CPR Part 36 is a relevant part of the context, but there are no special rules of interpretation which apply to Part 36 offers or to offers of settlement gene”

THE JUDGE’S REJECTION OF THE DEFENDANTS’ ARGUMENTS

“Effect of settlement on factual allegations
  1. I do not accept Mr Griffiths’ submission that the usual effect of an agreement to settle a particular claim is to prevent a party to the settlement from thereafter relying on factual allegations which formed part of that claim in support or defence of some other claim. In my view, it all depends on the precise terms and context of the agreement. Thus, I do not consider that any assistance can be derived from the case of Cornhill Insurance plc v Barclay (6 October 1992) CA, which turned on the proper construction of the terms of compromise which the parties had agreed in that case, interpreted in the light of the relevant factual background. The same applies to Ovlas SA v Strand (London) Ltd [2009] EWHC 1564 (Ch), on which Mr Griffiths also relied, where it was held that renewing allegations made in earlier proceedings which had been dismissed by consent would in the circumstances amount to an abuse of process. No issue of abuse of process arises in the present case as the settlement concluded by acceptance of the defendants’ Part 36 offer has not been embodied in an order or judgment of the court.
  2. In any event, even if there were any such usual effect of a settlement agreement, the agreement in this case to settle the Common Design Claim cannot reasonably be construed as encompassing all the factual allegations which formed part of the Common Design Claim. That is because the unlawful acts alleged in the amended particulars of claim to have been done pursuant to the alleged common design include the misuse of confidential information by Mr Seddon and Mr Bridgeman which is the critical factual allegation underpinning the Misuse Claim.
  3. No doubt for this reason, the two claims are distinguished in the offer letter by reference to the paragraphs of the amended particulars of claim in which loss and damage are pleaded. In paragraph 177 it is alleged that, by reason of the breaches of contractual, tortious and equitable obligations pleaded in the amended particulars of claim, Marathon has suffered loss consisting of loss of profits and wasted expenditure for which it is entitled to damages from all of the defendants. In paragraph 178 Marathon then pleads a claim for “damages and/or an account against Messrs Bridgeman and Seddon for misuse of its confidential information”, including damages to be assessed on a Wrotham Park basis. As I construe the offer letter, the claim pleaded in paragraph 178 (and, by necessary implication, all the factual allegations made in the amended particulars of claim in so far as they are relied on as part of that claim) has been demarcated as the “Misuse Claim” and specifically excluded from the scope of the offer.
  4. The offer letter does not say that, by accepting the offer, Marathon will be agreeing not to rely in pursuing the Misuse Claim or defending the counterclaim on facts which have been alleged as part of the Common Design Claim. Nor, as I have indicated, can it have been intended that Marathon should be prevented from relying on facts alleged as part of the Common Design Claim in pursuing the Misuse Claim. There is no basis for differentiating the counterclaim in this respect. It follows that acceptance of the offer does not prevent Marathon from relying on such facts in its defence to the counterclaim.
The scope of relief claimed
  1. Mr Griffiths’ second argument is based on the fact that the definition of the Common Design Claim expressly includes “all possible relief claimed in respect of those claims”, and the offer is then also expressly extended to “any non-pecuniary relief claimed”. Mr Griffiths argued that the term “relief” is a broad term which includes anything that a court is asked to decide. On this basis he submitted that a judgment of the court which finds that Marathon is not liable to pay the fees claimed by GIM in its counterclaim would be a form of “relief”. Hence Marathon’s defences to the counterclaim fall within the scope of the defendants’ offer.
  2. Having regard to the separation of the Misuse Claim, I interpret the phrase “those claims”, where it appears in the definition of the Common Design Claim, as referring to all the causes of action pleaded in the amended particulars of claim, apart from the claim for misuse of confidential information pleaded in paragraph 178. A reasonable addressee of the offer would, in my view, understand the inclusion in the definition of “all possible relief claimed in respect of those claims” as intended to preclude any argument that, even though Marathon could no longer pursue a claim for damages for the loss pleaded in paragraph 177 if the offer was accepted, it could still seek some other relief in respect of the relevant claims such as an award of equitable compensation or an account of profits or a declaration of liability. Similarly, I interpret the reference later in the letter to “any non-pecuniary relief claimed” as intended to forestall any possible suggestion that Marathon could, for example, pursue a claim for an injunction or a declaration after settling the Common Design Claim.
  3. In construing the term “relief” as it is used in the offer letter, I do not think that assistance is to be gained from the case of Guaranty Trust Co of New York v Hannay & Co [1915] 2 KB 536, cited by Mr Griffiths, where what was in issue was the meaning of the phrase “any consequential relief” in an old rule of court. In the context of the offer letter, the word “relief”, in my view, is naturally read as referring to a remedy which is or could be formally claimed in the prayer for relief at the end of the amended particulars of claim. I therefore do not consider that merely by denying that GIM is entitled to be paid success fees Marathon is claiming “relief”. But even if the term is understood more broadly and a mere denial of liability is regarded as a claim for “relief”, the “relief” claimed in Marathon’s defence to counterclaim is not claimed in respect of the Common Design Claim advanced by Marathon in the amended particulars of claim; it is claimed in respect of the counterclaim.
Express exclusion of the Counterclaim
  1. This conclusion is confirmed by the statements in the offer letter that the offer “does not concern the Counterclaim or the Misuse Claim” and that “the offer contained in this letter does not relate to those matters”. Those statements would be seriously misleading if acceptance of the offer was intended to have the effect of annihilating Marathon’s defence to the counterclaim on the issue of liability, leaving only quantum to be assessed. Had that been the intended effect of the offer, it would very much have concerned the counterclaim.
  2. Mr Griffiths emphasised the sentence in the offer letter which says:
“The counterclaim is a relatively straightforward contractual matter which can, if necessary, be determined by a Court with a minimum of expense.”
This description of the counterclaim, he argued, would be inaccurate if acceptance of the offer left Marathon free to rely in defending the counterclaim on the allegations of wrongdoing by GIM and Ms Buchanan which formed part of the Common Design Claim, because determining whether those allegations are true is far from straightforward and is likely to involve considerable expense. There is force in this point, although equally this description of the counterclaim does not suggest that there will be nothing left to determine except the quantum of the success fees if the defendants’ Part 36 offer is accepted. The sentence on which Mr Griffiths relied has, however, to be read in its context. The context is a paragraph of the offer letter which is emphasising how the Common Design Claim is quite separate from the counterclaim with the clear implication that settlement of the Common Design Claim will not affect the determination of the counterclaim.
Commercial sense
  1. Mr Griffiths also submitted that it would make no sense to settle the Common Design Claim but at the same time to keep the allegations of wrongdoing underlying that claim alive for the purposes of a defence to the counterclaim. Again, I do not accept this submission. The settlement of the Common Design Claim has on any view had benefits for the defendants including Ms Buchanan – who as a result of the settlement is no longer involved in the proceedings at all – and GIM. It means that Ms Buchanan and GIM cannot now be ordered to pay any more money to Marathon or otherwise be held liable to Marathon. From their point of view, all that is left in issue is whether or not GIM is owed money by Marathon. It made perfectly good sense for Ms Buchanan and her company to participate in an offer which was designed to secure those benefits.
  2. On the other hand, it would make no apparent sense for Mr Seddon and Mr Bridgeman to make a Part 36 offer which required Marathon, if it accepted the offer, to abandon its defence to GIM’s counterclaim. Mr Kitchener QC on behalf of Marathon posed the hypothetical example of a situation in which Marathon refused the offer, obtained at the trial an award of damages against all the defendants on the Common Design Claim for, say £1m and, by proving the unlawful acts asserted as part of the Common Design Claim, also successfully resisted the counterclaim. If GIM’s interpretation of the offer letter were correct, Marathon would in this situation be able to say that it had obtained a judgment more advantageous than the Part 36 offer because, if it had accepted the offer, it would have received the sum of £1.5m but also had to pay success fees to GIM of almost US$2m. It is difficult to see that Mr Seddon and Mr Bridgeman would rationally agree to make the costs protection given to them by the offer dependent on the success or failure of a claim made by GIM in which they had no financial interest.
  3. That is all the more so given that at the time when the Part 36 offer was made, the quantum of the counterclaim was unknown. Thus, Mr Seddon and Mr Bridgeman (and for that matter Ms Buchanan) would, if GIM’s interpretation of the offer were right, have had no way of assessing how much protection the offer gave them. It was only when Marathon later disclosed documents showing the fee income which it had earned from business generated by GIM after the termination of the consulting agreement that it was possible to quantify the counterclaim.
Analysis of the defence to counterclaim
  1. It is still necessary to look in more detail at Marathon’s defence to the counterclaim and to examine the different bases on which Marathon denies liability to pay the success fees claimed by GIM. There are three. One is a defence of set off whereby Marathon asserts (in paragraph 25 of its defence to counterclaim) that it will “set off its claims against GIM as contained in the Amended Particulars of Claim to reduce or extinguish GIM’s claims.” To make good this defence, Marathon would have to show that it is entitled to be paid damages (or some other monetary award) by GIM which can then be set off against sums payable to GIM under the consulting agreement. However, the only such claim against GIM contained in the amended particulars of claim is the Common Design Claim. Now that the Common Design Claim has been settled, Marathon cannot establish a right to be paid damages by GIM. It follows that, as Marathon has rightly accepted, a defence of set off is no longer available following Marathon’s acceptance of the Part 36 offer.
  2. On the other hand, the defence pleaded in paragraph 24 of the defence to counterclaim, which was added by a recent amendment, is not affected by the settlement of the Common Design Claim. In paragraph 24 it is alleged that GIM owed Marathon a fiduciary duty of loyalty in respect of the maintenance of its South African client base; that GIM acted in breach of this duty; and that GIM has thereby forfeited any entitlement to receive remuneration after termination of the consulting agreement. The alleged fiduciary duty of loyalty is not relied on in the amended particulars of claim. Furthermore, for the purpose of this defence, Marathon does not need to show that it has suffered the loss pleaded in paragraph 177 of the amended particulars of claim (or indeed any loss or that GIM has profited from the alleged breach of duty). Marathon relies on the alleged breach of duty solely as a basis for denying that it is liable to pay the remuneration which GIM claims.
  3. I therefore think it clear that the defence put forward in paragraph 24 of the defence to counterclaim is not affected by the settlement of the Common Design Claim. The issues raised by this defence must accordingly go to trial. This is sufficient reason to refuse the application for summary judgment.
  4. The third basis on which Marathon is defending the counterclaim is pleaded in paragraph 23. That paragraph states:
“In response to GIM’s repudiatory breach … and/or had GIM complied with its reporting obligations and disclosed repudiatory breach(es) …, Marathon would have been entitled to terminate and would have terminated the [consultancy agreement] with immediate effect before 7 November 2012 and without any continuing obligation to pay GIM Success Fees under clause 5.4. In the premises, it is denied that GIM is entitled to an account of Success Fees and/or it is averred that such Success Fees would, by circularity of damages, be repayable to Marathon as damages for GIM’s breach of contract.”
  1. The analysis of this plea is less straightforward. The fact that Marathon would have been entitled to terminate the contract if something had been done which ought to have been done but was not done does not by itself afford a defence. The precise nature and analysis of the contentions made in this paragraph and whether they are affected by the settlement are questions which I think require fuller consideration. It is unnecessary to examine them further at this stage in view of the conclusion I have already reached that GIM’s counterclaim must proceed to trial.
  2. I should also make it clear that the views expressed in this judgment about the meaning and effect of the Part 36 offer do not amount to a final determination of the issues as there was no cross-application for summary judgment made by Marathon. Furthermore, I have not heard argument on behalf of Mr Seddon or Mr Bridgeman, who were parties to the offer but not to the application.”

RELATED POSTS: PART 36

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