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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> PHI Group Ltd v Robert West Consulting Ltd [2012] EWCA Civ 588 (10 May 2012) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2012/588.html Cite as: [2012] 4 Costs LO 523, 142 Con LR 96, [2012] CILL 3180, [2012] BLR 329, [2012] EWCA Civ 588, [2012] CP Rep 37, [2012] TCLR 5

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE TECHNOLOGY AND CONSTRUCTION COURT
MR JUSTICE AKENHEAD
[2011] EWHC 1581 (TCC)

		Royal Courts of Justice Strand, London, WC2A 2LL
		10 May 2012

Lord Justice Lloyd:

Introduction

1. This appeal, from an order of Akenhead J made on 23 June 2011, requires the court to visit again Part 36 of the Civil Procedure Rules, and to consider the application of that rule, and the general rules as to costs, in relation to contribution proceedings between two parties both liable to a claimant for the same damage.
2. The claimant was Carillion JM Ltd. It was the main contractor engaged to carry out the design and construction of a train servicing depot to the west of the Wembley Football Stadium between 2004 and 2006. The appellant, PHI, was the specialist design and build contractor for what was called the "soil nailing work". The respondent, RWC, was the consulting engineer and lead consultant for the overall works.
3. The judge's order which is under appeal was as to the costs as between PHI and RWC, and was made at the conclusion of a trial both of Carillion's claim against RWC, as to liability and quantum, and of contribution claims each way as between PHI and RWC. The issues need to be understood in the context of the course of the proceedings. I will therefore set this out now. I will need to go into more detail as to certain aspects of it later.
4. Carillion first sued PHI for damages for negligence by a claim with the number HT-09-152, commenced in April 2009, after substantial pre-action procedures. Later in 2009 PHI notified RWC of a contribution claim, seeking (in substance) an indemnity or a partial contribution to any sums for which PHI might be held liable to Carillion. In February 2010 PHI made an offer to RWC to settle the contribution claim, which was not accepted. Carillion's claim against PHI was due to come to trial in May 2010. By then Part 20 proceedings had been commenced by PHI against RWC in the 2009 claim, but they were to be tried separately. Shortly before the trial date, Carillion settled with PHI, receiving £3.8 million. By then Carillion's claim was put at some £7.2 million.
5. In March 2010 Carillion had started separate proceedings, claim number HT-10-111, against RWC. RWC, having served a defence to PHI's contribution claim, amended this in August 2010 to claim an indemnity or contribution itself from PHI against sums for which it might be held liable to Carillion. In November 2010 a mediation took place between Carillion and RWC, which PHI was unable to attend. In anticipation of this PHI made an offer to RWC, which would take effect only if the mediation were successful. It was not. Later in November 2010 PHI made a further offer to RWC. This was not accepted. By the end of 2010 Carillion put its quantum claim at just over £8 million.
6. In March 2011 the trial came on before the judge, lasting for 11 days. All three parties were represented. Carillion having recovered £3.8 million from PHI sought judgment for the balance of its claim against RWC. RWC resisted liability and challenged quantum against Carillion, and sought to establish in any event that PHI was responsible to a greater extent than itself for any loss of Carillion, and therefore should contribute most to any sum for which RWC was held liable at the end of the day. In turn PHI joined in challenging Carillion's claim as regards quantum, but also sought to show that RWC was responsible to a greater extent, so as to recover part of the sum which it had already paid out to Carillion, and to resist liability for any further contribution to RWC.
7. The outcome of the trial was that the judge held RWC to have been negligent, assessed Carillion's overall loss at some £6.7 million and ordered RWC to pay Carillion £3.25 million. He held that PHI and RWC were responsible as to 60% and 40% respectively as between them. He treated the payment by PHI to Carillion as being £3.45 million plus costs. On that basis he ordered PHI to pay RWC £570,000 odd, so as to bear 60% of the overall liability. His judgment on liability was given on 15 June 2011 and has the reference [2011] EWHC 1379 (TCC). He then heard argument on consequential matters, including, above all, costs. His judgment on costs was given on 23 June 2011 and has the reference [2011] EWHC 1581 (TCC). An order for costs had been agreed as between Carillion and RWC. He ordered PHI to pay 20% of Carillion's costs which RWC had been ordered to pay. That part of the order is not appealed. What is challenged is that he then ordered PHI to pay 30% of RWC's contribution proceedings against it and he made no order as to the costs of PHI's contribution proceedings. He refused permission to appeal, but permission was granted by Tomlinson LJ.
8. By the appeal PHI seeks an order that RWC should pay PHI's costs of both sets of contribution proceedings and that RWC should bear its own costs of both those proceedings.
9. PHI's case is put in a number of different ways. Its first and most far-reaching point is that it contends that its solicitors' letter in February 2010 was a Part 36 offer. If so, it would have the consequences laid down by the rules. The judge held that it was not. Secondly, in the alternative, PHI argues that, even if for technical reasons it was not a Part 36 offer, then even so it was a better offer for RWC than the result they achieved, and it should have all or most of the consequences that it would have had as regards costs if it had been a Part 36 offer. The judge rejected this argument, for at least two reasons: he held that it had been withdrawn, implicitly, at the time of the November 2010 offers, and he also held that it only related to liability in the 2009 claim by Carillion against PHI, not that arising under the 2010 claim against RWC. The latter of those points is challenged, and PHI seeks to challenge also the former point, as to withdrawal.
10. If the February 2010 offer was not a Part 36 offer, it is nevertheless relevant to the exercise of the judge's discretion under the general rules as to costs. To an extent the judge did take it into account. If he did not misdirect himself in any material respect as to the discretion, then it is not open to this court to interfere with his decision made in exercise of the discretion.
11. Thus, the issues on the appeal are, first, whether the first offer was a Part 36 offer, secondly, if not, whether it should be given much the same effect as if it had been, thirdly whether it was withdrawn by the making of the later offers, and fourthly, whether it related only to sums due or paid by PHI to Carillion as a result of the first claim and not to sums for which RWC was liable to Carillion under the second claim. The third and fourth points are those on which it is argued that the judge erred in the exercise of his discretion. The third point was argued before the judge but was not raised in the grounds of appeal. There is therefore a preliminary point as to whether it can now be taken.
12. Before the judge PHI was represented by Simon Hughes Q.C., instructed by Fishburns. They acted on the appeal to start with, Mr Hughes having settled the grounds of appeal and the skeleton argument. Shortly before the appeal came on for hearing PHI changed its representation, instructing Wright Hassall and through them Mr Nigel Jones Q.C. Mr Jones submitted a supplemental skeleton argument three days before the appeal hearing, in which he intimated a criticism of the judge's conclusion that the November offers involved the withdrawal of the February offer. He did not then seek to add to or amend the grounds of appeal. At the hearing, however, he did seek permission to do so, and to argue that the judge had been wrong in that conclusion. For RWC, Mr Martin Bowdery Q.C., leading Mr Rónán Hanna as he had below, on the instructions of Mills & Reeve LLP, objected to this course, while also arguing that there was no merit in the point.
13. In addition, there was some debate during the hearing as to whether the judge might have misdirected himself by giving weight to the fact that PHI had not achieved a better outcome for itself than that which would have resulted from the November offers. It is common ground that there is no particular significance to that factor. No ground of appeal was formulated in any clear terms as regards that point, and I do not think it appropriate to treat any such ground as before us. In contrast, the point about withdrawal was argued before the judge, and is simple and straightforward to state. It is that the judge was wrong to hold that the effect of the November offers (either or both of them) was that the February offer was implicitly withdrawn. Despite the forensic force of Mr Bowdery's point that, if there were any merit in the point, it is surprising that it was not taken by Mr Hughes at the outset of the appeal, or at any stage, I would grant permission to PHI to add this point to their grounds of appeal.

The offer letters

14. Much depends on the relevant terms of the three letters by which the successive offers were made. I will therefore describe them and set out the material passages next.
15. The first offer was made by a letter from Fishburns to Mills & Reeve dated 5 February 2010, headed "Part 36 Offer" and "without prejudice save as to costs". It referred to Carillion's then claim in the 2009 proceedings, and to PHI's letter of claim against RWC which had been sent late in December 2009. The letter explained that, as a result of recent advice from PHI's expert, PHI now believed that there was a risk that it would be held to have been negligent, and that RWC would as well. It said that there might be an advantage to both parties if a settlement could be negotiated in the short term, before PHI's expert's revised view had to be disclosed. The letter said some more about the issues in the claim. It then proceeded to the part relevant for present purposes, headed "Proposed Liability Split and Settlement Offer to the Claimant". The significant paragraphs were as follows:

"4.2 Our client's allegations against your client are set out in detail in our client's letter of Claim. Had your client not made the errors and omissions identified in our client's letter of Claim the damage which has been caused at the Wembley Light Railway site may have been avoided in its entirety. Your client is therefore a joint tortfeasor with our client for the damage allegedly incurred by the Claimant. As will be evident from the comments above, it is our client's expert's view that both your client and our client will be found liable for this damage.

4.3 Our client does not wish to expend costs on further legal and expert views and acknowledges that its likely liability (alongside your client's) coupled with the irrevocable costs of defending a claim such as this, make an early settlement preferable. On this basis our client offers to split liability with your client on a 70:30 basis (in your client's favour).

4.4 We consider on discussing this matter with our expert and counsel that your client's apportionment of liability may well exceed 30%. Notwithstanding, in order to be sure of the offer providing costs protection, coupled with a desire to conclude a speedy resolution of the dispute, our client's offer is that your client accept 30% liability.

4.5 This offer is made under Part 36 of the Civil Procedure Rules and the offer is intended to have the consequences of Part 36 of the Civil Procedure Rules.

4.6 Notwithstanding, in light of the pressing timescales in this claim, our client would be grateful if your client's response to this offer could be provided within the next 7 days.

4.7 For the avoidance of doubt, as this letter is being sent by email, the date of this offer is taken to be the date of this letter.

4.8 This letter is written "without prejudice save as to costs". It shall not be shown to the Court or referred to in any proceedings (or in any appeal from the proceedings) or in open correspondence until all questions of quantum and liability have been finally decided, and issues as to costs and interest fall to be decided.

4.9 If this offer is not accepted and your client fails to obtain a judgment more advantageous than our client's proposals as contained in this offer, our client is entitled to the costs consequences set out in Rule 36.14 (2).

4.10 If there is any aspect of this offer which is unclear would you please let us know within 7 days and we will endeavour to provide an appropriate clarification."

16. The letter then proposed a pre-action protocol meeting, to include discussion of how to resolve the issues. The writer hoped for a letter of response to the letter of claim and another to the Part 36 offer. However, RWC did not respond to the offer, then or at any later stage.
17. The mediation held in April 2010 led to the settlement of Carillion's claim against PHI, but RWC was not involved in that settlement. As already mentioned, PHI did not take part in the later mediation between Carillion and RWC, which was unsuccessful.
18. In anticipation of the latter mediation, Fishburns wrote to Mills & Reeve on 4 November 2010. The relevant part of the letter was as follows:

"We appreciate that without our client in attendance its contribution/ indemnity claim against your client can not be discussed (and potentially settled), and that as such your client will be in an uncertain position regarding its total exposure.

Whilst our client remains of the view that it has good prospects of making a recovery from your client, our client is realistic about the irrecoverable costs it would incur if the claim between your client and Carillion settles at the mediation - i.e. leaving the only live action the contribution claims between our respective clients. With this in mind, our client is willing to agree in advance of the mediation that should the mediation result in a full and final settlement of the claim between your client and Carillion (specifically, that it extinguishes your client's liability to Carillion for negligence and /or breach of contract arising out of any aspect of your client's works whatsoever in connection with the Wembley LMD project, including those works (whether undertaken in 2004, 2005 or 2006) which are the subject of Carillion's legal action), our client would be prepared to agree to a discontinuance of its proceedings against your client, in return for your client's discontinuing its proceedings against our client, with no order as to costs.

…

This offer is open until 5pm on the 16^th November, at which time it shall be deemed withdrawn as our client will then be beginning its preparations for trial. Clearly, however, if the offer contained within it is not accepted by your client within the prescribed time, we will be referring to this letter, and the offer contained within it, when questions of costs of the on-going litigation come to be considered by the Trial judge."

19. The condition of that offer, namely success in the mediation, was not satisfied. Therefore, on 29 November 2010 Fishburns wrote again, relevantly as follows:

"Our client now writes to propose settlement on very similar terms to those previously proposed, namely: (i) with a discontinuance of the contribution proceedings ongoing between our respective clients; and (ii) with each party bearing its own costs to date, but without a condition that your client's claim against Carillion be settled.

…

With the above in mind our client offers to agree to a discontinuance of its proceedings against your client, in return for your client discontinuing its proceedings against our client, with no order as to costs.

This offer will be open for 21 days, however if your client intends to accept this offer your client is encouraged to confirm the same as soon as possible - as costs on all sides (specifically with regard to expert's costs) will be saved if the contribution actions are swiftly concluded.

Whilst this offer cannot be made on a Part 36 basis as it prescribes costs consequences, should the offer contained within this letter not be accepted by your client within the prescribed time, we will be referring to this letter, and the offer contained within it, when questions of costs of the on-going litigation come to be considered by the Trial Judge."

20. Both the November letters were headed "Without prejudice save as to costs", and both referred to the 2009 proceedings by their number. Mills & Reeve did not respond to either of the November offers.

Was the first offer a Part 36 offer?

21. The first question is whether the February offer was a Part 36 offer. Plainly it was intended to be so, from the heading and from the repeated references to Part 36 in the letter. However, it is only properly to be called a Part 36 offer if it is made in accordance with the rule. The part of the rule that has to be considered for present purposes is rule 36.2, as follows:

"36.2(1) An offer to settle which is made in accordance with this rule is called a Part 36 offer.

(2) 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 rule 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 to which part or issue; and

(e) state whether it takes into account any counterclaim."

22. A Part 36 offer may be made before the start of proceedings. After the end of the period specified under rule 36.2(2)(c), which is labelled "the relevant period" in rule 36.3(1)(c), it may be withdrawn (if not already accepted) but only by written notice of withdrawal. If the offer is accepted within the specified period, rule 36.10 provides for the claimant to be entitled to the costs of the proceedings up to the date of the notice of acceptance. Different provision is made for offers by defendants but PHI was in the position of a claimant as against RWC by its intended contribution proceedings under Part 20.
23. If the offer is not accepted, and is still open at the date of trial, then the costs consequences are governed by rule 36.14. Rule 36.14(2) deals with the case where a claimant fails to obtain a judgment more advantageous than a defendant's offer, and ordinarily gives the defendant its costs from the end of the relevant period. Under rule 36.14(3) if the judgment against the defendant is at least as advantageous to the claimant as the proposals in its Part 36 offer, the claimant will recover its costs throughout, and may well get them on the indemnity basis, and may also get interest both on the sum at stake and on the costs at a rate not exceeding 10% over base rate.
24. PHI does not seek indemnity costs or a heightened interest rate, but it does seek to establish that its offer was within Part 36, because the determination by the judge of liability as between the two parties was at least as advantageous to PHI as the proposals set out in its first offer, so that rule 36.14(3) would apply, and also because if it was a Part 36 offer it could not have been withdrawn by the November offers, because of the requirement of a written notice of withdrawal, which must be explicit.
25. We were shown the decision of the Court of Appeal in Gibbon v Manchester City Council [2010] EWCA Civ 726, [2010] 1 WLR 2081, in which Part 36 was referred to as a "carefully structured and highly prescriptive set of rules dealing with formal offers to settle proceedings which have specific consequences in relation to costs in those cases where the offer is not accepted and the offeree fails to do better after a trial": see Moore-Bick LJ at paragraph 4. The requirements of rule 36.2(2), with which we are concerned, are mandatory, but there was argument before us as to what it is that the offer must say in order to comply with the mandatory requirements.
26. As regards those requirements, the offer was in writing, and it stated on its face that it was intended to have the consequences of Part 36. I do not consider that it was essential that it should refer to Section I of Part 36 because, at present at least, there is nothing in Section II which could be of any relevance to this offer, so there could be no doubt as to which provisions of Part 36 were intended to apply. Passing over paragraph (c), the offer plainly related to the whole of PHI's claim, but it took into account any reciprocal claim that RWC might have against PHI for contribution. Therefore all of paragraphs (a), (b), (d) and (e) were satisfied.
27. However, the letter did not specify a period of not less than 21 days, or any period, in compliance with paragraph (c). The judge considered that this was fatal, and I agree with him. It has been held that an offer was sufficient which specified a period of 21 days as "the relevant acceptance period" (see Onay v Brown [2009] EWCA Civ 775, [2010] 1 Costs LR 29) or which said "this offer will be open for 21 days from the date of this letter" and identified that period as "the relevant period" (see C v D [2011] EWCA Civ 646, [2012] 1 All ER 302). It is therefore not part of the mandatory requirements of the rule, once the period has been specified, to state expressly that this is the period "within which the defendant will be liable for the claimant's costs in accordance with rule 36.10 if the offer is accepted". But this letter did not specify any period for the purposes of the rule. The only period which was specified was a seven day period, in paragraph 4.6. That would not be valid under the rule. It can be said that the terms of that paragraph, opening with the word "Notwithstanding", suggest that this seven day period is not being stipulated under the rule, and that it is shorter than the period relevant for the rule. It can also be said, no doubt, that it is most unlikely that a party making a Part 36 offer would ever specify a longer period than 21 days. But the requirement is there, and nothing in the letter can be read as satisfying it.
28. In C v D (cited above) my Lords Rix LJ and Stanley Burnton LJ, together with Rimer LJ, had to consider an offer which was expressed to be open for 21 days and which, if that was sufficient (as they held it was), complied with Part 36. The offeree had accepted it well after the 21 days and the offeror argued that it was no longer open for acceptance at that time. Rimer LJ referred to the fact that the offer stated that it was an offer to settle under Part 36 and that it was intended to have the consequences set out in the rule. He then said this at paragraph 75:

"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."

29. Correspondingly Stanley Burnton LJ said this at paragraph 84:

"Any ambiguity in an offer purporting to be a Part 36 offer should be construed so far as reasonably possible as complying with Part 36."

30. Mr Jones submitted that, following that approach, the February offer in the present case should be construed so as to find an implicit specification of a 21 day period for the purposes of rule 36.2(2)(c). I cannot accept that argument. The requirement in the rule that a period of not less than 21 days must be specified requires some explicit identification of a period of 21 or more days. Ambiguity may come in, and with it the principle of construction described, if a period is specified but there is some doubt as to the purpose for which it is specified. Here no period was specified at all, so there is no ambiguity which falls to be resolved.
31. If an offer letter were to specify a period of 21 days, but not to follow the language of the relevant paragraph of the rule, the question might arise as to whether that was in itself a sufficient compliance with rule 36.2(2)(c). I have mentioned above in summary terms the phrases used in Onay v. Brown and in C v. D. Rix LJ said in C v. D at paragraph 56: "A point may perhaps have been taken that the offer did not comply with rule 36.2(2)(c). But no such point has been taken, and the judge was satisfied that the rule had been complied with." In Epsom College v. Pierse Contracting Southern Limited [2011] EWCA Civ 1449 the offer stated "This offer will remain open for acceptance 21 days …" without reference to a relevant period. The present point was not in issue, only the C v. D point about what "open for acceptance" meant. It was in that context that Rix LJ said (at paragraph 66) that there was no sufficient difference of language to take the case outside the rationale of C v. D.
32. If the offer were to refer to 21 days as the "relevant period", a phrase that is defined in rule 36.3(1)(c) as being the period stated under rule 36.2(2)(c), it seems likely that there would be sufficient compliance with rule 36.2(2)(c), for in such a case the 21 day period for acceptance would be clothed with the costs consequences provided for in CPR Part 36. The specification of the period would be sufficiently clearly linked with the terms of rule 36.2(2)(c). There could be other ways, besides tracking the words of the rule itself or referring in terms to the period as being specified for the purposes of rule 36.2(2)(c), of ensuring that the reader would understand that the period specified is indeed the period referred to in that paragraph of the rule, having consequences for costs, not merely for acceptance of the offer. If the offer were to identify a 21 day period for acceptance, but with nothing more said, it does not seem to me clear that this would suffice for the purposes of rule 36.2(2)(c). At any rate, there does not seem to be a decision to the effect that such words would comply with that requirement of the rule. The safe course must be to be more specific, either by using the words of the rule or by including a reference to the relevant paragraph of the rule, in relation to the stated period.
33. The writer of the February letter in the present case appears to have been confused or mistaken at paragraph 4.9, because rule 36.14(2) to which reference is there made applies to a defendant's offer, whereas this offer was on the part of the claimant, so the reference should have been to rule 36.14(3). That is a minor point which would probably not detract from the offer if it complied with the rule in other respects. However, it does not, and despite Mr Hughes' arguments in his original skeleton argument, and those of Mr Jones in writing and at the hearing, I agree with the judge. This was not a Part 36 offer.

The consequences of the first offer not being a Part 36 offer

34. Rule 36 is prescriptive as regards the use of its own provisions, but it does not prohibit the making of offers that do not come within the Part. It says this:

"36.1(2) Nothing in this Section prevents a party making an offer to settle in whatever way he chooses, but if the offer is not made in accordance with rule 36.2, it will not have the consequences specified in rules 36.10, 36.11 and 36.14.

(Rule 44.3 requires the court to consider an offer to settle that does not have the costs consequences set out in this Section in deciding what order to make about costs)"

35. Therefore, once the judge had decided that it was not a Part 36 offer, he had to consider how it bore on the exercise of his discretion under rule 44.3. Mr Hughes submitted in his grounds of appeal and skeleton argument that it should be given substantially the same effect as a Part 36 offer would have had, though PHI did not seek the more extreme consequences of a successful claimant's offer under rule 36.14(3), namely indemnity costs or interest at an enhanced rate. In effect his argument was that, since PHI had made the offer, since RWC had failed to respond in any way, and since PHI had achieved a better result, because it ended up bearing 60% of the liability whereas it had offered to accept 70%, therefore it should have all its costs of the contribution proceedings as against RWC, albeit only seeking them on the standard basis.
36. In Huntley v Simmonds [2009] EWHC 406 (QB) Underhill J held that a defendant's offer had failed to comply with Part 36 because it did not satisfy one of the requirements of rule 36.5 (not relevant to the present case). The judge said at paragraph 6 that "On the particular facts of this case, I believe that it is right to exercise my discretion under CPR 44.3(4)(c) to provide for the same costs consequences as would have applied if [the defendant's] offer had been 'Part 36–compliant'." He therefore ordered the claimant to pay the defendant's costs from the end of the period specified for acceptance of the offer.
37. For the claimant the submission had been made that this would subvert and render futile the existence and the terms of the rule. The judge rejected that argument and said this at paragraph 7:

"A defendant who makes a non-compliant offer is in a worse position because he is at the mercy of the Court instead of being able to rely on the strong presumption that the costs consequences specified by CPR 36.14 will apply. It would not be in every case that the Court would be prepared to overlook any defects, even if they could be characterised as technical. But in a proper case – and I think, for the reasons advanced by Mr Walker, that this is such a case – I see no reason why a party should be penalised for what are in truth purely technical failures."

38. That case concerned a defendant's offer. In relation to a claimant's offer, rule 36 provides for a result which goes further than shifting the burden of costs, with its provision for indemnity costs and for additional interest on the judgment sum and the costs, each of which is to be awarded unless the court thinks it unjust. Those consequences are not sought in the present case, even though PHI's offer was a claimant's offer. The point therefore does not arise for decision, but for my part I do not see how the court could award the additional interest unless the offer was a Part 36 offer properly so-called. Even a minor formal or technical defect would be fatal to that entitlement. So far as indemnity costs are concerned, they can of course be awarded under the general provisions as to costs, but absent a true Part 36 offer a claimant's claim for indemnity costs would have to be justified on the relevant general principles, not just by arguing that the offer only just failed to comply with Part 36. In Hertsmere Primary Care Trust v Administrators of Balasubramanian's Estate [2005] EWHC 320 (Ch), [2005] 3 All ER 274, Lightman J upheld a Master's award of additional interest and indemnity costs under Part 36 even though there had been a technical defect in the claimant's offer, so that it did not comply with the then terms of Part 36. If the point arises for decision in future that case will have to be considered, but the terms of the rule are now different from those applicable to that case.
39. This ground of appeal may have been influenced by the decision of the Court of Appeal in Trustees of Stokes Pension Fund v. Western Power Distribution (South West) plc [2005] EWCA Civ 854, [2005] 1 WLR 3595. That decision, too, related to the previous text of Part 36, which has been changed in significant and relevant respects. Rix LJ, sitting with myself and Toulson LJ, considered a somewhat similar point in French v. Groupama Insurance Company Limited [2011] EWCA Civ 1119. As he explained, especially at paragraphs 35 to 44, the quasi-mechanistic rules of Part 36 do not apply within the broader and more general discretion of CPR Part 44. As he said at paragraph 44, about the new version of the rule:

"It seems therefore rather harder to formulate a principled approach to the Part 44 discretion that some offers which are not Part 36 offers should nevertheless, in certain circumstances which are not the circumstances of the rules, be treated as though they were Part 36 offers for the purposes of applying Part 36 consequences under Part 44."

40. In the present case, what is argued is that the making of the first offer, and RWC's failure to respond to it let alone to accept it, when taken with the eventual outcome which was more favourable to PHI, should lead to the consequence that PHI should have its costs in the ordinary way. Looked at in that way, there is much to be said for the contention. In my judgment, however, the argument cannot properly be based on treating the offer, though non-compliant with Part 36, as if it had complied with the rule. The proper basis of the proposition is that this would be the appropriate way in which to exercise the court's general discretion as to costs under Part 44. Therefore it is necessary to consider the basis on which the judge did exercise that discretion. The appeal cannot succeed unless some material error on the judge's part is demonstrated in relation to that exercise.

Did the judge misdirect himself as to the exercise of his discretion?

41. The judge is criticised, as I have said, on two grounds: for holding, first, that the first offer had been withdrawn, and secondly that it only applied to liability under the 2009 claim by Carillion, not to liability under the 2010 claim.
42. Since the February offer was not a Part 36 offer, the provision under the rules whereby it could not be withdrawn except by a written notice, which would have to be explicit, did not apply to it. It took effect as a contractual offer which, on normal principles, could be withdrawn at any time before acceptance, and could be withdrawn without any particular formality having to be observed. The judge's reasoning as to its withdrawal was as follows, in paragraph 19:

"In my view, the letters sent in November 2010 by Phi in effect and by conduct implied that the earlier offer had been withdrawn. The February offer was in effect on a percentage basis; the offers made in November were on the basis that Phi's contribution to any overall settlement which RWC might be able to make with Carillion would be no more than Phi had paid out in its settlement with Carillion (£3.8 million gross). It had gone from a percentage offer to a cash offer and therefore the November 2010 offers were wholly inconsistent with the February 2010 offer: a recipient of the later offers would properly assume that it was being offered in effect a cash contribution and not, any longer, a percentage contribution."

43. His reasoning as to the scope of the first offer was set out in paragraph 21:

"There is an added complication, which is that the offer made in February 2010 was, understandably, limited to the 2009 Claim, that is Carillion's claim against Phi in which RWC was brought in by Phi for a contribution. Although the contribution proceedings in that Claim were not settled, the Claim as between Carillion and Phi was compromised on 18 May 2010. At that stage and in those proceedings, Phi could only have sought a contribution (in terms of the damages) in relation to the settlement sum of £3.8 million gross, equivalent as I found to £3.45 million net of Carillion's costs. No attempt was ever made by Phi's solicitors to seek to convert or extend the February 2010 offer from relating not only to the 2009 but also to the 2010 proceedings in which RWC was the defendant seeking a contribution itself from Phi."

44. For PHI Mr Jones argued that the judge was wrong about withdrawal, because there was no express reference to the earlier offer, and no reason why two inconsistent offers should not subsist at the same time. As regards the scope of the offer, he submitted that the judge overlooked the fact that the reciprocal contribution claims were made in the 2009 proceedings, and that at the time of the February offer it related, at least potentially, to the whole of Carillion's claimed damage. While it is true that RWC was the defendant in the 2010 claim by Carillion, and that it did claim contribution against PHI, that was as a defence and counterclaim to PHI's Part 20 claim made in the 2009 proceedings.
45. The judge came to the exercise of his discretion as to costs as between PHI and RWC at paragraph 25 of his judgment. He said this:

"25. This part of the exercise of the Court's discretion represents a difficult conundrum. Both RWC and Phi had its respective contribution proceedings against the other and each has been successful: Phi recovered over 40% contribution from RWC and RWC secured a 60% contribution from Phi. Phi has the additional point that, as between February and November 2010, it had a valid offer, capable of acceptance, to RWC to compromise the 2009 Claim and contribution proceedings, at a level which, ultimately RWC did not "beat", albeit that it only related to the 2009 proceedings and not to the 2010 proceedings; however, that was effectively withdrawn in early November 2010. RWC has the additional point in its favour that, in relation to the offers made in November 2010 by Phi, it "beat" those offers by over half a million pounds and, in effect, had to go on against Phi to secure that.

26. Mr Bowdery QC for RWC argues that, as ultimately it was successful on its proceedings and it "beat" the November 2010 offers, it has "won" and it should have all its costs of its contribution proceedings and in effect the costs of the contribution proceedings against it by Phi. Mr Hughes QC argues, largely based on its contention that its February 2010 offer was a Part 36 offer and continued in effect up to judgement and because it "won" on its contribution proceedings, that it should have the costs of the two sets of contribution proceedings.

27. I have in practice considered on reflection only two possible realistic costs orders, the first being that each party should pay its own costs of the respective contribution proceedings and the second that Phi should pay a proportion of RWC's costs of its contribution proceedings against Phi. On balance, and in the exercise of my discretion, I have formed the view that the latter is an appropriate order. This takes into account the facts that the February 2010 offer had lapsed by and by reason of the November 2010 offers and that in the light of the later offers RWC had to go on to secure, as it did, a larger contribution than was being offered in those offers. RWC should have accepted the February 2010 offer but that would not have compromised in law the contribution proceedings in the 2010 action; the acceptance might well have dictated in commercial terms at least what RWC could expect to recover in the 2010 contribution proceedings but it would not have bound the Court. However, the earlier offer was effectively withdrawn and was not capable of acceptance in the period of the 2010 litigation, post-November when by all accounts the bulk of the costs were incurred by each party.

28. In all the circumstances, I consider that justice would be best served by an order that Phi pay 30% of RWC's contribution proceedings against it and that there is no order as to costs in relation to Phi's costs of its contribution proceedings."

46. The judge had also had regard to the February offer in relation to the question as to what contribution PHI should make to the costs ordered to be paid by RWC to Carillion. At paragraph 23(a) he said this, referring to the February offer:

"In reality, if RWC had accepted that, although it would only have settled the contribution proceedings in the 2009 Claim settled as between Phi and Carillion, the commercial reality is that it could well have set the scene for the effective resolution of RWC's contribution proceedings in the Carillion claim against RWC. It was, certainly as it turned out, a generous offer which, doubtless, RWC would have wished, in hindsight that it had accepted."

47. Both of the points now challenged played a material part in the judge's reasoning on the issue of costs as between PHI and RWC.

Did the first offer relate only to PHI's agreed liability to Carillion?

48. The judge said that, if the first offer had been accepted, it would only have related to the amount which was agreed to be paid by PHI to Carillion in the agreed settlement in May 2010. That seems to me to be the meaning of his statement in paragraph 27, quoted above, that acceptance by RWC of the offer "would not have compromised in law the contribution proceedings in the 2010 action". If however the offer had been accepted by the end of February 2010, or at any time before the mediation at the end of April 2010, it would have transformed the context of any negotiation. It is clear that a significant feature in the negotiation between Carillion and PHI was that PHI's insurance cover turned out to be limited to £3 million. Carillion agreed to accept a sum which took the whole of that cover, and a limited further contribution from the funds of PHI or of its parent company. If PHI had had the benefit of an agreed settlement of the contribution issues with RWC, that factor would have had a clear influence on the basis of its negotiation. In practice RWC would inevitably have become involved in one way or another in the negotiations. That was explicitly contemplated by the terms of the February letter.
49. For myself, I do not see how the offer, if accepted when, or soon after, it was made, could have been said to relate only to the threatened contribution claim by PHI against RWC and not to any potential contribution claim by RWC against PHI. That would make no sense. The settlement offered must have been taken to cover all issues of contribution to Carillion's claim by either PHI or RWC. I therefore respectfully disagree with the judge as to the scope of the offer.
50. However, although this point had some impact on the judge's conclusion, it is clear that his decision as to withdrawal was more significant.

Was the first offer withdrawn?

51. As to withdrawal, the judge's reasoning, as appearing from paragraph 19 quoted above, was that the November offers were inconsistent with the February offer, so that the recipient of the later offer would understand that the earlier offer was no longer open for acceptance. The first November offer was contingent on success in the imminent mediation. Since that event did not occur, the offer lapsed. It was always on the cards, to say the least, that it would lapse. For my part, in those circumstances, I can see no reason why that offer should be taken to have superseded the earlier offer.
52. However, the second November offer was not contingent. It was open for acceptance for 21 days. It was different from the February offer, and inconsistent with it in the sense that only one or the other of them could be accepted, not both. Does that mean that both of them could not have been open at the same time, or that the addressee must have taken the making of the later offer as revoking or withdrawing the earlier?
53. There is no inherent reason why a party should not make two different offers to the opposing party to settle litigation, either of them being capable of acceptance, though not both. It is not uncommon to see a party put forward alternative offers in the same letter of offer, as between which the opponent may choose which to accept. Normally, of course, with offers made at the same time, the economic substance of the two is likely to be the same or comparable. But if two different offers, inconsistent with each other in that both could not be accepted, can be made in one offer document, there is no reason in principle why one party should not make different offers successively, leaving it open to the opposing party to choose which (if either) to accept. It is not altogether unusual to find a party making successive and different offers in money terms, leaving each on the table, whether under Part 36 or not, each being capable of acceptance, but having different consequences as regards costs if not accepted and not beaten, because the special rules as to costs would aply as from different times in relation to different successive offers. One of the cases at issue in Gibbon v Manchester City Council, cited above, involved successive offers, of which several were open for acceptance at the same time: see Moore-Bick LJ's discussion at paragraph 32.
54. It is quite true, as the judge said, that the first offer and the third were of different kinds. The first offered to accept 70% of the liability to which both parties were exposed, if RWC accepted the balance of 30%. When the first offer was made, the amount which would have to be shared was at large. By the end of May 2010 £3.45 million was known to be due, and the balance was at large. PHI had borne the £3.45 million, so unless the balance turned out to be less than £1.47 million PHI's 70% share (if it had been agreed) would lead to PHI having to pay more. On the eventually determined proportions of 60:40, PHI would have paid its full amount due if the balance turned out to be no more than £2.3 million. On the November offer, under which PHI would bear what it had paid, but would not contribute to anything more that RWC had to pay, it was possible that RWC would turn out to be better off, but only if Carillion's quantum claim could be beaten down quite a long way. On the eventual judgment sum of £6.7 million, PHI's 60% share, as found to be due by the judge, required it to pay a further £570,000, bringing it up to a total outlay of £4.02 million. If the 70:30 agreement had been in place, PHI would have had to have contributed an additional 10% of the overall sum due to Carillion, namely £670,000, bringing it to a total of £4,690,000. Correspondingly, on Carillion's claim for £8 million, PHI's overall liability would have been £5.6 million at 70% or £4.8 million at 60%. It was not easy to compare the prospective outcomes of the two offers, but that is because in relation to a contribution claim such as this there are two variables: how much will be found due to the claimant, and what will be the percentages found due as between the contributing parties. The first offer would have fixed the latter but not the former, whereas the last offer would have fixed the bottom line, so to speak, which would be affected by both variables which remained to be decided.
55. In those circumstances it seems to me that although the two offers were inconsistent, so that RWC could not accept them both, it does not follow that because the latter was put forward the former was necessarily withdrawn.
56. RWC showed no sign of having paid any attention to any of these offers. From what we were told they were not only not responded to substantively, or by way of any query, they were not even acknowledged. It would have been open to RWC to seek clarification from PHI in response to the first offer or, after the second and third offers had been sent, to enquire whether the earlier offer was still available. If any conscious thought had been given to the first offer at that stage, it might have been thought that, because it purported to be a Part 36 offer and was clearly intended to operate as one, the writer intended or understood that it could not be withdrawn except in accordance with the rule, that is to say by a specific written notice of the withdrawal. On the other hand, as Mr Bowdery submitted, it may be that because of the failure to comply with rule 36.2(2)(c), not to mention the misapprehension about rule 36.14(2), the writer may not have been thought to have been altogether clear as to the features of the rule. That might have been another good reason for enquiry to seek clarification. However, nothing was done in that respect and we have to construe the effect of the letters on their own terms. What is clear is that the November letters were silent as to the position under the February offer: it was neither stated to be withdrawn nor still to be available. If it was withdrawn that happened by implication. It was not suggested that it had lapsed in the meantime.
57. Mr Bowdery submitted that in the two November letters PHI was pleading poverty, and making it clear that it could not and would not put any more money on the table, either to help with the mediation or generally. On that basis, he argued, it could not be supposed that the earlier offer, which did expose PHI to additional liability depending on the outcome as regards quantum, was still intended to be available. I do not accept that reading of the November letters. Neither of them says in terms, or by implication, that no more funds were available. They just did not offer any more money. To the contrary, each letter indicated that if the offer were not accepted PHI would fight on, accepting the risks of litigation but hoping for a better outcome such that the offer would become relevant to the issue of costs.
58. Looking at the matter overall, it seems to me, with respect to him, that the judge was wrong to conclude that, because the later offer was not consistent with the earlier offer, the earlier offer was necessarily withdrawn by implication. Each offer could have been beaten by either side. Depending on which was beaten by which party, the costs consequences would or could be different. That is, in itself, a reason for treating both offers as being open at the same time. Given that the first offer was made in formal terms and was not time limited, so that it was still open for acceptance in November, if that offer is to be found to have been withdrawn without an express statement to that effect, it seems to me that the circumstances leading to an implication of withdrawal would need to be compelling. The circumstances in the present case were not.
59. Accordingly, it seems to me that the judge was wrong to approach the exercise of his discretion on the footing that the earlier offer, which was more favourable to RWC than the eventual outcome, was no longer open for acceptance after the November offers had been made. I consider that it was still available for acceptance up to the trial.

The exercise of the discretion

60. It follows from this that the judge's exercise of his discretion, as explained in paragraphs 25 to 28 of his judgment quoted above, was on an incorrect basis in two material respects: the first offer was not withdrawn but remained open for acceptance until trial, and if it had been accepted it would have determined the contribution as between PHI and RWC towards any sums for which either was liable to Carillion by agreement or by judgment.
61. It is therefore for this court to exercise the discretion itself. As it seems to me, on the basis that I have discussed, the position is relatively simple. PHI made an offer to RWC as regards the sharing of all liability to Carillion as between the two of them, and this was more favourable to RWC than the result achieved by RWC at the end of the day by way of the judge's judgment. If the first offer had been accepted at the time it was made, or thereafter, RWC would have been significantly better off, as regards its net liability to Carillion, than it was after judgment. In those circumstances, even though it is not a case within Part 36, it seems to me that the appropriate order is that RWC should pay to PHI the latter's costs of the contribution proceedings, and should bear all of its own.
62. I would allow the appeal and make that order in place of paragraphs 2 and 3 of the order made by the judge on 23 June 2011.

Lord Justice Stanley Burnton

63. I agree.

Lord Justice Rix

64. I also agree.