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OPEN OFFERS: A PRACTICAL VIEW FROM THE BAR



Reproduced from Practical Law with the permission of the publishers. For further information visit www.practicallaw.com or call 020 7542 6664.

In his monthly column, James Bickford Smith discusses the High Court’s decision in The Dorchester Group Limited t/a The Dorchester Collection v Kier Construction Limited [2015] EWHC 3051 (TCC) concerning an open offer of settlement.

There are surprisingly few authorities concerning open offers of settlement. That may be because there is a perception that the principles relating to them are analogous to those concerning Calderbank letters, or because such offers are less common than Calderbank offers. It is nevertheless surprising that the White Book has no sustained discussion of them. For that reason, it is unclear whether the decision in The Dorchester Group Limited t/a The Dorchester Collection v Kier Construction Limited [2015] EWHC 3051 (TCC) (see Legal update, Defendant’s open offer did not contain an admission within CPR 14.1(4) (High Court) (www.practicallaw.com/5-619-7955)) is the first to address two central confusions that such offers can create. As no earlier authorities were referred to in the course of what seems to have been a well-argued hearing, it may well be.

The Two Key Issues

Two key issues that can arise with open offers are as to:

  • Whether the letter containing an open offer can also be characterised as containing admissions within the meaning of CPR 14.1.
  • The costs consequences of an open offer.

These two issues are, as we shall see, related to a degree. Both of them were addressed in The Dorchester Group.


Admissions

CPR 14.1 provides that "a party may admit the truth of the whole or any part of another party’s case” and that "the party may do this by giving notice in writing (such as in a statement of case or by letter)”. The latter provision retains an ability to catch people out: if an admission has been made, a party may apply for judgment on it. 

A Calderbank letter, if marked "without prejudice save as to costs” is unlikely to contain admissions within the meaning of CPR 14.1. There is a residual risk that the court will go behind labelling and find that, for example, correspondence that amounts simply to an attempt to restructure an admitted debt will be admissible in evidence (see Avonwick Holdings Limited v Webinvest Limited and another [2014] EWHC 3322 (Ch) and Legal update, No retrospective without prejudice privilege (High Court) (www.practicallaw.com/2-584-4305)). If admitted into evidence, such admissions may lead to the entry of judgment.

Those risks are plainly more substantial in the context of open offers and correspondence. In The Dorchester Group, the claimant applied for judgment on the basis of a letter that read as follows:

"In full and final settlement of the Proceedings we set out herein Kier’s open offer and the terms that relate to it. 

For the purposes of the Proceedings only, and without making any admissions of liability save as set out below, Kier accepts that TDC is entitled to the following declarations (by reference to the prayer to TDC’s Particulars of Claim):
    1. As to the declaratory relief sought at (1) Kier accepts (and has admitted in its Defence served on 5 March 2015) that TDC is entitled to the relief sought;
    2. As to the declaratory relief sought at (2) Kier accepts that TDC is entitled to such a declaration and that the amount of the undeclared discount obtained by Kier from Mitie amounts to the sum of £686,575.00;
    3. As to the declaratory relief sought at (3) Kier accepts (and has admitted in its Defence served on 5 March 2015) that TDC is entitled to a declaration that the value of the mechanical and electrical measured works and associated variations, including tunnel variations, is in the amount of £7,484,865.00. For the avoidance of doubt, this sum is composed as follows...
Kier’s offer remains open for acceptance at any point until such time as Kier notifies TDC that Kier’s open offer is withdrawn.

Finally, please note that:
    1. This open offer is not an offer to pay a sum of money. As with the Proceedings, this offer simply concerns the declarations sought: there is no monetary claim comprised within the Proceedings.
    2. As to costs, in the event TDC chooses to accept Kier’s offer at any point it is a condition of Kier’s offer that costs shall be in the discretion of the Court. There will be a number of matters upon which we wish to address the Court on the subject of costs.
    3. This offer is alternative to, and cannot be accepted in conjunction with, any other offer which Kier may have made in, or in connection with, the Proceedings.”

The claimant’s argument was that, by this letter, the defendant had admitted that its pleaded case was wrong, and that it was liable to the claimant for the sums representing the undisclosed discounts at issue in the proceedings. In consequence, the claimant was entitled to judgment pursuant to CPR 14.1(4).

Coulson J rejected that argument for the following reasons:
  • The letter made no reference to CPR 14.1.
  • "The letter does not admit to the truth of Dorchester’s case that all undisclosed discounts are due. It simply "accepts” that proposition for the purposes of the offer”.
  • "The letter makes no reference at all to the defence based on the partial discount for early payment, and there is nothing on the face of the letter that amounts to an admission that in some way that partial defence was a bad one, and/or was no longer pursued.”
  • "For judgment to be entered under r.14.1, the admission has to be clear and unequivocal: see for example, Technistudy v Kelland [1976] 1 WLR 1047. That is how r.14.1 is intended to work. Here, the alleged admission about the discount for early payment to Mitie is neither clear nor equivocal.”
It followed, in short, that the "open offer” was simply advancing a basis on which the defendant would be prepared for judgment to be entered on the merits, to leave it free to pursue arguments about costs. Unless accepted by the claimant, it was of no greater effect than that.

Cost consequences
It is trite law that an open offer (if it does not contain admissions) will simply be a factor that the court can take into account when exercising its discretion as to costs (see CPR 44.2.4(a) and (c)). As CPR 44.2.4(c) refers to "any admissible offer to settle”, there would seem to be no difference between an open offer and a Calderbank letter. 

So much for the theory. The practical question that the Dorchester Group case highlights is this: if an open offer is simply a thing writ in water unless accepted, how are the parties to conduct themselves in circumstances where one of them has all but admitted, in a document admissible in evidence, that key elements of their case may be unsustainable?

This was a question that Coulson J dealt with as follows:

"Although [Counsel for the Defendant] said, on a number of occasions, that this case was all about quantum, the effect of my dismissal of Dorchester’s application for judgment is to the contrary. On the face of the pleadings as they currently stand, liability remains in dispute. Whether that is sensible or proportionate going forward is, in the first instance anyway, a matter for Kier.”

In other words, either the defendant should make formal admissions or it would be held to its pleaded case. The subtext to this observation was simple: a party advancing a pleaded case that fails will be the loser for costs purposes and will risk incurring particular displeasure should it choose not to make the admissions that its forensic stance suggested were inevitable. 

This is a significant judicial observation given the way that open offers can commonly be used: a party’s counsel will, as in this case, submit to the judge that "the case is really all about quantum” and may point to open correspondence if asked why their clients have not taken a "more realistic” stance on liability. It is this approach that can lead from an open offer into an attractive argument on costs: even if the party who made the offer loses the case itself, its "realistic” offer may weigh heavily in the judge’s mind when considering the reasonableness of the parties’ conduct. Further, in a money case, an open offer pitched at a certain level tells a judge exactly what finding he needs to make to let a party beat, or stop a party from beating, an offer of settlement. Hence the potential potency of an open offer as opposed to a Calderbank letter.

What Coulson J’s observation underlines is that if an open offer is seen as simply that, a party cannot then rely on it to show that they have made sensible "admissions”. Indeed, an irony of the case is that it can at times be submitted by the offering party (rather than the receiving party) that an open offer was an admission for the purpose of CPR 14.1 and that the other side should have applied for judgment on it. That line of argument now appears more difficult after The Dorchester Group, the court’s approach in which is analytically hard to fault.

Whether, as a matter of practical reality, Coulson J’s bright line approach will be applied in practice is a different matter altogether. Nor is it entirely plain that it should be. If part of the objective of CPR 14 is to prevent the litigation of every point, it is unsurprising to find courts receptive to parties who, while feeling unable to make Part 36 offers or formal admissions within the meaning of CPR 14, nevertheless signal a willingness to reduce significantly the scope of a dispute. Some litigators consider that a logically unsustainable stance for the reasons that the court sought to expand on in The Dorchester Group. Others consider that an open offer has a place, albeit a rare one, in the toolkit for positioning a case when other more conventional options are either unavailable or have been tried and found wanting. Whichever view one subscribes to, the particularities of the open offer will doubtless remain something that litigators have to grapple with for some time to come.
Posted: 11.11.2015 at 09:07
Tags:  Comments  Commercial Law
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