Part 36 Superposition: A Look at Wormald v Ahmed [2021] EWHC 973 (QB)

In a case concerning a child or protected party, during the period between its purported acceptance and approval under CPR Part 21, a Part 36 offer is – much like Schrödinger’s cat – in a state of superposition: it is both accepted but not binding (i.e. liable to be withdrawn). The grounds on which such an offer can be withdrawn prior to approval were considered by Ms Clare Ambrose, sitting as a Deputy Judge of the High Court, in Wormald v Ahmed [2021] EWHC 973 (QB).

The Facts

The Claimant suffered a serious traumatic brain injury in a road traffic accident in 2009. In his subsequent personal injury claim, his mother acted as his litigation friend. In 2014, a preliminary trial on liability resulted in judgment being entered in the Claimant’s favour for 60% of his damages to be assessed. Quantum remained in dispute.

Prior to the liability trial the Defendant’s solicitors, on 15 October 2014, made a Part 36 offer in the sum of £2 million.

Unfortunately, in September 2020 the Claimant suffered a cardiac episode leaving him in a critical condition in hospital. The Claimant’s solicitors sought urgent advice from counsel alongside instructions from the Claimant’s litigation friend.

Having done so, on 18 September 2020 at 8:19 am the Claimant’s solicitors e-mailed the Defendant’s solicitors accepting the £2 million offer. In response to the Defendant’s solicitor’s enquiry, at 11:45 am the Claimant’s solicitors explained that the Claimant was on life support and in a critical condition. The Claimant sadly died later that day.

The Defendant’s solicitors were notified of the Claimant’s death on 21 September 2020 and, on 25 September 2020, they sent an e-mail purporting to withdraw the offer. It was the Defendant’s position that the figure of £2 million substantially exceeded the value of the Claimant’s claim had his prognosis been known. The judge proceeded on that basis in determining the matter before her: see [22].

The Application

By an application notice dated 16 December 2020, the Claimant sought a declaration that, pursuant to CPR 36.11(2), the Defendant’s offer had been accepted and could not be withdrawn. The Claimant also sought an order that the sum accepted in settlement be approved by the court.

At [29], the judge defined the issues for the court as follows:

1. Where a protected party accepts a Part 36 offer, is the other party subsequently able to withdraw that offer before approval of the settlement?
2. When the court is asked to approve a settlement, on what grounds (if any) can a Part 36 offer be withdrawn?
3. Should the court grant permission for withdrawal of the Defendant’s offer or approve the settlement in the amount offered?

The Rules

Part 21 deals with children and protected parties:

21.10

(1) Where a claim is made –

(a) by or on behalf of a child or protected party; or

(b) against a child or protected party,

no settlement, compromise or payment (including any voluntary interim payment) and no acceptance of money paid into court shall be valid, so far as it relates to the claim by, on behalf of or against the child or protected party, without the approval of the court.

Part 36 deals with settlement offers:

36.1

(1) This Part contains a self-contained procedural code about offers to settle made pursuant to the procedure set out in this Part (“Part 36 offers”). …

36.9

(1) A Part 36 offer can only be withdrawn, or its terms changed, if the offeree has not previously served notice of acceptance.

(2) The offeror withdraws the offer or changes its terms by serving written notice of the withdrawal or change of terms on the offeree.

(3) Subject to rule 36.10, such notice of withdrawal or change of terms takes effect when it is served on the offeree.

(Rule 36.10 makes provision about when permission is required to withdraw or change the terms of an offer before the expiry of the relevant period.) …

36.11

(1) A Part 36 offer is accepted by serving written notice of acceptance on the offeror.

(2) Subject to paragraphs (3) and (4) and to rule 36.12, a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer), unless it has already been withdrawn.

(Rule 21.10 deals with compromise, etc. by or on behalf of a child or protected party.)

(Rules 36.9 and 36.10 deal with withdrawal of Part 36 offers.)

(3) The court’s permission is required to accept a Part 36 offer where –

(a) rule 36.15(4) applies;

(b) rule 36.22(3)(b) applies, the relevant period has expired and further deductible amounts have been paid to the claimant since the date of the offer;

(c) an apportionment is required under rule 41.3A; or

(d) a trial is in progress. …

36.14

(1) If a Part 36 offer is accepted, the claim will be stayed.

(2) In the case of acceptance of a Part 36 offer which relates to the whole claim, the stay will be upon the terms of the offer.

(3) If a Part 36 offer which relates to part only of the claim is accepted, the claim will be stayed as to that part upon the terms of the offer.

(4) If the approval of the court is required before a settlement can be binding, any stay which would otherwise arise on the acceptance of a Part 36 offer will take effect only when that approval has been given.

The Decision

As to issue (1), the judge did not fully accept either party’s submissions. At [59], she concluded as follows:

a) A compromise made on behalf of a protected party by acceptance of a Part 36 offer requires the approval of the court under CPR 21.10 (CPR 36.11 & 36.14).

b) Where a protected party accepts a Part 36 offer, the offer and its acceptance are not binding to make a valid settlement until approved by the Court (CPR 21.10).

c) The proceedings are not stayed until the court approves the settlement (CPR 36.14).

d) Until the settlement is approved the other party may resile from its offer by giving notice of withdrawal ([Drinkall v Whitwood [2003] EWCA Civ 1547]). The withdrawal serves a purpose in giving notice that the settlement is challenged.

e) However, the notice of withdrawal will not in itself be valid for the purposes of Part 36 (CPR 36.9), in particular in relation to costs consequences.

f) Either party may apply for approval of the settlement (Practice Direction 21). A party resiling from the settlement may raise its position on that application. The court will decide whether the withdrawal is to be given effect or the settlement is to be approved.

g) Further consequences were not explored but that party could probably issue an application to resolve any issue as to how the proceedings continue, including the effectiveness of its withdrawal from the settlement.

As to issue (2), the judge gave valuable guidance at [61]-[63] as to the grounds on which a Part 36 offer may withdrawn after it has been accepted but prior to approval under CPR Part 21:

Where a settlement has been concluded on behalf of a protected party the case law suggests that the court will allow either party to resile from it until it is approved. …

The Claimant was correct in contending that the primary considerations under CPR 21.10 remain the protection of the protected party and his dependants (including the proper control of the proceeds), followed by ensuring that the Defendant is properly discharged. However, the overriding objective is also relevant, namely dealing with cases justly. This includes ensuring that the parties are on an equal footing. The question is whether, in all the circumstances, approval of the settlement would be unjust. The assessment is to be made taking account of how matters stand at the date of the approval hearing. The onus of showing that it would be unjust to bind a party to its offer lies on that party. The court’s discretion as to whether to approve the settlement is not governed by Part 36. However, the considerations raised under CPR 36.17 as to whether the normal consequences follow provide some useful guidance in assessing whether it would be unjust to bind a party to its Part 36 offer, even where that may be disadvantageous to the protected party. The decision will be fact sensitive and it may be easier to resile from a non-binding settlement than to ask the court disapply the normal costs consequences of Part 36. On the facts here it is not necessary to decide precisely where the test lies but the court may decline approval of the settlement if it would be unjust for a party to be bound by its offer. …

The court is not policing the compromise to see whether it is too generous to the protected party (or his estate) or gives rise to a financial windfall. It would be undesirable to enter into such investigations, not least since any settlement is likely to give rise to some element of financial windfall or shortfall (and reflect other considerations). This is a necessary aspect of a compromise, and part of the inherent contingencies of litigation. It will not in itself be decisive. However, if it is a clear case where the settlement will result in the protected party (or his estate) financially doing significantly better than he would have done at trial then this may go into the balance.

Rather than finally determining issue (3), the judge gave the Claimant an opportunity to apply to adduce further evidence and address certain requests that had been made by the Defendant, it being her view that it “may be unfair to decide the issue if there has been an oversight or misunderstanding, especially where the argument before me was mainly directed at the legal questions”: see [70].

Notwithstanding this, the judge did give a preliminary indication at [69] that it would be unjust for the Defendant to be bound by the accepted offer. In giving this indication, the judge referred to the following factors:

• that the Claimant’s losses had crystallised and that he had no dependents;
• that the acceptance of the offer was a direct result of the Claimant’s condition becoming critical, which his solicitors knew would affect the value of the case;
• that the Defendant was not notified of the change in prognosis or the critical nature of the Claimant’s condition until after the offer had been accepted;
• that the sudden deterioration in the Claimant’s condition was not expected by either side;
• that it would be reasonable for the litigation friend to take steps to maximise recovery;
• that if the Claimant had survived then (in the judge’s view) it would have been unjust to hold him to the compromise and he would have likely been able to resile from it;
• that the parties were not on an equal footing because of the disparity between the parties’ respective states of knowledge;
• that the Defendant’s consequent lack of opportunity to take advice and respond to the changed prognosis was significant; and
• that the settlement would result in the Claimant’s estate recovering substantially more than the Claimant would have recovered if his actual prognosis had been known.

Comment

In our view, the judge’s reference to the importance of the parties being on an equal footing is correct. Where the proposed settlement represents a windfall to the Claimant’s estate resulting from a disparity between the parties’ states of knowledge, the court will be concerned not only with the considerations under CPR Part 21 but also with the need to deal with the case justly from the perspective of both parties.

Considering the counterfactual situation where the Claimant survived and wished to resile from his acceptance of the £2 million offer, the judge’s view at [67] was he would “easily” have been able to justify so doing. Whether it ultimately proves so easy for the Defendant to withdraw its offer in this case remains to be seen, though the judge’s preliminary indication certainly suggests sympathy with the Defendant’s position.

A further blog on this topic will follow once the judge has made a final determination of issue (3).