In a surprising decision that will likely raise many eyebrows from lawyers and surveyors, His Honour Judge Parfitt has concluded in Ashe & Lines v Smith (Central London County Court, Unreported) that the formal settlement provisions of Part 36 do not apply to appeals under section 10(17) of the Party wall etc Act 1996.
What is Part 36?
Part 36 is a provision in the Civil Procedure Rules which encourages parties to settle disputes by providing a formal framework for making settlement offers. All offers made under Part 36 are “without prejudice save as to costs”; that is to say, either party can make offers to resolve a dispute without that offer being used against them later, except when the question of costs falls to be decided after the main issue in dispute has been resolved.
What is a Part 36 Offer?
A Part 36 offer is a formal settlement offer made in accordance with Part 36 of the Civil Procedure Rules. It carries some automatic consequences. First, if the offer is made by a person bringing the proceedings (e.g. an Appellant), and accepted by a person resisting the proceedings (e.g. a Respondent) then the Respondent automatically becomes liable for the Appellant’s legal costs of the appeal. Second, if the Respondent does not accept the offer, but fails to beat the offer at the final hearing, then the Respondent will automatically be required to pay the Appellant’s costs after the expiration of the offer.
As mentioned above, the case of Ashe & Lines v Smith (Central London County Court, Unreported) concerned an appeal under section 10(17) of the Party wall etc Act 1996. The award that was the subject of the appeal was made by an agreed surveyor. It determined that compensation for repairing alleged damage to an Adjoining Owner’s property was payable by the Building Owner.
The Court gave directions for a single joint expert to report on the extent of the damage alleged and the compensation payable to fix it. That joint expert concluded that the Building Owner’s works caused some, but not all, of the damage alleged, and that the correct cost of repair was around 30% of the level given in the Award.
On 28 June 2021, shortly after receiving the joint expert report, the Building Owner made a formal offer of settlement under Part 36 of the Civil Procedure Rules, offering to pay the amount assessed by the expert witness as being the cost of repairing the damage. It was in form N242A and included the standard caution that, if the Adjoining Owner accepted the offer, she would be liable for the Building Owner’s costs of the appeal.
On 2 July 2022 the Adjoining Owner made an informal counter-offer (i.e. not a formal Part 36 offer).
On 13 July the Adjoining Owner, having taken advice from her barrister, accepted the Building Owner’s Part 36 offer in signed writing using the specified form for accepting Part 36 offers.
A few days later the Adjoining Owner claimed that even though she had received a barrister’s advice on the offer, she had not understood that, by accepting a Part 36 offer, she was automatically liable for the Building Owner’s costs of the appeal. The Adjoining Owner “withdrew” her agreement to the offer.
In a decision that will surprise many lawyers and surveyors, the Court concluded that a settlement has not, in fact, been reached. Perhaps more surprising was the ground on which this finding was based; that Part 36 of the Civil Procedure Rules does not apply to statutory appeals under the 1996 Act.
HHJ Parfitt explained that Part 36 only applies “…to an appeal or cross-appeal from a decision made at a trial…”. Surveyors under the 1996 Act generally, and the agreed surveyor in this case specifically, did not engage in a formal process that might be described as “a trial”. There was no formal process of obtaining evidence, no cross examination of witnesses, and not necessarily a consideration of submissions. Because the determination by the surveyors was not made “at a trial”, HHJ Parfitt concluded that Part 36 could not apply.
The Building Owner’s fall-back argument was that, even if Part 36 did not apply, there was still an agreement between the parties to settle the dispute, which was a contract at common law. HHJ Parfit rejected this argument, finding that the usual rules about offer and acceptance to the creation of contracts applied. The counter-offer made by the Adjoining Owner on 2 July 2022 had extinguished the Building Owner’s offer of 28 June 2022, such that it could not later be accepted.
The decision is a significant departure from the previous practice of the Courts, which has accepted that Part 36 applied to appeal proceedings under section 10(17) of the 1996 Act.
Whilst the parties to an appeal can still make informal offers of settlement – sometimes known as “Calderbank” offers – it is at the judge’s discretion as to whether these offers are taken into account when determining who pay the costs of an appeal. The certainty of the automatic costs that come as consequence of failing to beat a Part 36 offer have been replaced with the uncertainty of judicial discretion, which suggests that future appeals under the 1996 Act will likely become more difficult to settle.