Rob Stokell of Crown Office Chambers success in Court of Appeal: Calonne Construction Limited -v- Dawnus Southern Limited
In Calonne Construction Limited v Dawnus Southern Limited the Court of Appeal held that a Part 36 offer which had been made by Dawnus in respect of both the claim and a proposed counterclaim which had not yet been pleaded, and contained provision for interest to accrue at a particular rate after the expiry of the relevant period, was valid.
Robert Stokell acted for Dawnus.
The claim related to works carried out by Dawnus on a residential property. On 22 February 2017, DJM Solicitors (for Dawnus) sent a letter to Calonne containing an offer, described as a Part 36 offer, “to settle the whole of your client’s claim… together with the counterclaim which our client will shortly be issuing within the same proceedings” (“the Offer”). The settlement sum was said to be inclusive of interest until the relevant period had expired, after which “interest at a rate of 8% per annum will be added.”
Following the trial, judgment was entered for Dawnus in the sum of £116,616.89 plus interest of £11,751.78, and costs and other consequences were awarded on the basis that Dawnus had beaten “its Part 36 offer”. Calonne was granted permission to appeal in relation to the validity of the Offer.
Calonne argued that as a result of the decision of the Court of Appeal in Hertel & Anr v Saunders  EWCA Civ 1831;  1 WLR 5832, the inclusion of a counterclaim which had yet to be pleaded was fatal to the validity of the Offer as a Part 36 offer. Robert Stokell, acting for Dawnus, relied in particular on AF v BG  EWCA Civ 757;  2 Costs LR 164 and submitted that (1) as a result of CPR 20.2 and 20.3 a counterclaim is treated as a separate claim for the purposes of the Rules, (2) CPR 36.7 provides that a Part 36 offer can be made at any time, including before the commencement of proceedings, and accordingly (3) the Offer was not invalidated despite the fact that the counterclaim had yet to be pleaded.
The Court held that although passages in AF v BG, so far as they were concerned with the unpleaded counterclaim, were obiter, and there was no direct argument as to whether the reference to an unpleaded counterclaim invalidated what might otherwise be a Part 36 offer, Lloyd LJ’s conclusions in AF v BG were relevant to the very issue with which the present appeal was concerned. Lloyd LJ reached his conclusions on the basis that it did not matter that the counterclaim had not been “formulated or pleaded” and he relied on a combination of CPR 36.3(2) (now CPR 36.7) and CPR r 20.2 and 20.3. The express purpose of Part 20 is to enable counterclaims and other additional claims to be managed in the most convenient and effective manner. As a result of CPR 20.2 and 20.3, a counterclaim is treated as a claim for the purposes of the CPR except as expressly provided in that Part of the Rules. Nothing in Part 20 excepts Part 36 from the provisions of that rule. Furthermore, the sentence in parenthesis at the end of CPR 36.2(3) makes clear that CPR 20.2 and 20.3 apply for the purposes of Part 36, and CPR 36.2(3)(a) provides that a Part 36 offer may be made in respect of the whole or part of, or any issue that arises in, a claim, counterclaim or additional claim. Accordingly, a defendant’s proposed counterclaim must be treated as if it were a claim for the purposes of Part 36. In those circumstances, and in the light of the fact that a party is entitled to make a Part 36 offer at any time, including before commencement of proceedings, it cannot be correct that a Part 36 offer cannot be made in relation to a counterclaim before that claim has been pleaded. To conclude otherwise would derogate from both CPR 20.3 and from CPR 36.7. That must be the case even if proceedings in relation to another claim, the original claim, are already on foot.
The Court held that Hertel was primarily concerned with the effects of CPR 36.10(2), a provision which is no longer within the CPR and, in fact, has been reversed. Furthermore, it was concerned with a defendant’s offer in relation to a proposed amendment to the claim in proceedings which had already been commenced. It was in that context that Coulson LJ decided that “claim” or “part of a claim” and “issue” in what is now Rule 36.5(1)(d) meant ‘pleaded claims’. No consideration was given in Hertel to the effect of CPR 36.7 in relation to a counterclaim.
A link to the judgement can be found here: Calonne Construction Ltd v Dawnus Southern Ltd Approved