The High Court has overturned a ruling that found a defendant had agreed a Part 36 offer to settle.

John Saunders and his company Liquid Strategies had been ordered to pay all the claimant costs in a dispute over a business partnership on the basis that a Part 36 offer under the Civil Procedure Rules made in February by them had been accepted.

But the defendants contended the offer letter was not a Part 36 offer but an offer to pay compensation based on an amended claim that was yet to be agreed by the court.

Following a hearing last month, Mr Justice Morgan (pictured) said the letter did not satisfy the stipulations of Part 36 (before CPR changes in April 2015) that the offer must state whether it relates to the whole of the claim or part of it.

‘The letter did not say anything about the costs of and occasioned by the amendment,’ said Morgan, in his judgment in Hertel & Artemis International v Saunders & Ors. 

‘It is well known by solicitors that it is standard practice when the court gives permission to amend for it to direct that the costs of and occasioned by the amendment be paid by the amending party in any event.’

The litigants had been involved in a dispute over whether certain individuals were involved in a partnership and what monies were owed.

The defendants’ solicitors, Blake Morgan, had written to their counterparts, Thompson & Lilley, with an ‘offer in settlement of your client’s proposed claim, by amendment, for an account based on an agreement’.

The letter explained that in the event of agreeing an amended claim, the defendants would pay around £130,000 – an offer that was said to ‘have the consequences’ of Section 1 of Part 36. If accepted within 21 days, the letter stated, the claimants would be entitled to their costs relating to the part of the amended claim they intended to plead.

The response said that upon acceptance of the offer of settlement, the claimants had abandoned the balance of their claim.

The first judgment, made by Deputy Master Lloyd in May, said the claimants had succeeded in recovering a significant sum and there was no reason to make anything other than a costs order against the defendants.

But Morgan said the letter could not be considered a Part 36 offer under the rules at the time, and the claim had not been settled after all.

He set aside Lloyd’s order and instead made orders for costs in favour of the defendants in accordance with his judgment.