Natural justice and Part 36 offer withdrawal

Mr Justice Leggatt has righted what would appear to have been a manifest breach of the principle of open and natural justice in the rather extraordinary case of Evans v Royal Wolverhampton Hospitals NHS Foundation Trust [2014] EWCA Civ 3185 (QB), [2014] All ER (D) 86 (Oct).

What happened in this case?

The defendant had made a Part 36 offer which it then sought to withdraw within the relevant period, but the claimant had also sought to accept it just after the withdrawal notice (but still within the relevant period).

Note: If you wish to withdraw a Part 36 notice within the relevant period, you need to obtain the court’s permission to do so.*

One might have expected, therefore, that the defendant would openly seek such permission.But no, unbeknownst to the claimant, the defendant made a without notice application for permission to withdraw the offer.

The court made such an order on an ex parte basis and, even more surprisingly, dispensed with the requirement under CPR 23.9(2) that when serving the ex parte order on the claimant, that the defendant need not serve with it a copy of its application notice, supporting evidence and note/transcript of the hearing.

So, on receiving the court order giving the defendant permission to withdraw its Part 36 offer, the claimant was left completely in the dark as to the basis on which the permission had been given.

Was this an acceptable deviation from the principle of open and natural justice?

Leggatt J thought not. He considered:

  • the case law and legislative history which has resulted in the closed material procedure as we know it**
  • adherence to the principle of natural justice is not an optional feature of litigation from which a court has power to derogate because it considers that in the particular circumstances the need to follow a fair procedure is outweighed by a conflicting public or private interest. Subject only to certain established and tightly defined exceptions, the right to participate in proceedings in accordance with the principle of natural justice is absolute
  • this principle applies whenever a court is deciding a question of substantive legal right as between the parties to the litigation
  • there was no national security exception that applied here to permit of a closed material procedure exception

How far did the defendant try to push it?

Whilst recognising it couldn't maintain a closed material procedure argument in light of this, the defendant still didn’t back down.

Rather it requested that the court, again without disclosing any of the evidence to the claimant, adjourn the hearing of the claimant’s application to set aside the permission order, essentially for a few months until the defendant determined that it was appropriate for the claimant to have sight of the evidence supporting the defendant’s original permission application.

In so doing, the defendant argued that an adjournment was essentially a procedural matter only and did not involve the claimant’s substantive legal rights and therefore principles of natural and open justice would not be flouted by the court ordering such an adjournment on the basis of undisclosed material.

Leggatt L responded with a resounding ‘no’:

  • the practice of making orders which determine questions of substantive legal rights on an application made without notice is itself an exception to the principle of open and natural justice and, as such, is subject to vital safeguards
  • those safeguards are clearly seen in the context of freezing injunctions and search orders which are often sought on a without notice basis*** that:
    • that the application should not be made without notice unless either giving notice would enable the respondent to take steps to defeat the purpose of the application or there has been literally no time to give notice before the urgent assistance of the court is required
    • the standard practice requiring the applicant on such an application to serve on the respondent when serving the order granted both a copy of the application notice and the supporting evidence and also a note or transcript of the without notice hearing

None of these safety guards had been applied in the present case. An adjournment did engage the claimant’s substantive rights and therefore he refused to consider an adjournment without disclosure of the defendant’s evidence to the claimant. The defendant declining to do so he set aside the permission order and entered judgment for the claimant in the amount of the Part 36 offer.

And what of the Part 36 regime on withdrawal and a change in circumstance?

Leggatt J concluded his judgment with the following observations:

  • Part 36 provides a statutory procedure designed to facilitate and encourage the settlement of disputes
  • this requires a regime that is clear and certain, one such element being that an offeree knows it has 21 days (the relevant period) within which to accept an offer and that the offer cannot be withdrawn within that period unless the court gives its express permission
  • in deciding whether or not to give such permission the court will consider whether there has been a sufficient change of circumstances to make it just to permit the party to withdraw its offer, such as the discovery of further evidence (Cumper, a case on payments in, adopted in Flynn)****
  • the relevant date for determining whether the change in circumstance is sufficient to permit the offer to be withdrawn must be the date on which the offer was purportedly withdrawn; that being so, what legitimate reason could there be for now seeking to conceal from the offeree the way in which circumstances were said to have changed between the making of the offer and its purported withdrawal
  • further, the matter relied on as constituting the change in circumstance must be one which the offeror is ready to disclose at the time notice of withdrawal is given and the necessary application for permission made

The rigidity of the Part 36 regime did not allow for a situation such as the defendant here contended for, namely leaving the claimant in a state of limbo for yet further time before disclosing the reasons behind its purported withdrawal and whether or not such a withdrawal invalidated the claimant's purported acceptance.

 

 

Subscribers to LexisPSL can find further guidance on:

*Withdrawing or varying a Part 36 offer

**Closed Material Procedure

***e.g. Freezing injunctions—requirements

**** Flynn v Scougall  [2004] EWCA Civ 873, [2004] 3 All ER 609 and Cumper v Pothecary [1941] 2 All ER 516

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