SOME THINGS YOU MIGHT NOT KNOW ABOUT SETTLEMENT: A PRACTICAL GUIDE

Transcription

1 SOME THINGS YOU MIGHT NOT KNOW ABOUT SETTLEMENT: A PRACTICAL GUIDE by Wayne Clark Falcon Chambers Wayne Clark practises at Falcon Chambers, specialising in the law of landlord and tenant and general property law. His recent cases include Country Estates Construction Ltd v Oxford CC 2009, QB (breach of restrictive covenants), National Trust v Fleming 2009, Ch. (breach of restrictive covenants), Fairacre Investments Ltd v Earlrose 2009, CA (assessment of damages for trespass)) and Norwich Union Life & Pensions Ltd v Strand Street Properties Ltd 2010, CA (agency with respect to development costs). He is a contributor to Hill and Redman s Law of Landlord and Tenant, co-author of The Renewal of Business Tenancies, Law and Practice (3rd Ed 2007); Tenant s Rights of First Refusal (2 nd Ed 2008) and general editor of Fisher and Lightwood s Law of Mortgage (13 th Ed 2010). FALCON CHAMBERS Falcon Court Temple London EC4Y 1AA Tel: Fax: clark@falcon-chambers.com 1

2 Is there a binding agreement? 1. One often needs to consider whether or not the correspondence between the parties has given rise to a binding agreement. Several matters arise. First, has any contractual intent been excluded by using the qualification subject to contract. Secondly is the correspondence admissible in any event i.e. is the correspondence protected by without prejudice privilege. Subject to contract 2. The existence of the rubric subject to contract will negate contractual intention. One finds in practice that it is used frequently albeit it is now extremely difficult, if not impossible, to bring about an agreement relating to the disposition of an interest in land by way of an exchange of correspondence because of the decision in New Towns v Cooper (Great Britain) Limited [1995] 2 WLR 677, CA. 3. Where there are negotiations relating to the disposal of an interest in land and those negotiations are expressed to be subject to contract, the negotiations cannot mature into a concluded agreement unless and until there is an exchange of contracts in accordance with ordinary conveyancing practice. Before that either party can withdraw and costs incurred will be irrecoverable: Regalian Properties plc v London Docklands Development Corp [1995] 1 WLR The subject to contract formula may be express or implied. It should be noted that where parties are proceeding directly towards the exchange of lease and counterpart, without formal contract, there is a presumption that the parties are proceeding subject to lease and are not contractually bound until formal exchange of lease and counterpart: Leveson v Parfum Marcel Rochas (England) Limited [1966] 200 EG 407; Longman v Viscount Chelsea (1989) 58 P&CR 189, CA. It should be noted that this presumption or ordinary expectation does not apply where the parties are negotiating for a new lease under the 1954 Act: Behar, Ellis and Parnell v Territorial Investments Limited [1973] CAT, 237, CA. 2

3 5. In Behar James LJ said: In the Landlord and Tenant Act 1954, in sections 33, 34 and 35, are terms which encourage the parties of such litigation to agree on the terms of a new tenancy, and it is when the parties cannot agree that the court makes a determination. By their solicitors, the parties have followed the course contemplated by the legislation, designed to dispose of the pending litigation. They reached agreement on every point, and at the moment of time when agreement was so reached, the subject matter of the litigation was compromised and the inevitable new tenancy had to be granted on the terms agreed. 6. Once used the expression subject to contract qualifies all subsequent correspondence and negotiations between the parties, irrespective of the omission of that phrase on subsequent correspondence, unless and until the qualification is expressly or impliedly expunged: Sherbrook v Dipple (1980) 41 P&CR 173, CA. 7. One must make sure that one is not lulled into a false sense of security by an agreement to be found in correspondence. In Akiens v Salomon [1993] 1 EGLR 101, CA. the tenant s lease of business premises expired on September 29, On December 21, 1990 the landlord served a s.25 notice specifying July 1, 1991 as the date of termination. The tenant s time for making an originating application expired on April 21, Correspondence ensued between the parties respective solicitors over the terms of a new lease. The correspondence was headed either subject to contract or subject to lease. On April 15, 1991, the landlord accepted the tenant s proposals. The letter of acceptance was headed subject to lease. On May 15, 1991, the landlord s solicitors enclosed the counterpart lease for signature. This was returned on June 24, The landlord refused to complete and claimed possession as the tenant had failed to protect its position by making an originating application for the grant of a new tenancy. The Court of Appeal upheld the landlord s entitlement to possession as the case was an ordinary one of negotiation subject to lease. Moreover, no estoppel arose as nothing had been said or done which could reasonably have encouraged the tenant to conclude that the landlord was content to treat the time limit under s.25 as in suspense. 3

4 8. One of the advantages, however, of continuing to endorse the correspondence as subject to contract is that by so doing it may prevent any argument of estoppel being run against the party that is seeking to withdraw from the negotiations. As Lord Templeman said in AG of Hong Kong v Humphreys Estate [1987] AC 114: It is possible but unlikely that in circumstances at present unforeseeable a party to negotiations set out in a document expressed to be subject to contract will be able to satisfy the court that the parties have subsequently agreed to convert the document into a contract or that some form of estoppel had arisen to prevent both parties from refusing to proceed with the transactions envisaged by the document. 9. And more recently Lord Scott said in Yeoman s Row Management Limited v Cobbe (where the negotiations were oral): The reason why, in a "subject to contract" case, a proprietary estoppel cannot ordinarily arise is that the would-be purchaser's expectation of acquiring an interest in the property in question is subject to a contingency that is entirely under the control of the other party to the negotiations: see also British Steel Corpn v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504, 511, per Robert Goff J; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; London & Regional Investments Ltd v TBI plc [2002] EWCA Civ 355 at [42], per Mummery LJ and Pridean v Forest Taverns (1996) 75 P & CR 447. The expectation is therefore speculative. Without prejudice correspondence 10. Correspondence which is marked without prejudice will ordinarily not be admissible before the court. The most comprehensive summary of the exceptions to the privilege is set out in the judgment of Robert Walker LJ in Unilever plc v Proctor and Gamble [2000] 1 WLR 2436 at

5 11. The without prejudice privilege can apply to opening shots : Norwich Union Life Assurance Society v Waller [1984] 1 EGLR 126 (rent review notice trigger notice not covered by without prejudice ); South Shropshire DC v Amos [1986] 1 WLR 1271, CA (20 page document setting out clam for statutory compensation); Buckingham CC v Moran [1989] 2 All ER 225 (assertion of rights not an attempt to negotiate); Standrin v Yenton Minster Homes Ltd (1991) Times, 22 July, CA where Lloyd LJ said: The opening shot in negotiations may well be subject to privilege where, for example, a person puts forward a claim and in the same breath offers to take something less in settlement, or...where a person offers to accept a sum in settlement of an as yet unquantified claim. But where the opening shot is an assertion of a person s claim and nothing more than that, then prima facie it is not protected. 12. One need not consider all of the exceptions for present purposes. Two should be noted. 13. First, when a dispute arises as to whether without prejudice communications have resulted in a concluded compromise agreement, then those communications are admissible in order to determine whether or upon what terms the agreement has been reached: Tomlin v Standard Telephone and Cables Limited [1969] 1 WLR The settlement negotiations are admissible as an aid to construction of the compromise agreement to which they give rise: Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2010] UKSC 44, Supreme Court, reversing [2009] 1 WLR 2416, CA ( The Supreme Court held that when construing a contract between two parties evidence of what was said or written in the course of without prejudice negotiations should be admissible, both when the court was considering a plea of rectification based on an alleged common understanding, during the negotiations, and when the court was considering a submission that the factual matrix relevant to the true construction of a settlement agreement included evidence of an objective fact communicated in the course of such negotiations). 5

6 14. Secondly, without prejudice correspondence may be admissible on the issue of costs e.g. Calderbank Offers. The Law of Property (Miscellaneous Provisions) Act This is often overlooked. It has been held that a contract for the sale or disposition of an interest in land existed in respect of: (a) an agreement relating to fixtures 1 ; (b) an agreement for the sale and removal of building materials on the demolition of a house 2 ; (c) an agreement for the sale of the beneficial interest of a co-owner; 3 (d) an agreement for the grant of a lease and for the sale of chattels, where the agreement was indivisible 4 ; (e) an agreement pursuant to the Town and Country Planning Act 1990, s 106, requiring a developer to transfer an affordable-housing site to a third party nominated by the planning authority 5 ; (f) an agreement to create a floating charge over land 6 ; and (g) an agreement as to the terms on which a charge would be released. Authority 16. Who is signing the settlement? A barrister or solicitor may be given express authority by a client in connection with a compromise. In the absence of an express authority there may be an implied or ostensible authority. The matter has been considered in Waugh v HB Clifford & Sons Ltd [1982] Ch 374. Brightman LJ said: The law thus became well established that the solicitor or counsel retained in an action has an implied authority as between himself and his client to compromise the suit without 1 Jarvis v Jarvis (1893) 63 LJ Ch 10; Morgan v Russell & Sons [1909] 1 KB 357, DC (both decided under previous legislation). 2 Lavery v Pursell (1888) 39 Ch D 508 (decided under previous legislation). Wright v Stavert (1860) 2 E&E 721 at 728 (decided under previous legislation). 3 Wright v Stavert (1860) 2 E&E 721 at 728 (decided under previous legislation). 4 Wright v Robert Leonard Developments Ltd [1994] EGCS 69, [1994] NPC 49, CA (a decision upon the provisions of the Law of Property (Miscellaneous Provisions) Act Jelson Ltd v Derby County Council [1999] 1 EGLR 91, [1999] 19 EG 149. This was not followed in RG Kensington Management Co Ltd v Hutchinson IDH Ltd [2002] EWHC 1180 (Ch), [2003] 2 P & CR 195 (Neuberger J). The Kensington v Hutchinson decision was preferred in Milebush Properties Ltd v Tameside Metropolitan Borough Council [2010] EWHC 1022, HC. 6 Driver v Broad [1893] 1 QB 744; Kilcarne Holdings Ltd v Targetfollow (Birmingham) Ltd [2004] EWHC 2547 per Lewison J at [194]. 6

7 reference to the client, provided that the compromise does not involve matters "collateral to the action"; and ostensible authority, as between himself and the opposing litigant, to compromise the suit without actual proof of authority, subject to the same limitation; and that a compromise does not involve "collateral matters" merely because it contains terms which the court could not have ordered by way of judgment in the action; for example, the return of the piano in the Prestwich case, 18 C.B.N.S. 806; the withdrawal of the imputations in the Matthews case, 20 Q.B.D It follows, in my view, that a solicitor (or counsel) may in a particular case have ostensible authority vis-à-vis the opposing litigant where he has no implied authority vis-à-vis his client. I see no objection to that. All that the opposing litigant need ask himself when testing the ostensible authority of the solicitor or counsel, is the question whether the compromise contains matter "collateral to the suit." The magnitude of the compromise, or the burden which its terms impose on the other party, is irrelevant. But much more than that question may need to be asked by a solicitor when deciding whether he can safely compromise without reference to his client. Settlement in the context of the 1954 Act Backdating the term and other obligations 17. Parties to a settlement of a lease renewal often agree to backdate the term to the expiration of the contractual term of the old tenancy. There is, in fact, nothing within Part II of the Landlord and Tenant Act 1954 ( the 1954 Act ) which prevents the parties from so doing. In the absence of agreement, the term of the new tenancy will not commence until 3 months plus 21 days after final disposal (section 64). Of course the lease does not become vested in the tenant until execution, for a term is only vested from the date of grant notwithstanding that the date of commencement pre-dates the date of grant: Bradshaw v Pawley [1980] 1 WLR 10. 7

8 18. However, one must be fully aware of the fact that by backdating the date of commencement, the prior date may have a function more than simply as a unit of calculation in ascertaining the date on which the term will expire. The agreement may, depending on the true construction of the agreement, give rise to the obligation to make payments in respect of past periods. Thus, there is nothing preventing the parties from imposing obligations in respect of any period prior to the execution of the lease. Whether in fact any such obligation has been created depends on the true construction of the lease: Bradshaw v Pawley ibid. 19. In that case the tenancy of business premises terminated on 24 March The tenant applied for a new lease for a term of 10 years from 25 March 1974 at a rent of 1,750 per annum. The parties reached an agreement and entered into a consent order dated 11 January The Pa had in fact agreed that the new tenancy was to be outside the provisions of the 1954 Act. An order of the court was made on 16 May 1977 excluding any new therefore from the security of tenure provisions of the 1954 Act. The new lease was not executed until 10 March By the habendum, the premises were demised to the lessee to hold the same unto the lessee from March 25, 1974, for the term of 10 years but determinable as hereinafter provided yielding and paying therefor during the said term yearly and proportionately for any fraction of a year the rents hereinafter set out. The yearly rent was specified at 1,750 per annum. The reddendum required the rent to be paid during the said term. It was held that the tenant was liable to pay rent at the sum of 750 per annum from 25 March Interim rent 20. Any settlement with respect to a 1954 Act renewal or termination claim ought to deal with the question of interim rent, even if an interim rent application has yet to be made. The reason for this is that section 24A(3) provides that the application for interim rent must not be made more than 6 months after the termination of the relevant tenancy. It is considered that termination of the relevant tenancy is here referring to the termination of the relevant tenancy in accordance with the 1954 Act, not the date on which the 8

9 term would, but for the Act, have expired by effluxion of time, or the date of termination or commencement specified in the landlord s section 25 notice of the tenant s section 26 request respectively. Thus, there is no reason why, where a new tenancy is entered into pursuant to a settlement, either party cannot seek to make an application for an interim rent (obviously subject to any contrary agreement contained within the settlement). Must the agreement be contractually binding? 21. The terms of sections 32, 33, 34 and 35 refer to there being a determination by the court in the absence of agreement or default of agreement. By section 69(2) agreement means agreement in writing. What if there is an agreement upon some of the matters to be incorporated within the terms of the new lease but not others? Is it possible for there to be an agreement on a piecemeal basis? 22. The Act certainly supports the view that there may be agreement on one or other matters for the purposes of any renewal. The agreement must, however, be one made for the purposes of an application to the court. Thus, for instance, if the parties are seeking to negotiate the grant of a new lease outside the court procedures, the agreement is not an agreement for the purposes of the 1954 Act: Derby & Co Limited v ITC Pension Trust Limited [1977] 2 All ER 890, Ch. Thus, in that case, where the parties had reached an agreement subject to contract it was said that the agreement on the various terms of the new lease did not bind the parties for the purposes of the 1954 Act application because not only did the subject to contract qualification prevent there from being a binding arrangement but, in any event, it was not a agreement which was intended to be one for the purposes of sections 32 to 35. The agreement was one which was an attempt to avoid the necessity of an application to the court and was made without prejudice to the tenant s rights under the 1954 Act. 23. If there is an agreement for the purposes of one of the four matters dealt with in sections 32 to 35 the effect of this is that the court is bound to make a formal order embodying the terms which have been agreed. It is considered that such an agreement, being one made for the purposes of, and in accordance with, the 1954 Act, does not have to comply with the Law of 9

10 Property (Miscellaneous Provisions) Act However, the point remains undecided. Once an agreement has been reached on some or all of the matters governed by sections 32 to 35, the parties will not be able to resile from that agreement. Sections 38 and 38A of the 1954 Act 24. As is well known an agreement which has the effect of precluding the tenant from making an application or request or providing for the termination or surrender of the tenant s current tenancy, in the event of his making an application or request, is void: section 38(1). And an agreement between the L and the T for a surrender is void unless the requirements of s.38a are complied with: 38A(2) and (4). One matter that is rarely considered in relation to settlement negotiations is whether or not there is any requirement to ensure that there is compliance with section 38A (i.e. sanctioning an agreement to surrender) in order to be able to grant any new lease pursuant to the compromise that is to be reached. 25. This argument was actually run in Gibbs Mews plc v Gemmell [1999] 1 EGLR 43, CA. In that case the tenant entered into a tenancy at will which had the effect of surrendering his existing protected business tenancy. The tenant subsequently argued that the tenancy at will was void as it was an agreement relating to the prior tenancy which agreement had the effect of precluding the tenant from making an application under the 1954 Act in respect of that business tenancy. The Court of Appeal held that the tenant was in fact estopped from denying that there had been a surrender of the earlier tenancy and that the then provisions of section 38 had no application. However it was said that even if it did apply, section 38 did not prevent an actual surrender by operation of law. 26. Of course in that case the new lease had been duly executed. What if all that one has, and often all that one has, at the door of the court, is an agreement signed by both parties without section 38A having been complied with? There are two arguments: That the matter is being incorporated into a court order and is thus not simply a matter of contract 10

11 S.28 applies to exclude the 1954 Act. 27. The matter is, in most cases, in fact dealt with by section 28 of the 1954 Act which provides: Where the landlord and tenant agree for the grant to the tenant of a future tenancy of the holding, or of the holding with other land, on terms and from a date specified in the agreement, the current tenancy shall continue until that date but no longer, and shall not be a tenancy to which this Part of this Act applies. 28. There are a number of limitations to this section which are probably fairly obvious: (i) The agreement must be between the landlord and the tenant. The landlord is the person who qualifies as landlord within section 44(1) i.e. the competent landlord: Bowes-Lyon v Green [1963] AC 420, HL; (ii) The tenancy must be of the holding or of the holding with other land. Thus an agreement of part only of the holding is probably not within s.28 but an agreement for more than the holding (as may arise in the case where part of the premises is sub-let) is within section In those cases where section 28 does not apply the current tenancy will, notwithstanding the agreement for the grant of a new tenancy, continue to be one to which the Act applies. In those circumstances the agreement is, arguably, void under section 38 unless section 38A has been complied with. Of course if the parties actually execute the new lease, the fact that the agreement pursuant to which that lease has been executed is void matters not: Gibbs Mew v Gemmell ibid. 30. It is considered that an agreement for the purposes of section 28 of the 1954 Act is one which is required to comply with the provisions of the Law of Property (Miscellaneous Provisions) Act Although there is dicta to the contrary in Lambert v Keymood [1997] 2 EGLR 70, it is to be noted that the Learned Judge was not referred to any authority on section 28. The case has not been referred to in any subsequent authority. In Stratton (RJ) Limited v Wallis Tomlin Company Limited [1986] 1 EGLR 104, CA it was said that the 11

12 agreement envisaged by s.28 was one which is a binding contractual arrangement enforceable by the parties at law. If that is right, which it is considered that it is, the provisions of the 1989 Act should be adhered to. 31. What should be done if the new lease is one which is in fact to be excluded from the 1954 Act? One cannot it would seem make the order conditional on the relevant notice and declaration for the Claimant will be contractually bound before those matters have been done. If this has occurred this may possibly be overcome by a re-execution of the lease: Evenlex v Essexcrest [1988] 1 EGLR 69, CA. But this requires the tenant s cooperation. The Law of Property (Miscellaneous Provisions) Act Subject to the agreement which is reached between the parties being one expressed to be specifically for the purposes of sections 32 to 35 of the 1954 Act, it is considered that any agreement for a new lease will need to comply with the provisions of the 1989 Act. Thus, ordinarily, an exchange of correspondence between the parties solicitors will be in sufficient: New Towns v Cooper (Great Britain) Limited [1995] 2 WLR 677, CA. 33. A common problem is where the parties are agreed on heads of terms but anticipate a lease with all the usual terms to be subsequently agreed between the parties solicitors. A consent order before the court is unlikely to satisfy the requirements of the 1989 Act unless one can say that all of the terms are agreed and contained in a single document signed by both parties. 34. This highlights another potential problem: dispute resolution procedures. There may be problems of certainty. What have the parties provided for in order to resolve disputes over e.g. the terms to incorporated into the new lease which the parties have agreed should be granted? However, the wording may be good enough to provide the certainty required. Thus, an agreement between parties for a lease which provided that the lease was to contain such other covenants and conditions as shall reasonably be required by the lessor was held to be sufficiently certain: Sweet & Maxwell Limited v Universal News Services Limited [1964] 2 QB 699, CA. 12

13 Protection/Registration Prior to Settlement 35. The interest belonging to a person in actual occupation, so far as it relates to land of which he is in actual occupation, is an overriding interest for the purposes of the Land Registration Act An interest for the purposes of the 2002 Act includes a pending land action within the meaning of the Land Charges Act A pending land action is defined by the Land Charges Act as meaning any action or proceeding pending in court relating to land or any interest in or charge on land. 9 However, pending land actions are excluded as overriding interests for the purposes of the Land Registration Act Thus, the only way in which the tenant can seek to protect his interest is for to make some entry in the register to protect it. 36. In relation to a pending land action with respect to unregistered land, the tenant should enter a caution against first registration. A person may lodge a caution against first registration if he claims, inter alia, to be entitled to an interest affecting a qualifying estate. 11 The effect of entering such a caution is that the registrar must give notice of the application for first registration and of the cautioner s right to object Where the landlord has a registered estate, a notice 13 may be entered on the register to protect the tenant s interest. The form of notice may 7 Land Registration Act 2002, Sch.1, para.2 (First Registration) and Sch.3, para.2 (Disposition of Registered Estates). 8 LRA 2002, s.87(1)(a). 9 Land Charges Act 1972, s.17(1). 10 Land Registration Act 2002, s.87(3). 11 Land Registration Act 2002, s.15(1). 12 LRA 2002, s.16(1). The caution procedure is merely a device to enable the cautioner to object to the registration for the purposes of protecting the applicant s interest on first registration in the register of the legal estate which is to be registered by reason of the first registration requirements of the Act. 13 Interests in registered land may also be protected by a restriction but (1) a restriction may be entered only where the landlord s estate is registered (LRA 2002, s.40(1)) and (2) although a restriction may be entered by the registrar to protect a right or claim in relation to a registered estate (LRA 2002, s.42(1)(c)) he may not exercise that power for the 13

14 be either an agreed notice or a unilateral notice. 14 The notice will confer priority on the tenant s interest, if valid If the tenant has failed to protect his interest by an appropriate form of notice, and the landlord disposes of the reversion, it would seem that the tenant s application for renewal is not binding on the new landlord, who can then seek an order for its dismissal. 39. It is unclear what a tenant should do in response to a landlord s application for renewal. This too constitutes a pending land action and ought to be protected. The tenant is, albeit by reason of the actions of the landlord, seeking a renewal of his tenancy. 1 After Settlement 40. Where the land is registered any contract should be protected upon a sale of the reversionary interest as an overriding interest. If one is dealing with unregistered land the contract must be protected as a land charge. This is best illustrated by Stratton (R.J.) Ltd v Wallis Tomlin & Co Limited [1986] 1 EGLR 104, CA. The tenants applied for a new tenancy and entered into negotiations with their then landlord s surveyors as to the terms thereof. This resulted in an agreement for a new tenancy, evidenced by the correspondence between surveyors. Subsequently a receiver was appointed in respect of the landlord s undertaking, and the landlord s interest was sold to a new landlord. The new landlord claimed not to be bound by the agreement for a new tenancy, because it was not registered as an estate contract (presumably under the Land Charges Act 1972). The new landlord also contended that the effect of s.28 of the Act was that, once the agreement to a future tenancy had become binding, the tenant ceased to be entitled to apply for a new tenancy under the Act, by virtue of s.28 which states that after such an agreement the current tenancy... shall 14 Land Registration Act 2002, s.34(2). An agreed notice may be sought albeit the registered proprietor does not consent to the application. The party seeking the agreed notice needs provide to the registrar the sealed claim form and notice of issue: Land Registry. Practice Guide 19, para The registrar will need to be satisfied that the applicant s claim is valid: LRA 2002, s.34(3)(c) and Land Registration Rules 2003, r.81. A unilateral notice may be entered without the consent of the registered proprietor and the registrar does not have to be satisfied as to its validity: Land Registration Act 2002, s.35; Land Registration Rules, r.83 providing for it to be in form UN1. 15 LRA 2002, ss.32 and

15 not be a tenancy to which this Part of this Act applies. The judge upheld this contention and dismissed the tenant s application. On appeal it was held that the surveyors were duly authorised to conclude an agreement on behalf of their respective clients; an agreement in writing had been reached on all material terms and the correspondence was not expressly or impliedly subject to contract 12 ; there was, therefore, an agreement within the meaning of s.28 and the application had been properly dismissed. Part 36 and Calderbank Offers 1954 Act renewals 41. Part 36 is not often used in the context of 1954 Act disputes. CPR 36.14(3) allows a court to reflect the fact that a Claimant obtains a judgment at trial at least as advantageous as his part 36 offer by ordering, unless it considers it unjust to do so: (i) Interest on any money element of the claim up to 10% above the base rate (ii) Costs to be awarded on an indemnity basis (iii) Interest on those costs up to 10% above the base rate. 42. Where a Claimant fails to obtain a judgment more advantageous than a Defendant s Part 36 offer the court will (CRP 36.14(2)), unless it considers it unjust to do so, order that the Defendant is entitled to (i) His costs from the date on which the period for accepting the offer expired, and (ii) Interest on those costs up to 10% above the base rate. 43. In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3) above, the court will take into account all the circumstances of the case including (a) the terms of any Part 36 offer; (b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made; (c) the information available to the parties at the time when the Part 36 offer was made; and 15

16 (d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated. (CPR 36.14(4)) 44. Clearly, the money element of Part 36 cannot be used against a Defendant in the context of 1954 Act litigation, whether as landlord or tenant. The disadvantage of using CPR 36, particularly in unopposed renewals, is that the rules provide that upon any acceptance of a Part 36 offer, the Claimant is entitled to his costs up to the date when the offer is accepted, provided that the acceptance did not require the court s permission: CPR This is particularly problematic in the case of unopposed lease renewals, where the usual understanding is that on settlement each party pays its own costs. Thus, whether the landlord or tenant is Claimant, an acceptance of an offer provides the Claimant with its costs. Thus, a Defendant to an unopposed lease renewal is unlikely to accept any Part 36 offer which is made. Nor is the defendant likely to make a Part 36 offer when acceptance will result in a costs liability. 45. It is, of course, possible for parties to make Calderbank offers (i.e. offers without prejudice save as to costs), but CPR 36.1(2) provides that if the offer is not made in accordance with Part 36 it will not have the interest and costs consequences provided or by CPR 36.10,11 (the staying of the proceedings) and 14. The court still has its general discretion in respect of costs under rule Under that rule it can take account of any settlement offers made. The court may award indemnity costs together with interest on those costs. However, the list of potential costs orders contained in rule 44.3(6) makes no express provision for the high rate of interest (of up to 10% above base rate) referred to in Part 36. CPR 36.1(2) makes it clear that Part 36 penalties will be reserved for pure Part 36 offers. As a result, the recipient of a non-part 36 offer may well feel under less pressure to accept it because it will be unlikely to face the clear and severe penalties available under Part 36 for a party that fails to improve on an offer at trial. 46. However, is there a way for a Defendant to use Part 36 to exert pressure (i.e. because of the penalties provided for in CPR 36.14) but without worrying about acceptance? It occurs to me that there may be such a way 16

17 where the claim includes a claim for interim rent. The Defendant to the claim makes a Part 36 offer but not including the claim for interim rent. The offer is then one dealing with the substantive claim for renewal but is still an offer which relates to only part of the claim for the purpose of CPR 36.11(3), which means that the court can determine costs if the offer is accepted (CPR 36.11(3) and 36.10(2)). Thus D can then argue that costs should not be awarded to C, as the usual costs in 1954 Act settlements is each party pays its own costs. He will seek to settle the interim rent once the offer is accepted. Of course the difficulty with this course of action is that D faces the risk that costs may be awarded against him. The burden is on him to persuade the court: CPR 36.10(2). In the circumstances it is probably not worth taking the risk for the potential benefits Act 47. In Foskett, Law of Compromise 7 th ed para fn 31 it is said that It is thought that in most cases where no further involvement of the court is contemplated other than enforcement of the terms of the agreement it is right to say that ordinarily a contract of compromise has been concluded. However, in special cases, of which a compromise involving a disposition of land is one, an acceptance of a Part 36 Offer does not give rise to a binding contract: Orton v Collins [2007] 1 WLR 2953, Warren v Radmon House Group Ltd [2009] 2 All ER 245, CA, at para [21] per Sir Anthony Clarke MR. An acceptance of a Part 36 Offer which involves the disposition of an interest in land would not ordinarily giver rise to a s.2 compliant contract, namely a single document incorporating all the express terms of the contract, signed by both sides. In Orton v Collins it was held that the acceptance of a Pt 36 offer need not create a contract at all; rather, it created an obligation sui generis that the court could enforce by requiring the parties to do what was necessary to implement the settlement and if necessary it could enforce that obligation by ordering the parties to enter into a contract that did comply with the formalities of s 2 of the Act. The Judge said: The mischief that section 2 of the 1989 Act must have been intended to redress can have no relevance whatever to the settlement of existing court proceedings under the machinery now provided by CPR Part 36. There is no question of lack of 17

18 mutuality, nor of the uncertainties said to arise out of the doctrine of part performance. If a Part 36 offer is made and accepted according to the rules there can be no doubt that the acceptance should be read together with the offer and the problems illustrated by Timmins v. Moreland Street Property Co Ltd do not arise. Furthermore the parties know that they are entering into a solemn and binding legal transaction. They have the opportunity to seek legal advice: a Part 36 offer, if not withdrawn, remains open for 21 days (unless the trial is imminent, in which case the permission of the court is required). Indeed in the ordinary way the parties will be advised by lawyers throughout, much more so than when most vendors and purchasers are in the initial stages of negotiating a land contract. Offers and Injunctions 48. This is not so much about settlement as using an offer to settle to undermine the Claimant s ability to obtain an injunction. In Gafford v Graham [1993] 3 EGLR 75, CA it was said that a claimant may be denied an injunction where he had indicated in advance by seeking a monetary payment that the infringement could by made good by an award of damages. Nor, once that is established, can it be an objection that the amount of damages may be large. In such a case the first and third conditions of the good working rule in Shelfer v City of London Electric Lighting Co Ltd [1895] 1 Ch. D 287, CA do not apply. In Gafford v Graham the offer of 108,000 to release the restrictive covenant was said to be obviously excessive. The court awarded 34, 375 by way of damages in lieu. 49. Making the offer open during the course of without prejudice correspondence requires one to spell out the change with clarity: Cheddar Valley Engineering Ltd v Chaddlewood Homes Ltd [1992] 1 WLR 820 The Tomlin Order 50. The Tomlin Order is one which is aimed at dealing with arrangements which have been agreed between the parties which could not 18

19 have been made the subject of a direct order or judgment of the court. The general form of wording of a Tomlin Order is: AND UPON the parties having agreed the terms of settlement BY CONSENT IT IS ORDERED that all further proceedings in this case be stayed upon the terms set out in the schedule to this order except for the purposes of enforcing those terms. AND IT IS FURTHER ORDERED that either party may be permitted to apply to the court to enforce the terms upon which this case has been stayed without the need to bring a new claim. 51. The Tomlin Order ought also to deal with costs. They should be dealt with in the body of the order. It is to be noted that in Marchant v Marchant [1967] CAT 26, Dankwerts LJ expressed the view that the words liberty to apply without more were ineffective to keep alive the proceedings for the purposes of enforcement. The full expression liberty to apply for the purpose of enforcing the said terms must be used. 52. The benefit of the Tomlin procedure is that it enables the enforcement of the terms of settlement within the existing action. No new action is needed to be instituted in order to enforce the terms. The compromise reached gives rise to a new legal relationship, often in the case of property a contract for the grant of an interest in land. If there is default in adhering to the terms the innocent party will have a cause of action either for damages or specific performance or an injunction etc. Ordinarily a new action would be instituted. However, the Tomlin Order enables the parties to obtain enforcement without the need to issue fresh proceedings for the purposes of enforcement. Wayne Clark Falcon Chambers 19