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Tying Up Loose Ends: Part 36 Reforms 2015

Contents

  • Split Trials and Disclosure of Part 36 offers
  • Withdrawing offers
  • Improving offers
  • Counterclaims
  • High offers from a Claimant
  • Appeals
  • Late acceptance and Costs Budgets
  • Summary

Introduction 

Applying Part 36 correctly has, in the past, led to significant satellite litigation as lawyers and judges struggle to interpret the rules correctly. Part 36 has been revised a number of times and this article refers to the latest set of changes which will apply to offers made on or after 6 April 2015.

Part 36 of the Civil Procedure Rules provides a framework for making offers in civil disputes 'complete in its own right and by itself'. It sets out a scheme for both making and accepting offers to encourage the resolution of litigation and avoid unnecessary costs or Court hearings. It has been described as employing a 'carrot and stick' approach because it rewards those who make a sensible offer that is rejected, and punishes those who reject that sensible offer.

Split Trials and Disclosure of Part 36 offers

Current rules state that if a Part 36 offer has been made it must not be made known to the trial judge until the case has been decided. Therefore when there is a trial of preliminary issues the court may have to make a costs order decision ignorant of whether a Part 36 offer has been made.

CPR 36.16 will now allow the parties to tell the Judge of the existence of a Part 36 offer after the hearing of a preliminary issue. Generally, the details of the offer will have to remain confidential, especially in the case of a global offer. However, if the offer refers to issues that have already been decided at the preliminary hearing, these can be disclosed.

Comment: This new rule will encourage parties to break down their settlement offers; if they are able to make their offer with sole reference to preliminary issues, they can maximise early cost recovery.

Withdrawing offers

At present, a 'time-limited' offer - one which is withdrawn automatically after a certain period - cannot be a valid Part 36 offer. However, Part 36 enables a party to withdraw their offer in writing after 21 days of making the offer. It seems peculiar for offerors to have the ability to send another notice of withdrawal, but not be able to simply lay-down an automatic expiry date in the first letter.

The new provision of CPR 36.9(4)(b) rectifies this irregularity by allowing automatic withdrawal.

Comment: The advantage of this is that Defendants are not "caught" by an old offer after evidence may have changed in their favour and if they are slow to withdraw that old (now perhaps too generous) offer.

Improving offers

From time to time offerors want to change their terms to make them more advantageous to the offeree. This has made some question whether the later offer stands as one with the original offer, or simply replaces it.

The new provision at CPR 36.9(5) states that an improved offer, 'shall be treated, not as the withdrawal of the original offer; but as the making of a new Part 36 offer on the improved terms.'

Comment: With Part 36, normal contract rules of offer and acceptance do not necessarily apply; litigants must exercise caution in keeping up with the variances in the rules and the state of play regarding older offers.

Counterclaims

The new Part 36 rules will clearly state that offers can be made in relation to counterclaims or other additional claims. This is with reference to CPR 20.2 and 20.3, which state that counterclaims have equal status to claims.

Comment: In theory, this new provision should limit misunderstandings and enable defendants with counterclaims to utilise the favourable costs consequences of the claimant's Part 36 offers. The Court will reasonably look at the offeror as the real claimant where an offer includes an advantage to those making an offer.

High offers from a Claimant

Occasionally a Claimant makes a Part 36 offer to settle for the full amount or almost the entire value of the claim. This can cause a problem as the costs consequences can still be applied if the Claimant's offer is rejected, and then succeeds in full.

The new amendment at 36.17(5) attempts to resolve this by including a new factor for the court to consider when reaching a decision over the justness of ordering cost consequences: '… whether the offer was a genuine attempt to settle the proceedings'.

Comment: Unless the case is very strong, it is not normally the case that a high claimant offer will be a genuine attempt to settle (i.e. there is no compromise), and this will generally lead the Court to decide not to give costs orders under P36. However, the phrase 'genuine attempt' is lacking in definition, meaning the Court will have to take all circumstances into account when deciding whether it was 'genuine', and then what bearing this has on costs.

Appeals

For a long time it has been possible to make Part 36 offers during appeal proceedings, but there have been no specific provisions for this.

The new CPR 36.9(5) now applies directly to this, importantly providing a table of translation to highlight the different terminology used. This shows mainly that references to the claimant / defendant in Part 36 will be treated as references to the appellant / respondent respectively.

Late acceptance and Costs Budgets

The current rule states that when an offer is accepted late the court must make the usual order of making the delaying party pay costs, unless the judge decides otherwise. The new 36.14(5) states that the court must make the usual order, but specifies that it should not if it should be unjust to do so. Hence they must apply the same criteria used when an opponent does not beat a Part 36 offer at trial.

Comment: This has the effect of narrowing the level of discretion that the court may exercise when making costs orders.

In a similar vein, it is currently the case that if a party fails to file a costs budget in time it is treated the same as filing a late budget subject only to court fees. The new CPR 36.23 ensures that the risks of filing a late budget are not so draconian by stating that the defaulting party's recoverable costs are not limited to court fees, but will be 50% of the of the possible costs relevant to Part 36.

Summary

The reforms coming into force on 6 April 2015 amount to nearly a full rewrite of Part 36 which elucidates existing rules and incorporates case law. Some new provisions have also been included, namely the new rule regarding split trials and the direction for the Court to consider, when deciding costs for an unaccepted high Part 36 offer, whether the offer was a 'genuine attempt to settle the claim'.

In terms of practicalities, the new Civil Procedure Rule 36 applies only to Part 36 offers made on or after 6 April. However, specific provisions - 36.3, 36.11, 36.12 and 36.16 - apply from 6 April 2015 where:
i) The Part 36 offers is made before 6 April, but
ii) A trial of any part of the claim or of any issue arising in it starts on or after 6 April.

To maximise the ease of transition, most changes have been to reorganise the content of the rules so that like themes are dealt with alongside one another. Overall, the changes should significantly improve the function and reading of Part 36, ensuring that the offers process in litigation runs more smoothly.