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Web alert: ‘New look’ Part 36 offers - a change to the English Civil Procedure Rules is afoot

28 January 2015

The English Civil Procedure Rules (CPR) provide for a process whereby a formal offer to settle can be made by either the claimant or the defendant at any time during a claim. The prescribed form of making such an offer is governed by the Rules in Part 36 of the CPR. Part 36 offers are intended to put pressure on an opponent to settle, as there are cost consequences associated with such offers.

The rules for Part 36 have been amended a number of times in the last few years, but difficulties in the interpretation of the rules has continued and led to a significant amount of case law on the subject.

Following a review, the Part 36 Rules are being revised once again in an effort to address some of the most pressing problems and to provide clarity. The new rules come into effect on 6 April 2015 and will apply to any offers made on or after this date. 

This article aims to set out some of the most significant changes.

Form

  • The rules now include an express reference to Part 36 being a self-contained procedural code.
  • There is no longer a requirement for a Part 36 settlement offer to state on its face that it is intended to have the consequences of Part 36 of the CPR. The new rules simply require the offer to make clear that it is made pursuant to Part 36.

Withdrawing offers

  • Offers which are open for acceptance for a limited period are not capable of being valid Part 36 offers and, therefore, do not carry the Part 36 consequences. 
  • Previously, when the initial offer period of 21 days had expired, a Part 36 offer could be withdrawn only by sending a separate notice.
  • The new rules allow a Part 36 offer to be withdrawn automatically after the relevant period, provided for in its terms, has expired. However, it appears that there are no advantages to automatic withdrawal of an offer as the Part 36 cost consequences will not apply to it.

Improved offers

  • The position in respect of more advantageous offers has been clarified in the new rules. Previously, there was confusion as to whether a later offer would replace or stand alongside an earlier offer.
  • The new rules state that making an offer more advantageous will not be treated as the withdrawal of the original offer, but as the making of a new offer on improved terms for which there is a further period for acceptance.

Counterclaims

  • There has been real uncertainty as to how the Part 36 rules are to apply in respect of counterclaims, particularly where the roles of the claimant and defendant are reversed when it comes to counterclaims. This issue was considered in a number of cases where it was held that a counterclaim should have been treated as a claim for the purposes of the offer, with the defendant making a claimant’s Part 36 offer on their counterclaim. [1]
  • The new Part 36 clears away any doubt, providing that: 'A Part 36 offer may be made in respect of…a claim, counterclaim or other additional claim'. [2]

Very high claimant offers – 95% offers

  • A further factor has been added for the court to take into account when considering whether the consequences of Part 36 should apply - whether the offer was a genuine attempt to settle the proceedings.
  • This change comes about as an attempt to discourage the practice of claimants making very high Part 36 offers (see Huck v Robson [3]), for example at a level of 95% of the value of the case, where the claimant then succeeds in full, in order to simply secure the benefits of Part 36 consequences, such as penal rates of interest and indemnity costs, rather than as a genuine attempt to settle the claim. 
  • In some circumstances high claimant offers may be appropriate, but will only be justified in very strong claims.

Split trials

  • In respect of split trials, the new rules state that, after the hearing of a preliminary issue, any Part 36 offers in respect of the concluded issues are permitted to be revealed to the court even when the case has not been finally decided. The court will then be able to deal with the costs of such preliminary hearings and give appropriate effect to the offers made.
  • However, in relation to issues not yet resolved, the court may be told of the existence of a Part 36 offer but not the details of such offer, including where global offers have been made. 
  • This may encourage parties to sub-divide their Part 36 offers in such ways as to frame them by reference to the preliminary issues.

Appeals

  • Whilst the rules state that a Part 36 offer can be made in appeal proceedings, an offer made in the initial action does not have Part 36 consequences in any appeal. Therefore,  a new Part 36 offer should be made in the appeal.
  • A change of terminology is to be applied to ‘claimant’ / ‘defendant’, with references to ‘appellant’ / ‘respondent’ instead. The change in references to the parties will presumably allow Part 36 to be used by a respondent looking to make an offer on a cross-appeal.

Costs budgets

  • Where a party has not filed a costs budget on time (in line with the Jackson reforms), the new Part 36 Rules provide that their recoverable costs be limited to 50% of their costs, as assessed, if they make an effective Part 36 offer. 
  • The intention of this new rule is to ensure that the party is punished for its default in not submitting a costs budget, whilst insuring that the other side does not have a ‘free hand’ to turn down reasonable settlement offers.

The Standard Club is always on hand to assist. If in any doubt, the reader should contact the authors of this article, or their usual club contact.

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[1] AF v BG [20009] EWCA Civ 757, [2010] 2 Costs LR 164
[2] CPR. 36.2(3)
[3] Huck v Robson [2002] EWCA Civ 398