Changes to CPR Part 36 Offers

From 6 April 2015 a new version of the Civil Procedure Rules (CPR) Part 36 will come into force with some significant changes as to the construction and implementation of Part 36 Offers.

Background

A Part 36 Offer refers to an offer of settlement that can be made by either party at any stage of legal proceedings.  In order for an offer of settlement to be construed as a genuine Part 36 Offer, it must comply with the provisions set out in CPR 36.2.  The aim of the Part 36 Offer is to get both sides of the dispute to reconsider their position and attempt to settle their dispute.  A Part 36 Offer carries a tactical advantage as it puts pressure on the receiving party to accept an offer on the basis that if they don't accept and then, at trial, fail to beat that offer there are consequences linked to costs and interest.  A Part 36 Offer must be made available for acceptance for a minimum period of 21 days.  This is referred to as the "relevant period".

Summary of Cost Consequences in the Current Regime

There are consequences with regards to costs associated with making and receiving a Part 36 Offer and these vary depending on whether the Part 36 Offer is made by the Claimant or the Defendant and whether the Part 36 Offer was accepted within the relevant period or not.  The following consequences are all a general outline subject to the Court's discretion.

Accepting a Part 36 Offer within the Relevant Period

If either party accepts a Part 36 Offer within the relevant period, the Claimant would be entitled to their costs in the action to the date of acceptance.  Should the cost not be agreed by both sides, the costs would be assessed on a standard basis of reasonableness and proportionality.

Accepting a Part 36 Offer after the Relevant Period

Where a Part 36 Offer is accepted by either party after the relevant period the Claimant will have an entitlement to recover their costs up to the date of the expiry of the relevant period and the offeree is then held liable to the offeror's costs accrued after the relevant period to the date the offer is accepted.

Claimant does not accept the Defendant's Part 36 Offer

If a Part 36 Offer is made to the Claimant, but the Claimant does not accept for whatever reason, the following apply:

Failing to beat the Part 36 Offer

The Court will order that the Claimant have their costs paid up until the end of the relevant period of the Part 36 Offer, following which, the Claimant will be liable to pay the Defendant's costs and interest on the costs from this point on.

Beating the Part 36 Offer

The Defendant will pay all of the Claimant's costs.

Claimant loses the case

In this situation, the Claimant will be ordered, as the unsuccessful party, to pay the Defendant's costs on the standard basis, to be assessed, if not agreed.

Defendant does not accept the Claimant's Part 36 Offer

Where the Defendant does not accept the Claimant's offer to settle, the following scenarios may occur:

Beating to Part 36 Offer

Where the Claimant achieves a judgment that is equal to, or more advantageous than, the Part 36 Offer made to the Defendant, the following cost consequences will apply:

The Claimant will be entitled to their costs on an indemnity basis from the end of the relevant period with interest up to 10% of base rate.
The Claimant will be entitled to the interest on the whole or a part of the sum awarded up to 10% above base rate.
The Claimant will be entitled to their costs and interest on a standard basis on their costs until the end of the relevant period.
The Claimant will be entitled, in a money claims, to a 10% penalty fee on any award up to £500,000, and an additional 5% of any awarded above £500,000. up to a total of £75,000
Where the claim is not a monetary claim, the percentage applies to the costs awarded.

Failing to beat the Part 36 Offer

Where the Defendant does not accept the Claimants Part 36 Offer and the Claimant is awarded less than was offered then costs are awarded in the usual way in that the unsuccessful party will be ordered to pay the successful party's costs.

The New Part 36

The revised version of Part 36 comes into force on 6 April 2015. It will be a self-contained procedural code about offers to settle made pursuant to the procedure set out in Part 36.  The focus of the review was to provide certainty and reduce ambiguity by codifying certain case-law into the provision.  Consequently, some of the more significant changes to the provision relate to the technical aspect of the regime and are outlined below.

Withdrawing a Part 36 Offer

In the current regime, a properly constituted Part 36 Offer must be open for acceptance for a period of 21 days, the relevant period.  At this time, should the offeror wish to rescind the offer, a notice must be brought to the attention of the offeree informing them that the offer is revoked.  Under the new regime, pursuant to CPR 36.9 (4)(b), the Part 36 Offer may be automatically withdrawn after the end of the relevant period without need to serve notice.

Whilst this revision places an onus on the offeree to be aware of any Part 36 Offer which is automatically revoked after expiry of the relevant period, it may not necessarily be of benefit to the offeror as cost consequences are not applicable on a withdrawn Part 36 Offer (CPR 36.17(a)).

Improving a Part 36 Offer

The new regime at CPR 36.9(5)(a) says that an improved Part 36 Offer shall be treated not as a withdrawal of the original offer, but as the making of a new Part 36 Offer on improved terms.  What this means is that an improved Part 36 Offer does not revoke the original offer, instead, the improved offer is capable of relying on the date of the relevant period of the original Part 36 Offer in calculating enhanced interest and costs.  This of course will have consequences should the offeror beat their Part 36 Offer for settlement and allow the offeror to calculate interest from the date the original relevant period expired.

Late Acceptance

Here, the new regime codifies the existing position that was held in case-law whereby the party accepting a Part 36 Offer outside of the relevant period pays the other side's costs from the end of the relevant period to the date of acceptance.

Split Trials

Under the present rules, parties are not able to reveal to the court details of any Part 36 Offer in split trials and cases relating to multiple courses of action.  This means that the Judge has to be kept ignorant of any such negotiations until the case is decided and often has to make decisions as to cost orders without all relevant Part 36 information.

The new regime addresses this issue by allowing the Judge to be informed of any Part 36 Offers relating to any part of a case that has been decided.  In circumstances where the entirety of the case has not been decided but an issue or a part of it is resolved, i.e. a preliminary issues, the trial Judge may be informed of the existence of a Part 36 Offer but not the terms to which the offer is made.

Counter Claims and Appeals

The new regime says that a Part 36 Offer can be made with respect to the whole or a part of any issue or a claim, counter claim or an additional claim or an appeal from a decision made at trial.

The significance of this is that a Defendant in a first instance matter can make a Part 36 Offer on a counter claim and that offer will be treated as the Claimant's offer and it would benefit from all the cost consequences detailed above. This is also true in an appeal in which the Appellant's offer may also be regarded as a Claimant's offer.

Cost Budgets

Following the Jackson reforms and introduction of the cost budgeting regime, the penalties associated with a failure to serve a costs budget on time result in an automatically restricted budget limited to the recovery of costs associated with court fees only.  Faced with such a scenario, there would be no benefit or incentive to the other side to submit to the terms of a Part 36 Offer due to the reduction in their cost risks associated with defaulting party's failure to serve a timely cost budget.

The new CPR 36 regime tackles this problem and further incentivises the non-defaulting party to seek a settlement at CPR 36.23, if favourable, by allowing for the recovery of 50% of the defaulting party's costs assessed from the date of the expiry of the relevant period to the date of acceptance.

In circumstances whereby the Claimant is in default and their Part 36 Offer is accepted within the relevant period, the costs will be limited to court fees and as such, the defaulting party may not benefit from not having served a cost budget.  This ensures that the defaulting party are still sanctioned for failing to serve a timely costs budget, but allows an incentive for the non-defaulting party to come to terms.

High Part 36 Offers

Whilst it is possible to make a Part 36 Offer as high as the relief sought, the court had previously mandated that there had to be a genuine element of concession from the offeror.  The new regime has codified this in CPR 36.17(5)(e) by saying that the court must take into account all circumstances of the case including whether the offer was a genuine attempt to settle the proceedings.

Whilst no indication has been given as to what constitutes a genuine attempt to settle, it has been held by Lord Justice Jonathan Parker in Huck v Robson in 2002 that in some cases, a 95% offer of the relief sought in the claim may be a genuine and realistic offer, in other cases, it may not.  It is up to the Judge in every case to consider the merits and facts of the case.