Please note that this briefing is specific to England and Wales, it is not applicable to all jurisdictions.
CPR Part 36 contains a set of procedural rules designed to encourage parties to settle their disputes. These provisions allow a party to a claim to benefit from significant cost consequences should a counter-party refuse to settle and go on to achieve a less advantageous result at trial.
Despite its intention and potential to focus parties’ minds on early settlement, Part 36 has been widely criticised due to its strict, complex and highly technical provisions and the resulting difficulties in its application. This has led to a significant amount of inconsistent and unpredictable case law.
In an attempt to address these issues and uncertainties, Part 36 has recently been revised following review by the CPR Committee and as a result, Schedule 1 of the Civil Procedure (Amendment No.8) Rules 2014 was written and came into force on 6 April 2015. This new version of Part 36 will apply to offers made on or after 6 April 2015.
The key changes to the Rules and how they will affect your potential settlement strategy in the future are summarised below.
A Part 36 offer no longer needs to state on its face that the offer is intended to have the consequences of a Part 36 offer. It is now sufficient to make clear that the offer is made pursuant to Part 36. This therefore eliminates the risk that an otherwise valid Part 36 offer may be considered invalid as a result of not complying with an unnecessary drafting point under the old rules.
- Counterclaims and additional claims
The new rules clarify that where a counterclaim or additional claim is brought by a defendant, this will be treated as a "claim" and the defendant can make a Part 36 offer as a "claimant" in relation to its counterclaim or additional claim. Defendants can therefore take advantage of the more favourable cost consequences of a Part 36 offer in the same way as a claimant.
This is not a new concept. The Court of Appeal had previously held that a defendant should be treated as a claimant if they are seeking a greater financial remedy i.e. if their counter-claim would result in a net payment. However, some subsequent cases appear of have overlooked this decision. The amendment should reduce confusion.
Nevertheless, the court is still likely to consider the size of the counter-claim in relation to the original claim when determining whether the defendant should be considered a “genuine claimant” and therefore eligible for the associated costs benefits.
Under the old Part 36 rules, an offer which was stated to be open for acceptance for a limited period of time was not considered to be a valid Part 36 offer and could not therefore benefit from the costs consequences that followed. The amended rules now allow for a time limited offer whereby the original offer allows for the automatic withdrawal of the offer after a set period of time. This change may allow offerors to exert pressure on offerees by issuing time limited offers, and will allow the process of issuing and withdrawing offers to be accomplished in one step rather than two. However, withdrawing an offer in this way will still mean forfeiting the costs benefits associated with a Part 36 offer. It seems very unlikely that offerors will view any potential benefits of time limited offers in a way that would outweigh the associated disadvantages.
The new rules set out that where a Part 36 offer is amended into one with more advantageous terms, the original offer is not treated as being expressly withdrawn. This means that if an offer is made, and then revised, but neither is accepted, if the claimant then obtains a judgment that is equal to or more advantageous than the original offer, the associated cost consequences will run from the date of the original offer.
The rules have changed quite considerably in relation to changing the terms of a Part 36 offer before the relevant period has expired. If the offeror makes an offer, and within the relevant period the offeror serves a notice withdrawing that offer or amending the offer to make it less advantageous for the offeree, at the end of the relevant period there are two possible outcomes:
- If the offeree has not accepted the offer, the notice of withdrawal or amendment will take affect; or
- If the offeree has served notice of acceptance of the offer, the acceptance will apply. However, the offeror can apply to withdraw or amend the offer within 7 days of the acceptance notice being served. The court will only consider an offeror's application if it is in the interests of justice to withdraw or amend the original offer.
An offeree is no longer required to obtain the court's permission to accept an offer between a trial on liability and a trial on quantum. Previously, the old rules allowed for the parties to agree between themselves that an offer could be accepted at the end of a trial before the judgment was handed down; however, this is no longer the case.
Under the previous Part 36 rules, the existence of a Part 36 offer was not allowed to be communicated to the trial judge "until the case has been decided". This led to difficulties in respect of split trials or trials of preliminary issues because the court would have to decide whether to make a costs order in respect of the preliminary issues without being notified that a Part 36 offer had been made. The new rules allow a judge to be told about the existence of an offer after judgment has been given on the preliminary issues in a split trial but the actual terms of the offer cannot be disclosed.
The new rules also provide that in the case of a split trial, an offer cannot be accepted in respect of an issue that has already been decided and no other offer can be accepted until 7 days after judgment has been handed down on decided issues.
It is worth noting that although the new Rules apply to offers made from 6 April 2015, in the case of split trials, where the split trial starts on or after 6 April, the rules relating to offers will apply even if the offer was made before this date.
- Genuine attempt to settle?
An important feature of the new rules is that it seeks to address the issue of claimants attempting to settle for the full amount of its claim and benefitting from the advantageous cost benefits as a result. The new rules now require the courts to consider "whether the offer was a genuine attempt to settle the case" when assessing whether to award the automatic costs consequences of an offer.
What this means for you
The new Part 36 rules were amended in an attempt to address the inconsistencies and complex drafting of the old rules which many viewed as containing too many technical shortcomings. It remains to be seen whether or not these new rules sufficiently simplify and clarify this particularly complex part of the CPR. These provisions remain highly technical and careful consideration of all aspects should be given at all stages of a potential settlement in order to ensure that offers are made in accordance with these Rules. In this way you can ensure that your Part 36 offer is valid and that you will receive the cost protection that you are seeking.
There is no current case law in relation to the new Rules (although some past case law will be relevant) so we will be monitoring future developments with interest and closely monitoring the impact of these changes.
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Part two of the Dispute Resolution Essentials series: Update on the Recast Brussels Regulation