New Part 36: overview of the key changes

CPR Part 36 encourages settlement of litigation via the use of financial incentives and sanctions. It is a useful procedural device as it provides a means of putting pressure on the other side to settle a case and of protecting, to some extent, your own position on costs.

However, it has proven difficult to use in practice. Consequently, it has undergone various revisions since its introduction in 1999, the latest of which comes into effect on 6 April 2015. More of a codification and clarification exercise, the changes made primarily address the issues the judiciary have had to grapple with since the last major review in April 2007. Although not the radical overhaul some had hoped for, the changes (and new layout) will make Part 36 easier to use. However its use in complex cases, particularly those involving multiple parties, remains difficult. The key changes are summarised below.

Easier to comply with

Many of the difficulties encountered concerned the drafting of Part 36 offers. Litigants often fell foul of its strict requirements. In particular, the need to specify that the offer was intended to have the consequences of Part 36, and the ban against time-limited offers, caught many out.

These requirements have now been removed. Under CPR 36.5(1) it merely has to be clear that an offer is made pursuant to Part 36. CPR 36.9(4) now permits time-limited offers provided the cut-off date falls after expiry of the relevant period. Given the ease with which offers can be withdrawn after the relevant period, and the fact that a withdrawn offer no longer attracts Part 36 consequences, it will rarely be in a party's interests to make an offer time-limited. However, the change means fewer offers will fall foul of the Part 36 requirements.

A genuine offer

After its introduction, the judiciary made it clear that an offer had to be a genuine offer, rather than a mere tactical ploy, to attract Part 36 costs consequences. This requirement has now been included in CPR 36 in response to a perceived increase in the tactical use of Part 36 by claimants. Consequently, it is one of the factors the court must take into account when deciding if the Part 36 costs consequences would be unjust in the circumstances.

However, what is genuine will always be fact sensitive. Contrast a claimant with a cast iron debt claim to a claimant with an all-or-nothing claim where the arguments are finely balanced. A small concession may be justified in the former but not the latter. Where you pitch your offer is always going to be a difficult decision and requires careful thought.

Split-trials

The courts have struggled to apply Part 36 in relation to split-trials, particularly on acceptance and disclosure between hearings. New rules now clarify the position. CPR 36.12 provides that where an offer relates only to parts of the claim or issues, and that part of the case or issue has been decided, the offer can no longer be accepted. However, where the offer goes beyond those preliminary issues or is a global offer, once judgment on the preliminary issue has been given, the offer can only be accepted after a period of seven days. In other words, the offeror has seven days to reconsider its offer.

CPR 36.16 deals with disclosure and clarifies that in the first scenario, where the offer has fallen away, the offer can be disclosed to the judge, enabling the judge to take it into account in any costs decision. Where it is a global offer or deals with other issues not yet decided, the judge can be told of the fact of the offer but not its terms.

Withdrawn and revised offers

An offer can only be withdrawn or varied provided notice of acceptance has not already been served. That has not changed. However, the procedure for withdrawal and variation has changed, in particular, the circumstances in which permission will be required. It remains the case that permission will only be required if an offeror wants to withdraw or revise an offer so that it is less advantageous during the relevant period.

However, permission will now only need to be sought if, having served notice of withdrawal/revision, the offeree then tries to accept the original offer before expiry of the relevant period. In that case, CPR 36.10 states that permission has to be sought within seven days of the notice of acceptance and will only be granted if the offeror can show a sufficient change of circumstances so that it is in the interests of justice to grant permission. Case law has already established a high threshold for satisfaction of this test, and requires something akin to the discovery of new evidence which puts a wholly different complexion on the case.

Careful thought needs to be given before taking such a step. Unless an offeror is confident of meeting the sufficient change test, it may be better to take the risk of leaving the offer open until the end of the relevant period, and then withdrawing, rather than tipping off the offeree to the fact that the offer made is overly generous.

The position in relation to offers that are revised to make them more advantageous to the offeree has been clarified. CPR 36.9(5) confirms that the revised offer is regarded as a new offer that gives rise to a new relevant period, and that the original offer is not treated as withdrawn. This means that if the offeree fails to beat both offers, costs consequences take effect from the original offer rather than the new offer.

The rules remain silent on the status of offers that are revised so as to be less advantageous to the offeree. That would suggest that the revised offer is not regarded as a new offer giving rise to a new relevant period. It merely revises the terms of the earlier offer. If accepted, or the offeree fails to beat the less advantageous offer at trial, costs consequences take effect from the original offer. If beaten at trial, it falls away. This is particularly important for defendants reducing their offers as outlined in our October 2014 newsletter.

The practical takeaway for both claimants and defendants is to ensure that, whenever an offer is revised, it is made clear that the earlier offer has not been withdrawn.

Counterclaims

The rules now clarify that a defendant can make a claimant Part 36 offer in respect of any counterclaim. This was thought to be the case under the previous rules, but clarification was considered sensible given the problems that had arisen in previous cases. 

Costs limited to court fees

The new rules also cater for Mitchell type cases where a party's costs have been limited to court fees. Those drafting the revised rules wanted to ensure that Part 36 still works in such cases. The rules therefore now make it clear that in those circumstances, for the purposes of Part 36 costs consequences, "costs" mean 50 per cent of the costs that would have been ordered but for the limitation, plus any other recoverable costs.

The exaggerated claim

The automatic costs consequences on acceptance of a Part 36 offer have always been problematic for defendants who consider the claim to be exaggerated but are keen to settle. The recent County Court decision in Duncum -v- Churm highlights the issue. There the defendant made a Part 36 offer for a fifth of the sum originally claimed, which was accepted after expiry of the relevant period. The defendant disputed the claimant's entitlement to the usual Part 36 consequences that flow from acceptance and the court was able to make a different costs order in the defendant's favour on the basis that, but for the inflated claim, settlement could have been achieved earlier. However, by making a Part 36 offer, the defendant ran the risk of having to pay the claimant's costs in full (albeit on the standard basis) if accepted within the relevant period. This remains the position under the revised rules. No doubt the requirement for certainty was a key factor but it does mean that, in those situations, Part 36 remains unattractive and Calderbank offers (which can deal with costs) are to be preferred.

The revised Part 36 will apply to offers made on or after 6 April 2015. Certain provisions will take effect from 6 April irrespective of when the offer was made provided the trial has not yet started (mainly to give effect to the split-trial changes).

For more detail on how Part 36 operates in practice, see our Quickguide.