Disputes: imaginative strategies for resolution: Part 36 CPR

by Richard Tymkiw on March 20, 2015

Richard Tymkiw

Introduction

It is a rare dispute which should be permitted to run all the way to trial.   Commercial imperatives often influence if not dictate the ultimate outcome: little point in spending an additional £50,000 for the sake of trying to recover a further £25,000.

Pre-action mediation is already attractive but becomes the very first step when the increase in court fees and the anticipated spiralling of the same thereafter are taken into account. Similarly, arbitration becomes an increasingly attractive means of resolution: the fees of an arbitrator in an arbitration lasting a few days are very likely to be far less than the court fee for simply issuing the claim.

But how can one protect one’s position when proceedings are simply only threatened or once they have started?

Part 36 of the CPR as many clients already know provides a highly effective weapon (or defence as the case may be).

It was last revised in 2007. A number of recent cases caused the Civil Procedure Rule Committee to revisit it. The revised Part 36 will come into force with effect from 6 April 2015.

The Mechanism of Part 36: some detail

Imagination commitment and strategy can be brought to bear.  Better an early affordable and commercial resolution than to incur the costs stress and strain of a fully contested case.

Disputes within England and Wales are governed by the Civil Procedure Rules [CPR].  The CPR themselves are composed of various Parts (in the same way that differing musical movements comprise a symphony).

This article refers to Part 36 CPR.  It is a self-contained code.  It contains rigid rules governing the basis on which offers can be put.

The party making the offer is known as “the offeror” and the party on the receiving end “the offeree”.

Part 36 lays down specific costs consequences in those cases where a Part 36 offer is not accepted and the offeree fails to do any better following a trial.

Those costs consequences can involve the following:

  • The payment of indemnity costs (nearly all of the other side’s legal fees and expenses).
  • Orders for punitive interest (up to 10% above bank base rate – currently 0.5%) and dependent on the quantum of recovery, an additional financial penalty of up to £75,000.
  • Where the financial consequences of a refusal to accept a Part 36 offer carry with it the possibility of in effect heavy costs penalties clear and careful consideration must always be given to:

(a)          the timing and content of any Part 36 offer (from the standpoint of the intending offeror);  and

(b)          acceptance or rejection (from the standpoint of the offeree).

With effect from 6 April 2015 the current Part 36 régime will be subject to a number of important changes.

What follows is not intended as either a comprehensive summary or survey – more a distillation of the main changes made.

Transitional positions:

Care must be taken to establish whether the old Part 36 (or the new) applies.   Old Part 36 offers are still effective if made prior to 6 April 2015 but are of no consequence where the trial of any part of the claim or incidental question starts on or after that date.

Old Part 36 offers : some new rules apply:

Where a Part 36 offer is made prior to 6 April 2015 but the trial of the claim or any issue starts on or after that date then the previous Part 36 rules apply save that 4 of the revised rules will apply to that case.

The new rules apply in various respects to old Part 36 offers and in the following ways:

(i)    New definitions : Old Part 36 offers are now subject to the additional definitions of:

“Trial”

“in progress”

“decided”

“trial judge”   and

“the relevant period”

(In relation to the time for acceptance of a Part 36 offer – normally no less than 21 days before start of trial).

(ii)   Acceptance : the mode of acceptance remains unchanged (that is, by service of a written Notice of such on the offeror).

However the new rule changes now provide for acceptance whilst:

(a)  the trial is in progress (in which case inter alia the Court’s permission will be required for acceptance); and

(b)  where permission is given, the Court now must make an Order dealing with the costs consequences.

The change appears slight but may be significant.

(iii)  Split trials : The new rules now provide for acceptance of a Part 36 offer in a split-trial case.  These new provisions are set out in CPR 36.12.

There is no substitute for reading the detailed provisions of 36.12.   Nonetheless I offer the following rough hewn summary.

This new rule applies where there has been a “trial” but the case itself has not been fully decided.

A classic example would relate to a personal injury claim where a trial takes place to decide who is at fault and (dependent upon the outcome) a separate hearing takes place after to assess compensation.

This new provision means that any Part 36 offer which relates to questions earlier decided is no longer capable of acceptance.   However (unless the parties otherwise agree) any other offer (e.g. a global offer) which did not relate to the decided question cannot be accepted for a period of 7 clear days after the judgment has been handed down;  this is designed to give each party the opportunity to reconsider any earlier Part 36 offers made.

(iv) Restrictions on disclosure: there is a restriction on disclosure of a Part 36 offer.   These are set out in CPR 36.16.  Once more it is important to examine the detailed provisions.

The time honoured approach is that no Part 36 offer should be communicated to the trial judge until the case has been decided.   However the following exceptions apply:

(a)  where a Defence of tender before a claim has been raised;

(b)  where the proceedings have been stayed;

(c)  where the parties agree that this restriction should not apply;  or

(d)  where (although the case has not been finally decided) certain questions in that case have been decided and the Part 36 offer related only to such questions.

Where exception (d) applies the trial judge may be notified of the existence of Part 36 offers which fall within (a) (b) & (c).

Generally speaking they should not be told of any offer falling within exception (d) – unless, once more, any of (a) (b) or (c) apply.

An example may suffice: if an offer is made solely on the question of fault.  The terms of that offer may be communicated to the judge who has decided the question of fault.

The judge may also be told that there are other Part 36 offers.  However the judge may be told no more than that, unless (a) (b) or (c) permit.

The reason for this approach is founded upon common sense: a party may have lost on the question of fault and his offer on that issue may have proved unsuccessful.  Nonetheless he may also have made a global offer of compensation.  If so his position on costs ought to be preserved until judgment on compensation has also been decided.  The court should not know any detail of the offer until the trial of the whole case is completed.

Other significant changes:

There follows a short note on other significant changes made to Part 36 with effect from 6 April 2015:

(i)    The offer may state that it will lapse at the end of the relevant period.   In other words it may now be withdrawn upon expiry of that period without the necessity for the offeror to wait until the end of the relevant period and the need to write a further letter to withdraw it (overturning previously decided case law on this question).

Of course, once withdrawn , the offer will lose its force thereafter in relation to costs issues but very often the offeror wants to exert pressure on the offeree and he may do this by making an offer which is expressed to be limited in time so that the offeree has, for example, only 21 days to accept it or lose it.

(ii)   The restriction upon the offeror’s ability either to withdraw or change the terms of a Part 36 offer (during the period open for acceptance) so as to make it less advantageous remains and is restated: no offer can be withdrawn or changed after acceptance.

Following acceptance if the offeror wishes to change or withdraw he has 7 days in which to apply to the Court.   The Court may allow that application provided that there has been a sufficient change of circumstances (since the making of the original offer) and it is in the interests of justice to give permission.

(iii)  It is now sufficient if the offer states that it is made pursuant to Part 36 (and no longer – as before – that it is intended to have the consequences of Part 36).

(iv) There are changes to the formalities of Part 36 offers and other Notices germane to this regime:

(a)  Part 36 is a self-contained procedural code.  Those were the words in the judgement of Lord Justice Moore-Bick in the reported cases of Gibbon v. Manchester City Council and L.G. Blower Specialist Bricklayer Limited v. Reeves (reported in 2010).  This statement now has statutory force.

(b)  Parties bringing a Counterclaim may employ the Part 36 régime as if they were Claimants.

(c)  Part 36 proposals are also applicable to Appeals and the régime in this area has become enlarged (in short, a Part 36 offer made before a trial loses its effect once the trial and issues of costs are decided; if a party then appeals, any party who wishes to protect his position must make a further Part 36 offer in the Appeal proceedings; this is not new but has been re-inforced in the revised Part 36).

(d)  Regretfully Part 36 has been “abused” by certain parties making a cynical offer (possibly as high as 95% of a claim);  this was done not so much in good faith or in a genuine attempt to settle;   more by way of an ill-concealed means of trying to secure the benefits of indemnity costs and punitive interest and the additional penalty of £75,000 : set out in CPR 36.17 : new numbering (CPR 36.14 : old numbering).

Accordingly a new criterion is now added by CPR 36.17 (5) (e) to which the Court must have regard when deciding whether it would be unjust to make the usual Order (“the usual Order” being that the losing party pays the winner’s costs).

The Court must now consider whether any Part 36 offer comprised “a genuine attempt to settle the proceedings”.  This new element is likely to result in further costs arguments following a trial.

The new rule is given some statutory force to cases such as Huck v. Robson : a case decided in 2002.

In that case, the Claimant made a 90% offer on the matter of fault.   He did so for purely tactical reasons (and not because there was any true prospect of his being able to establish blame).   In that case the Court decided:

(i)    The general presumption must be that the successful party will recover their costs on the standard basis (that is, contributory only – as a general rule of thumb broadly 60% or 65% of their total fees and expenses overall : Part 44.4 CPR).

(ii)   A Claimant who has succeeded on an outcome better than his earlier Part 36 offer has a prima facie entitlement to a costs award on the indemnity basis (almost, but not quite, full recovery).

(iii)  The general presumption that a successful Claimant only receives costs on the standard basis (contributory only) has long been displaced by the old rule 36.21 (4) (i.e. the Court’s powers to award punitive interest, fixed costs and an additional liability – subject to the quantum of the claim – of up to £75,000).

(iv) The essential question under the (old) CPR 36.21 (4) is still this : will it be unjust to award the Claimant his costs on an indemnity basis?

(v)  There is nothing unjust in awarding a Claimant indemnity costs where a Defendant had chosen not to accept an offer to settle for less than that amount to which the Claimant was entitled.

Similarly in AB v. CD [2011] the court held that in order to be valid a Part 36 offer should not be tactical but

“must contain some genuine element of concession on the part of the Claimant to which a significant value can be attached .. the concept of a settlement must, by its very nature, involve an element of give and take”

And

“A so called “settlement” which was all take and no give would in my view be a contradiction in terms”.

Some other points of note

A party who has been subject to a 50% limitation in fees (e.g. Mitchell v. Newsgroup Newspapers) [2010] may nonetheless recover 50% of their costs (subject to a detailed assessment by the Court – without reference to limitation) if they make an effective Part 36 offer.

In this way the party in procedural default is punished but the innocent party is not immune from the costs consequences of a refusal of a reasonable offer of settlement.

CPR 36.23 : these are cases where the offeror’s costs have been limited to Court fees.   This rule applies where the offeror is treated as having filed a costs budget but is only limited to recovery of Court fees or where a litigant in person has been so treated.

In this respect “costs” mean in effect 50% of the costs assessed (without reference to the limitation) together with any other recoverable costs.

Acknowledgment and thanks : this paper has been produced with the kind assistance and input of David di Mambro a Member of the Civil Procedure Rule Committee [CPRC] 2003-2013 and inter alia former Chairman of the Part 36 Sub-Committee (2011-2013) who remains a member thereof and without whose input and kind permission this Article itself could not have been prepared nor appear; with all due acknowledgment and gratitude.