The new Part 36 of the Civil Procedures Rules, containing the regime for settlement offers, came into force on 6 April 2015. Part 36 is one of the most widely used areas of the Civil Procedure Rules. According to government statistics, only 3 – 4% of claims issued make it to trial. The ability, therefore, to make tactical settlement offers is a tool that is used extensively in claims ranging from small value to millions of pounds.

Ed Pepparall QC, chair of the Part 36 sub-committee, said that the purpose of the changes is to tackle two main issues. First, the over-technicalities of the current Part 36 rules which caused many bona fide offers to fail. Second, that some claimants were taking advantage of the Part 36 regime by making high offers early on, that were unlikely to be accepted, in order to obtain the costs advantages.

We look at the key changes below.

Counterclaims

Previously there had been some uncertainty as to whether the Part 36 rules could be used to make offers to settle counterclaims. It has now been confirmed that a Part 36 offer can be made in respect of “the whole, or part of, or any issue that arises in a claim, counterclaim other additional claim” (Rule 36.2(3)).

Appeals

In addition, Rule 36.2(3) confirms that a Part 36 offer can be made in “an appeal or cross-appeal from a decision made at a trial” though not an appeal from an interlocutory application. In order for such an offer to be valid, it will need to be made during the appeal proceedings. Part 36 offers shall only have effect “in relation to the costs of the proceedings in respect of which it is made, and not in relation to the costs of any appeal from a decision in those proceedings” (Rule 36.4).

Split Trials

Previous criticism of Part 36 offers has included concerns that the rules do not cater for split trials. The existence of offers cannot be communicated to the trial judge until the case has been decided. Such a scenario meant that offers made in a liability-only trial could not be communicated to the judge until after the quantum trial. This deprived the offeror of the costs benefits of the offer in the first trial.

In order to deal with this problem the definition of “trial” has been defined as “any trial in a case whether it is a trial of all issues or a trial of liability, quantum or some other issue in the case”. In addition, a new rule, (Rule 3.12) provides that where there is a split trial (1) a Part 36 offer cannot be accepted in respect of an issue that has already been decided; and (2) a Part 36 offer in respect of any other issues cannot be accepted until seven clear days after judgment has been handed down in the decided issues.

Technicalities

In an attempt to answer criticism that the rules were overly technical, it is now no longer a requirement to state on the face of the offer that it is intended to have the consequences of section 1 of the CPR 36. Instead, it must be made “clear that the offer is made pursuant to part 36” (Rule 36.5).

Time limits

Previously it was not possible to automatically withdraw a Part 36 offer. This required two letters to be written – one making the offer and one withdrawing it. That has now changed. Providing the time limit is not within the “relevant period”, a Part 36 offer can now be automatically withdrawn (Rule 36.9(4)(b)). Of course, the costs consequences will not apply if the offer is withdrawn.

Genuine attempt to settle proceedings

Though the rules on the consequences of Part 36 offers have not changed, rule 36.17(5)(e) adds a new consideration for the courts when considering whether it would be “unjust” to order the relevant cost consequences to apply. Courts must now consider “whether the offer was a genuine attempt to settle the proceedings”.

This provision arises out of concerns that unscrupulous claimants were making strategic 95% part 36 offers, simply to obtain the cost protection of Part 36 with little inclination to actually settle proceedings. The court, of course, will now be alive to such strategies and be able to mitigate their effect. That said, where a 95% offer is a genuine attempt to settle, for example in personal injury open and shut claims, offerors should have no problem proving that to be the case.

Costs budgeting

In order to deal with the ramifications of Mitchell i.e. circumstances where a party is only entitled to recover court fees (because of a failure to file a costs budget) the meaning of costs is taken to be 50% of the costs assessed without reference to the limitation imposed on that party. The effect is intended to maintain the ability of an offeror to seek early settlement by taking advantage of the Part 36 cost consequences.

Provisional Arrangements

The new rules apply to all Part 36 offers made on or after 6 April 2015. They also apply (from 6 April 2015) to Part 36 offers made before that date where the trial of any part of the claim or issue, arising in the offer, starts on or after 6 April 2015. The purpose of this is to affect the position regarding acceptance and disclosure of Part 36 offers in trials listed on or after 6 April 2015.