The vast majority of cases settle before trial, which makes Part 36 arguably the most important of the Civil Procedure Rules. Unfortunately, Part 36 has faced a great deal of criticism in the past few years, with a number of counterintuitive and inconsistent decisions regarding its application.

The Civil Procedure Rules Committee is well aware of these criticisms, and a dedicated sub-committee has been hard at work preparing a revised draft.  BLP made detailed submissions to the sub-committee on these proposed changes.  The final draft, which was published just before Christmas, contains the most extensive and significant amendments to Part 36 in 15 years.  This blog post summarises some of the key changes and how they will affect settlement strategy for all litigants when they come into effect on 6 April 2015.

Withdrawing offers

When Part 36 was originally conceived, most offers were intended to be kept “on the table” right up until trial; all of the post-judgment enhanced costs and interest benefits of a good offer require this. However, in some circumstances an offeror may wish to retract their offer (and forego any related cost benefits). This can be done at any time, and without any notice, after the end of the Relevant Period (or during the Relevant Period with permission of the court). However, in several judgments the courts have held that it is not possible to set a time limit on a Part 36 offer from the outset; any attempts to do so will render the offer invalid under Part 36.

The new CPR 36.10(2) reverses this, providing that an offeror can serve advance notice to withdraw their offer (or to amend it on less favourable terms). There are specific provisions for what happens when the notice is served during the Relevant Period, but the offer then accepted before the notice takes effect. This change introduces the possibility of more strategic offers, with pre-defined “guillotines” designed to exert pressure on the offeree. Note that the rules do not limit offerors’ notice provisions to specific dates or times. Arguably, therefore, an offeror would be free to state that their offer will lapse upon a specified event.

Whilst many offerors may like the ability to set a deadline for acceptance in advance, they should not forget that in doing so they will be immediately conceding any opportunity to claim the potential post-judgment automatic cost and interest benefits which make Part 36 so attractive in the first place.

Improving offers

On occasion, an offeror may wish to improve their terms. This can create confusion over whether the later offer stands alongside, or replaces, the earlier offer. The new CPR 36.9(5)(a) makes it clear that it is the former: an improved offer “shall be treated, not as the withdrawal of the original offer; but as the making of a new Part 36 offer on the improved terms”.

At first glance this may seem counterintuitive. If a Defendant has offered to settle a £1m claim for £500,000, but subsequently improves his offer to £750,000, why would the parties be concerned with keeping the older, inferior offer “on the table”? The answer lies in the post-judgment consequences of having made (and not withdrawn) the earlier offer: if the claimant wins at trial, but fails to win more than £500,000, the defendant will want to claim the enhanced interest and costs benefits from the date of the original offer.  So the original offer must remain technically open for acceptance, even if there is no logical reason why the offeree would ever do so.

This aspect of the new rules provides is a clear demonstration of why contractual principles of offer and acceptance do not apply to Part 36, and why an improved offer should not act as a revocation of any earlier offers.  It is also a good example of how important it is for all litigants to appreciate the mechanics and nuances of the rules.

Part 36 and split trials

A number of changes in the new Part 36 are designed to better accommodate claims involving multiple causes of action, and in particular split trials. For example, new CPR 36.16 states that after the hearing of a preliminary issue, then any Part 36 offers relating only to the concluded issues may be revealed to the court (so that the court may take into consideration those offers when ordering costs). The parties cannot reveal to the court the details of any Part 36 offers which relate to the remaining unresolved issues (including global offers to settle), though they can confirm that such offers do exist, which was not possible under the old rules.

These changes mean that parties will often want to sub-divide their settlement offers; if a global offer cannot be disclosed to the court until the end of proceedings, the offeror may be delayed in receiving the full cost benefits of having made that offer.  An offer framed by reference to any preliminary issues alone, however, can be an effective way of maximising early cost recovery.

Part 36 and appeals

Whilst it has been possible to make Part 36 offers in the context of appeal proceedings for some time, the Rules Committee have not had an opportunity to make appropriate modifications to Part 36 itself until now. The new CPR 36.4 makes specific provision for appeal proceedings, and makes it clear that Part 36 offers cannot run across appeals (so an offer made at first instance will not be relevant on appeal, and vice versa).

In order to accommodate the different terminology used in appeal proceedings, CPR 36.4(2) includes a “translation table”. For example, the table notes that in an appeal case, all Part 36 references to the “Claimant” should be treated as references to the “Appellant”. This seems logical and clear. However, there may be some unintended consequences. For example, where a Part 36 offer is accepted during first instance proceedings, the claimant is entitled to his costs (see new CPR 36.13), which makes sense.  However, by reference to the translation table, this default entitlement to costs falls in favour of the appellant in appeal proceedings.  This doesn’t seem appropriate in a typical appeal scenario where the claimant has won his case and the defendant appeals - why should the claimant have to meet the defendant’s appeal costs if the parties want to settle (when, by definition, the defendant is the losing party yet again)? Issues such as these are likely to be ironed out in subsequent case law, but in an ideal world would be avoided by the drafting in the first place.

And finally… codifying aspects of Part 36 already established through case law

Some of the other changes focus on clarifying what has already been clearly established in case law. For example:

  • CPR 36.1 now states that Part 36 is “a self-contained procedural code”, making explicit the fact that contractual principles of offer and acceptance do not apply (per Gibbon v Manchester City Council [2010] EWCA 726). This means that a party who has explicitly rejected an offer can still change their mind later and accept the offer, provided the offeror hasn’t subsequently withdrawn it.
  • CPR 36.5(2) states that in order for a Part 36 offer to be valid, it need only “make clear that it is made pursuant to Part 36”. In other words, it no longer needs to “state on its face that it is intended to have the consequences of Section I of Part 36” (per old CPR 36.2). This means there is less risk of an otherwise-valid Part 36 offer being deemed invalid because of a technical shortcoming in the drafting (per Thewlis v Groupama [2012] EWHC 3).
  • CPR 36.7 now makes clear that an offer can be made at any time, “including before commencement of proceedings”; and under CPR 36.13 the Claimant’s automatic entitlement to reasonably incurred costs includes “their recoverable pre-action costs” (per Callery v Gray [2001] EWHC 1117, and Solomon v Cromwell Group plc 2011 EWCA Civ 1584).
  • CPR 36.17(5)(e) now states that when the court is considering whether to award the automatic cost consequences of a good Part 36 offer post-judgment, it can take into consideration “whether the offer was a genuine attempt to settle the case”. This is designed to discourage so-called “cynical” offers (e.g. a claimant offering to settle for 95% of the value of his case, as in Huck v Robson [2002] EWCA Civ 398). It is argued that such offers exploit Part 36 to artificially inflate cost recovery. Although this change sounds good in principle, the Rules Committee was divided over whether this was an appropriate amendment since it does potentially undermine the certainty and predictability of Part 36. Will an offer to settle at 95% always be disregarded under this rule? What about an offer at 90%? What if the claimant has a cast-iron case? Many litigators will recall the headaches created by BAA v Carver, which introduced a similar element of subjectivity to the rules at the expense of certainty. It is possible that this change will have a similar effect.

BLP Perspective

The Civil Procedure Rules Committee has done a good job in addressing many high profile issues with Part 36. They have also improved the flexibility of the rules to cater for more complex dispute scenarios, which is a significant achievement. The unfortunate side effect, however, is that Part 36 has become even more complex than it ever was. In particular, the provisions around split trials, and revising offers, are a potential minefield for the unwary.

One of the original strengths of Part 36 was its simplicity and predictability; for more complex scenarios where Part 36 was unsuitable, parties were always left with recourse to the Calderbank regime, which is far less prescriptive. Over the past 15 years, Part 36 has grown in scope and complexity, and provides many opportunities for nuanced settlement strategies. This is largely a positive change, but comes at significant cost to accessibility and comprehension for inexperienced litigants.