From 6 April 2007, changes to the CPR will mean that defendants to a money claim will no longer be required to back up their offers to settle proceedings made under Part 36 with corresponding payments into court. The five most significant changes to Part 36 you need to know about are set out below.

No payment in to court

So long as a defendant meets the procedural requirements, it will no longer need to back up its Part 36 offer with a payment into court to make its offer valid. This is good news for defendants who no longer need to tie up potentially large sums of money in court for what could be substantial periods of time.

Defendant’s offer

To be compliant a defendant’s offer must (subject to certain limited exceptions) be an offer to pay a single sum of money and offer to pay that sum, if accepted, within 14 days of the date of acceptance.

Making payment

If a defendant fails to make payment within 14 days of acceptance, or such longer period as the parties agree in writing, judgment for the unpaid sum can be entered. As yet, no guidance has been given as to how judgment can be entered but it is unlikely that it will be necessary to issue a new claim or have a full hearing.

Accept at any time

Whether costs can be agreed or not, and whether a “counter offer” has been made or not, a Part 36 offer will generally be capable of acceptance without the offeror’s or the court’s permission at any time before the start of the trial, unless, that is, it has been properly withdrawn. Gone is the 21-day time period after which the court’s permission to accept is required.

Withdrawing the offer

Either party wishing to withdraw its offer or alter it so that it is less favourable to the offeree will require the court’s permission to do so within the initial 21-day (minimum) period that must be referred to in the offer. Good reason will be required, such as new evidence or a new authority that materially affects the balance of the claim. After the initial 21 days, withdrawal or variation can be made without permission but notice of it must be given in writing. Importantly, a “counter offer” by the offeree will not operate so as to replace or withdraw the earlier offer. Once withdrawn, the new rules provide that such an offer will not have the beneficial costs consequences provided by Part 36. However, the offer can still be taken into account under the court’s general discretion on costs.

Comment

The costs position at trial will largely remain as under the current rules. If a claimant now equals its own offer the court can order a defendant to pay interest at 10 per cent on the damages awarded plus indemnity costs from the date the defendant should have accepted the offer. Pre 6 April, a claimant had to beat its own offer. Where a claimant fails to beat a defendant’s offer, the defendant still only gets its costs from the date the offer should have been accepted on the standard basis plus interest on those costs.

There are transitional rules. A Part 36 offer that was valid before 6 April 2007 will continue to be valid after that date and will have the consequences set out in the new rules. If permission to accept the offer was required before 6 April 2007, it will continue to be required after that date. Payments into court made before 6 April can only be withdrawn with the court’s permission except where the offer (and therefore payment) is still open for acceptance without the court’s permission and the defendant agrees that the sum may be paid out in satisfaction of the offer.

Remember

Defendants considering making a Part 36 offer before 6 April will need to weigh up the likely costs benefit of doing so, given that to be certain of the costs protection of Part 36 they will have to make a payment into court. That should be weighed against the downside of delaying the potential costs protection until after 6 April, but not having to actually pay monies into court.

Offers will stay on the table until properly withdrawn regardless of any “counter offers” that may be made. Don’t forget, notice of withdrawal can only be given if notice of acceptance has not already been served.

As from 6 April offers will be capable of acceptance at any time without the permission of the court. Parties will need constantly to review offers made and received in the light of developments affecting either side’s position. Swift action may be needed to withdraw or amend an offer, or indeed to accept one, where new evidence affecting the merits of the case comes to light.

Defendants’ offers must not offer payment more than 14 days after acceptance. To do so will take the offer outside Part 36. This does not stop a defendant seeking to agree a longer period for payment once the offer has been accepted, but it should not rely on that possibility when making an offer.

To be sure of benefiting from Part 36 costs protection, defendant companies will need to ensure that their internal processes are aligned so that they can arrange payment within 14 days of acceptance. If they cannot, and an extension cannot be agreed, judgment can be entered against them.

Withdrawn offers that prove to have been appropriate and are not beaten at trial will not be considered under Part 36. This does not prevent the party who made the withdrawn offer from asking the court to exercise its discretion as to costs generally under Part 44