Following consultation in 2006, Part 36 and the Practice Direction have been substantially revised to create a simpler regime for offers to settle. This will come into force on 6 April 2007.

No more payments into court: Most significantly, it will no longer be necessary for defendants making an offer to settle money claims to make a payment into court. This will apply to all defendants, not just certain categories of defendants deemed “good for the money”. This clarifies the shifting position following the Court of Appeal decisions in Crouch v King’s Healthcare NHS Trust [2004] and Stokes Pension Fund v Western Power Distribution (South West) Plc [2005]. Defendants wishing to make an offer to settle will now simply make a written offer to settle.

Swift conclusion: An accepted offer (accepted in writing and served on the offer or - rule 36.9) must then be paid within 14 days or the claimant will be able to enter judgment (rule 36.11(7)) and the defendant will also lose the costs protection afforded by the rules. Defendants will therefore need to ensure that their internal accounting procedures can deal with making the funds available in this short period of time. However, this period for payment may be varied upon agreement in writing (rule 36.11(6)). (The judgment should be able to be enforced without the need to issue a new claim or for there to be a full hearing.)

Service required: A Part 36 offer is now made when it is served on the offeree, rather than when received. Likewise, changes to the terms of a Part 36 offer will be effective when notice of the change is served on the offeree (rule 36.7). Permission to withdraw: Both parties will need the court’s permission to withdraw or alter a Part 36 offer during the specified period for acceptance (rule 36.3(6)). The court’s permission will not be required to withdraw or alter a Part 36 offer after the expiry of the offer period (rule 36.3(7)). The offeror just needs to serve notice. Whilst this was always the case for the claimant, a Part 36 payment by the defendant could previously only be withdrawn or reduced with the permission of the court. Now payments in will not be required, defendants’ offers are to be put on the same footing as claimants’ offers.

“A Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer) unless the offeror serves notice of withdrawal on the offeree” (rule 36.9(2)).

More flexibility for acceptance: There are a couple of essential points to note with regards to this new rule. Firstly, unless the offer is formally withdrawn, a Part 36 offer can be accepted at any time - this is even after the expiration of the offer period (usually 21 days), and even if the parties cannot agree liability as to costs - without the permission of the court (save for some exceptions concerning acceptance of an offer made by only some of the defendants and recoverable and deductible benefits). The onus therefore is on the offeror to constantly review their position and, where circumstances change, to act quickly if necessary to withdraw or amend offers before they are accepted. Even if a revised offer is made, the offeror will still need to formally withdraw the previous offer; it is not extinguished by a new offer.

Counter offers: Secondly, in contract law, making a counter offer amounts to a rejection of the original offer. This is not the case now with Part 36 counter offers, thanks to the phrase “whether or not the offeree has subsequently made a different offer”. So, for example, if the claimant puts in a counter offer to the defendant’s offer but the defendant will not negotiate, the claimant is still able to revert to the defendant’s original offer and accept that.

Pre-action offers count too: A Part 36 offer can be made at any time, and this now includes before the commencement of proceedings. Any offers made pre-action will carry equal weight in relation to costs consequences (rule 36.3(2)).

But fresh offers for appeals please: The costs consequences of a Part 36 offer will apply only to the proceedings in respect of which the offer was made; it will not apply to any appeal arising from those proceedings (rule 36.3(4)). A new crossreference after rule 52.12 also states that Part 36 offers made during originating proceedings will not have consequences in appeal proceedings, and therefore a fresh Part 36 offer needs to be made for the purpose of appeal proceedings. Rule 52.12 prohibiting disclosure to the appeal judge of any Part 36 offers (unless relevant to the appeal) applies to a Part 36 offer whether made in the originating proceedings or in the appeal.

Costs and interest: Previously, if a defendant rejected a claimant’s offer to settle, the claimant had to actually beat their offer (obtain a judgment more advantageous) to be awarded indemnity costs, interest on those costs and damages at an enhanced rate. Under the new rules, the claimant will only have to equal (obtain a judgment at least as advantageous as) his own offer upon judgment (rule 36.14(1)(b)). In addition, the claimant is “entitled” to interest and costs on an indemnity basis unless the court considers it would be “unjust in all the circumstances of the case”; the previous provision only said the court may order interest and indemnity costs. Where a claimant fails to beat a defendant’s Part 36 offer, the defendant is entitled to his costs and interest on those costs (rule 36.14(2)). There is, however, no provision for awarding defendants indemnity costs or enhanced interest if the claimant fails to beat the defendant’s offer, despite this being proposed by the DCA and favoured by the majority of respondents (notably not including the judiciary and government departments).

Cross - references made to the Part 36 rules elsewhere in the CPR have been amended as necessary.

Offers made before the new rules come in: New Practice Direction 36B explains the seemingly complicated transitional arrangements for Part 36 offers or payments made before 6 April 2007. Offers and Part 36 payments made before 6 April will be treated in accordance with the current rules, including offers that remain open until after that date.

Corresponding court forms: The “N242A Notice of payment into court (in settlement) (Rule 36.6(2))” is redrafted and renamed “N242A Notice of offers to settle – Part 36”. It is not mandatory to use this form (new paragraph 3.2 PD4). A Part 36 payment notice may now be faxed to the court, as the restriction on this has been removed from paragraph 5.3(9) of the Practice Direction to Part 5.