highlights

  • Non-compliant offers can still be effective
  • Part 36 is to undergo further reform
  • Offerees should be invited to raise noncompliance issues

The journey through life is rarely a straightforward one. This is certainly true for CPR Part 36, which has been the subject of substantial reform and endless judicial interpretation. We examine below where all this has left Part 36 and what the future has in store

The introduction of Part 36

Part 36 was born out of the Woolf reforms and came into being with the CPR in 1999. Among the intentions behind it was to provide a clear, easy to follow procedure for encouraging early settlement.

In contrast to, but not to the exclusion of, the traditional Calderbank offer, Part 36 provided a set of highly prescriptive requirements for making offers and payments which, if followed and not bettered, would be certain to have adverse financial consequences for any offeree.

Reform of Part 36

The first major reform of Part 36 took effect on 6 April 2007. This served to simplify Part 36 and was itself a response to an increasingly uncertain body of judicial decisions aimed at mitigating the effects of the inevitable instances of non-compliance.

Chief amongst the amendments made was the removal of the need for defendants to make payments into court and the substitution of the requirement to specify a deadline of not less than 21 days for acceptance, with a requirement to specify a "relevant period" of not less than 21 days within which the defendant will be liable for the claimant's costs.

Part 36 today

Despite the simplification introduced by the reforms, instances of noncompliance and judicial interpretation appear undiminished. In turn, this has again led to a number of contrasting decisions and with them, further uncertainty. This is particularly apparent in relation to defective and withdrawn offers.

Defective offers

In LG Specialist Bricklayers Ltd v Reeves the defendant made three offers, the first being most generous. On appeal, the court held that the claimant had in fact beaten the first offer. However, it went on to observe that as the subsequent offers had failed to state that they intended to have the consequence of Part 36 or stipulate a “relevant period” of not less than 21 days, they were not Part 36 offers.

In contrast in C v D, the claimant purported to make a Part 36 offer in 2009 which was "open for 21 days". Almost a year later the defendant attempted to accept the offer. At first instance, the judge held the offer was not capable of being a Part 36 offer and had lapsed. However, on appeal the court held that while Part 36 could not accommodate a time-limited offer, the offer here was to be construed as a Part 36 offer. This was because the phrase "open for 21 days" meant only that the offer would not be withdrawn within 21 days.

Similarly, in Howell v Lees-Millais the claimant again purported to make a Part 36 offer which was "open for 21 days". This time however, the offer was in respect of costs and limited to a proportion of costs only. On appeal the court held that while the offer was not strictly speaking a Part 36 offer, as the parties had treated it as such, it should be given substantially the same effect.

Withdrawn offers

In Pankhurst v MIB the claimant made a Part 36 offer of £3.4 million which he later withdrew. At trial he then recovered £6.1 million, being less than the defendant's own Part 36 offer of £6.8 million. At first instance and notwithstanding that the claimant had purported to withdraw his offer, the court held that it should retain its potency, the defendant’s rejection of it effectively nullifying the subsequent withdrawal. Although the matter went to appeal, this finding was not in dispute.

In contrast, in Fox v Foundation Piling Ltd the defendant made two Part 36 offers, that latter of which expressly withdrew the former. On appeal it was conceded that the claimant had beaten the first offer. However, the court went on to state that a withdrawn Part 36 did not attract the certainty of Part 36, although it remained admissible as an offer to settle within Part 44.3(4)(c).

Part 36 in the future

Further amendment of Part 36 is inevitable. On 1 October the Civil Procedure (Amendment No.2) Rules 2011 (SI 2007/1979) introduced rule 36.14(1A) to overrule the decision in Carver v BAA plc. This rule provides that: “For the purposes of paragraph (1) in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.”

Meanwhile and in response to Jackson LJ’s costs review, the government is considering imposing an additional sanction, equivalent to 10 per cent of damages, where a defendant rejects a claimant's offer but fails to do better at trial.

Conclusions

Part 36 provides a unique framework for incentivising early settlement. The further reforms planned suggest that, in one form or another, it is here to stay. If anything, it seems likely to become more relevant as steps are taken to increase sanctions facing defendant’s who fail to accept offers.

In its current form, Part 36 is still a valuable tool and whilst limited in application by its inflexibility, in the many instances where it can be complied with, it continues to offer the cost certainty it promises.

Not unsurprisingly, uncertainties abound where, either intentionally or unintentionally, practitioners depart from the requirements of Part 36. In doing so, they place their fate entirely in the discretion of the court. In these instances, the outcome is likely to be driven heavily by the circumstances of the particular case.

However, from the decisions above, it appears that:  

  • the courts are prepared (in some circumstances) to rectify minor departures from Part 36;
  • the less serious the deviation from Part 36, the more likely the court will apply its sanctions;
  • a defective offer is more likely to invoke the sanctions of Part 36 than a withdrawn one; and
  • an offeree who fails to raise known defects in an offer, despite express invitation to do so, is much less likely to be able to rely on them subsequently.