Part 36 has been the focus of judicial consideration over the past few months. This Bulletin looks at recent decisions in this area and forthcoming reforms to this part of the CPR.

C v D1

This case came before the Court of Appeal in April 2011. C had made D an offer entitled “Offer to Settle under CPR Part 36”. The offer was expressed “to have the consequences set out in […] Part 36 […]” and C stated that the offer would be “open for 21 days”. The offer was not accepted by D within 21 days. However, three weeks before trial (and almost a year after the offer was made) D sought to accept it.

One of the key issues for the Court of Appeal was whether the phrase “open for 21 days” meant that the offer was time limited and therefore invalid under CPR 36. In its judgment, the Court of Appeal unanimously confirmed that an offer limited in time cannot be a Part 36 offer. However, on the facts the Court of Appeal held that C’s offer was not time limited as the phrase “open for 21 days” could in the context of that letter simply mean that the offer would not be withdrawn for 21 days. The Part 36 offer had not been withdrawn by C, was still capable of being accepted by D and was therefore valid.  

Significantly, the court stated that where it is clear by the wording of the offer that Part 36 is to be invoked, the court will consider whether the offer can reasonably be construed in a way that does not involve it being time limited: “the relevance […] of the claimant’s expressed intention to make its offer a Part 36 offer is that if there are any ambiguities in raising a question as to whether the offer does or does not comply with the requirements of Part 36, the reasonable man will interpret it in a way that is so compliant”2.

The decision in C v D was followed by the Court of Appeal in July 2011 in the case of Howell v Lees Millias3 where the Master of the Rolls referred to the decision in C v D as being “sensible and right”. The judgments in these two cases (particularly the comments of Stanley Burton LJ in C v D that “any ambiguity in an offer purporting to be a Part 36 one should be construed wherever possible as Part 36 compliant”4) have been seen by many as an indication that the courts are keen to deter parties from taking technical points about flawed Part 36 offers and will, wherever possible, find that offers comply with Part 36.

However, two recent decisions of the lower courts show that there are limits to how far the courts will go in construing offers as Part 36 compliant, particularly where there is an unambiguous failure to adhere to the requirements of Part 36.  

In June this year, in the case of Carillion JM Ltd v Phi Group Ltd,5 the High Court held that even where an offer was described as a Part 36 offer and intended to have Part 36 consequences, it will fail if it does not specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs if the offer is accepted. According to the judge in this case “the failure to spell out a 21 day [period] is an important one because it provides not only a timetable within which the offeree needs to accept the offer but also points the offeree to the costs consequences of accepting it”6.  

Also in June this year, in the case of Shah v Elliot7, the court adopted the approach recommended in C v D in considering whether there was a reasonable construction of an offer which was clearly intended to be a Part 36 offer that did not involve it being time limited. However, in this case it was held on the facts that, although there were passages in the offer letter that pointed to the fact it might not be time limited, because the offer failed to state that it was intended to have the Part 36 costs consequences (and in fact it proposed costs consequences that were inconsistent with those specified in Part 36) it was not a valid Part 36 offer.  

Fox v Foundation Piling Ltd8

This case considered the situation where both a claimant and a defendant have made Part 36 offers but both parties turn out to have been over optimistic in their Part 36 offers. In its judgment in July 2011, the Court of Appeal confirmed that in such a case, where the claimant recovers more than the defendant has previously offered to pay, but less than the claimant previously offered to accept, then it is the claimant who should be regarded as the “successful party” under CPR 44.3(2). The rationale for this is that “the claimant has been forced to bring proceedings in order to recover the sum awarded. He has done so and his claim has been vindicated to that extent […]”9.  

The court also confirmed that in awarding costs the starting point will be that the successful party should recover its costs from the other side (rule 44.3(2)) but the next stage is “to consider whether any adjustment should be made to reflect issues on which the successful party has lost or other circumstances”10. These “other circumstances” can include costs that the unsuccessful party was forced to incur by the unreasonable conduct of the successful party.

Further development of the law

Proposals to reform Part 36 largely centre around rule 36.14 and the costs consequences of failing to beat an opponent’s Part 36 offer at trial. The current rules provide that:  

  • If a defendant makes a Part 36 offer and the claimant does not accept that offer and then fails to obtain a more advantageous judgment at trial than that offer, the court will order the claimant to pay the defendant’s costs from the date when the relevant period expired plus interest on those costs (but the defendant is to pay the claimant’s costs before that date).  
  • If a claimant makes a Part 36 offer which is not accepted by the defendant and the judgment against the defendant is at least as advantageous to the claimant as that offer, the court can order the defendant to pay the claimant’s costs on an indemnity basis from the date the relevant period expired plus interest on those costs and on the whole or part of any sum awarded (excluding interest on that sum) at a rate of up to 10% above base rate.  

The issue of what amounts to a “more advantageous judgment” was considered in the decision of Carver v BAA plc11 where the Court of Appeal held that all the circumstances must be taken into account in determining whether the final outcome of a case was “more advantageous” to a claimant than accepting a defendant’s Part 36 offer. This decision was widely criticised by many, including by Jackson LJ in his report on civil litigation costs, Review of Civil Litigation Costs: Final Report (December 2009), for introducing an unwelcome degree of uncertainty into the Part 36 regime.  

However, it was confirmed in Fox v Foundation Piling Ltd that the effect of Carver v BAA will be reversed by a new CPR 36.14 (IA) from 1 October 2011. The rule will therefore be that where a money offer is beaten at trial, by however small a margin, the Part 36 costs consequences will apply.  

Another proposed change was set out in the Government’s response to Jackson LJ’s Review of Civil Litigation Costs: Final Report, published in March 2011, where it was stated that Part 36 would be amended to equalise the incentives between claimants and defendants to make and accept reasonable offers. The precise changes to Part 36 are yet to be finalised and are not expected to take place until late 2012, but it is proposed that an additional sanction (equivalent to 10% of the value of the claim) will be payable by a defendant which rejects a claimant’s offer and fails to better it at trial.

In Fox v Foundation Piling Ltd, commenting on the “large number of authorities” which have “accumulated”12 on the provisions of Part 36, Jackson LJ stated that Part 36 is “intended to provide a clear and simple framework within which parties can settle litigation”. The proposed reforms will hopefully resolve the ambiguities created by case law so that parties can be confident of the effect of making a Part 36 offer.