Part 36 is not set in stone. Changes are on the way. We review the current position following a succession of judicial decisions.
Part 36: the future
- Lord Justice Jackson stated in the Court of Appeal in Fox v Foundation Piling Ltd [07.07.11] that a new Rule 36.14(1A) will be introduced with effect from 1 October 2011, which will reverse the effect of Carver v BAA Plc [22.04.08] (see below).
- A more significant redraft of Part 36 is expected in late 2012 to reflect the recommendations made by Jackson LJ in his Final Report - “Review of Civil Litigation Costs” (dated January 2010). He recommended claimants be given an incentive to make Part 36 offers, on the basis they stand to gain 10% more damages if the offer is not beaten. The Ministry of Justice has already commenced the process with the publication on 21 June 2011 of the Legal Aid, Sentencing and Punishment of Offenders Bill 2011 (“Justice Bill”). View our full report on the Justice Bill in the July special edition of Liability Brief.
Part 36: Key features of current regime
- A Part 36 offer is an offer made strictly in accordance with Part 36 of the Civil Procedure Rules. Part 36 is a procedural mechanism and is not subject to contract law.
- Once made, it can only be withdrawn within the “relevant period” (of at least 21 days) with leave of the court, which will not be easy to obtain. Accordingly, if a key piece of evidence is received during the “relevant period” which radically alters the value of the claim, it is unlikely this will be considered to be a sufficient change in circumstances to allow the offer to be withdrawn.
- A Part 36 offer can be withdrawn after the “relevant period” has expired. If it has not been expressly withdrawn it will remain open for acceptance, even if it has previously been rejected (Gibbon v Manchester City Council 25.06.10).
- A Part 36 offer should relate to damages only - it cannot include an offer in relation to costs.
How do you beat a Part 36 offer? Is it all about the figures?
- In Carver the Court of Appeal held the changes to Part 36 introduced on 6 April 2007 permitted a more wide-ranging review of all the facts and circumstances of deciding whether the judgment, which was the fruit of the litigation, was worth the fight. Accordingly, where the Claimant in that case beat a Part 36 offer, but only by £51, she failed to obtain a more advantageous judgment.
- This decision was criticised by Jackson LJ in his Final Report. He recommended removing the uncertainty caused by Carver. In addition, in Gibbon the Court of Appeal criticised the approach in Carver, placing the emphasis back on the figures, subject to the courts’ general discretion under CPR Part 44.
- The uncertainty introduced by Carver is likely to be brought to an end by a change to Part 36 in October 2011. It is, however, vital any new rules are drafted clearly and without ambiguity if satellite litigation is to be avoided.
Key case law
The courts have over recent months reviewed and clarified aspects of Part 36:
- Litigants in person: if you are acting against a litigant in person you should be careful to explain the costs consequences of Part 36 offers. In this case, the Defendant reminded the Claimant, who was a litigant in person, that a Part 36 offer remained open for acceptance but did not explain the consequences of late acceptance. The Court of Appeal held that each party should bear its own costs from the end of the relevant period – Kunaka v Barclays Bank 16.07.10
- Time limited offer: in this case the letter setting out the offer included reference to it being open for 21 days from the date of the letter. The Court of Appeal held this was not a time limited offer. What had been meant by the wording was the offer could not be withdrawn within 21 days but that after 21 days it may be promptly withdrawn. The offer had been an effective Part 36 offer. Lord Justice Stanley Burnton stated “Any ambiguity in an offer purporting to be a Part 36 offer should be construed so far as reasonably possible as complying with Part 36.” – C v D 27.05.11
- Offers made pre-proceedings: the High Court held the costs consequences of Part 36 as set out in Part 36.10 were intended to apply where both offer and acceptance occur prior to issue of proceedings - Thompson and Thompson v Bruce 28.06.11
- Successful party: the Claimant recovered £2,000 in a case initially valued at over £500,000. The Court of Appeal held the reality was the claim failed and the Defendant should receive 75% of its costs. Jackson LJ dissented. In his view, as the Defendant had made no Part 36 offer, it should accept the consequences and pay the Claimant’s costs. Jackson LJ stated: “There is an acute need for clarity and certainty in the field of Part 36. Parties need to understand (a) the consequences of making or not making Part 36 offers and (b) the consequences of accepting or not accepting such offers.” - Marcus v Medway Primary Care Trust and Hussain 29.06.11
- Costs where Part 36 offer withdrawn: in this shipping case, it was held a Part 36 offer that had been withdrawn did not, in the circumstances of the case, make it unjust to order that the offeror should get all their costs from the date the offer expired. These costs were caused by the unreasonable conduct of the offeree - Owners and/or Bareboat Charterers and/or Sub Bareboat Charterers of the Ship Samco Europe v Owners of the Ship MSC Prestige 30.06.11
- Impact of exaggeration: the Court of Appeal held where a claimant is alleged to have exaggerated his claim, but has recovered more than he had been offered by the defendant, he is entitled to his costs. Jackson LJ stated: “I hope that the forthcoming amendment to rule 36.14 will point the way to a more clear cut approach to the costs rules in future. In the context of personal injury litigation where the claimant has a strong case on liability but quantum is inflated, the defendant’s remedy is to make a modest Part 36 offer. If the defendant fails to make a sufficient Part 36 offer at the first opportunity, it cannot expect to secure costs protection. Different considerations may arise in cases where the claimant is proved to have been dishonest, but (on the judge’s findings) that is not this case.” – Fox v Foundation Piling Ltd 07.07.11
Part 36 offers are a very powerful tool to a litigant’s disposal but it is essential there is certainty in this area of law. It is clear from the above judicial decisions that the courts are looking at the application of Part 36 from every angle. Changes are on the way, which will hopefully achieve greater clarity and reduce satellite litigation on the issue of costs. We will be continuing to monitor developments and provide commentary.
As an alternative to making a Part 36 offer, it is possible to make a “Calderbank” (or Part 44.3) offer. This is a contractual offer which is expressed to be “without prejudice save as to costs”. A Calderbank offer has some advantages over Part 36 offers in that it can be withdrawn at any time and can include an offer in relation to costs. Such an offer may still be relevant to costs, as it is an attempt to settle the claim, but does not achieve the same certainty as a proper use of the Part 36 regime.
Whatever approach is selected in a particular case, those involved in litigation should be fully alert to the importance of appropriate and timely offers as an important means by which to achieve settlement and, where the case does not settle, provide costs protection.