From 6 April 2007 defendants are likely to benefit from changes to Part 36 of the Civil Procedure Rules, which regulate offers to settle court proceedings.
What the court rules say
Under the old rules, to make a compliant Part 36 offer of settlement in court proceedings, a defendant had to pay into court the amount offered to settle the dispute. If not accepted that money would be held by the court (but kept secret from the trial judge) until final resolution of the proceedings, which could be some considerable time. A defendant had to decide whether the potential benefit of making a compliant offer (the likelihood that the court would award the defendant enhanced costs if the claimant failed to beat the offer at trial) outweighed having a sum of money tied up at court. Under the new rules, there is no longer a requirement that the offer should be accompanied by a payment into court of the amount offered. This is obviously good news for defendants.
Also, if a defendant cannot make a compliant Part 36 offer under the new rules (eg cannot, or does not want to, make payment within 14 days of acceptance), it can instead make a written offer expressed to be “without prejudice except as to costs”. Such offers (known as ‘Calderbank offers’) cannot be revealed to the court until it is deciding the issue of costs. A Calderbank offer will not attract the enhanced costs benefits available by making a compliant Part 36 offer. But, the court does have discretion to take the Calderbank offer into account when deciding an appropriate costs order. Making Calderbank offers, which were not officially recognised under the old rules, may become common place under the new rules. Requirements in arbitration
Part 36 does not apply in arbitration proceedings, where the use of Calderbank offers has been commonplace for some time. Under the Arbitration Act 1996 an arbitrator can award either party its costs (subject to any contrary agreement by the parties) under the general principle that costs follow the event, except where it appears that in the circumstances this is not appropriate. The tribunal will take into account any Calderbank offers. Such offers follow normal contract law principles, so that an offer is no longer open for acceptance, without the consent of the offeror, if:
- the offer was previously rejected;
- a counter-offer has been made;
- acceptance is outside the period for acceptance stipulated in the offer; or
- no period for acceptance was stated in the offer, but a reasonable period of time to accept has passed.
All offers of settlement require constant review, but this is even more important under Part 36. Under the new rules, once made, an offer is open for acceptance at any time unless it has been properly withdrawn or reduced. Swift action may be needed to withdraw, amend or accept a Part 36 offer as soon as new evidence affecting the merits of the case comes to light.
Under the new Part 36 provisions, if a defendant’s offer is accepted, payment must be made within 14 days. If not, the receiving party can enter judgment for the amount offered. If the defendant is unable to make payment within this period it should make a Calderbank offer instead, stipulating the period of time in which payment will be made. This form of offer also prevents the other party entering judgment in default if accepted but not paid