Part 36: Your questions on the New Rule answered

Part 36: Your questions on
the New Rule answered
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Part 36: Your questions on
the New Rule answered
The new CPR 36 – your questions answered
The following Q&A are drawn from questions raised by delegates, and answered by Ed Pepperall QC,
at the series of joint St Philip’s Chambers and Lexis®PSL Dispute Resolution seminars on the new
Part 36 which took place in Leeds, London and Birmingham in January 2015.
Genuine attempt to settle (CPR 36.17(5)(e))
Q:the new CPR 36.17(5)(e) provides for the court, when
deciding whether it would be ‘unjust’ to make any of the Part
36 costs orders for acceptance/failure to accept a Part 36
offer, to have regard to whether the offer was a ‘genuine
attempt to settle the proceedings’. How do you envisage
judges approaching this? For example, do you think that this
could lead to those resisting the Part 36 costs award to seek
disclosure as to the other party’s motives for making the offer
in the terms they did?
A: the approach is a subjective one for the judge. It is not
intended that it should lead to such applications for
disclosure. Clearly, if the party wishing to ensure the Part 36
costs consequences are ordered, wants to waive privilege
and give disclosure then that is a matter for them.
This reform derives from controversy surrounding the socalled ‘cynical claimant offers’, ie where a claimant offeror
makes an offer to settle which it knows the defendant is
very unlikely to accept as the offer makes no real discount
to counter the defendant’s risks of continuing, such that the
offer can only have been made to seek a tactical advantage
on costs and nothing more.
If a case is open and shut (eg if acting for an innocent seatbelted passenger in an RTA with no allegation of contributory
negligence who has suffered serious injury) then why
shouldn’t a 5% discount (ie an offer to settle at 95% of the
claim) represent a valid discount to reflect early settlement
of the case? On the other hand, if there is a seriously arguable
defence then it is likely that most judges would consider that
an offer to settle at 95% is not a genuine attempt to settle.
The distinction between these two examples shows the fact
sensitive nature of CPR 36.17(5)(e).
Q:on which party does the burden of establishing that the Part
36 offer was not a genuine attempt to settle (or otherwise
unjust) fall?
A: it will be for the party seeking to depart from the usual Part 36
costs consequences to establish that the Part 36 offer was
not a genuine attempt to settle the proceedings or to satisfy
any of the factors in CPR 36.17(5) which would render the
making of such an order unjust.
Most typically this would be the offeree. However, one can
envisage a scenario where the offeror is a defendant facing
an overly exaggerated claim. He has made a Part 36 offer to
try to settle and to protect himself on costs, but the claimant
has not accepted it. Under new CPR 36.17(3) if the claimant
fails to obtain a more advantageous offer, the defendant is
entitled to his costs from the date of expiry of the relevant
period. However, the defendant may wish to seek his costs
for the prior period too, on the basis that the claim has
been demonstrated to be vastly over exaggerated. In such
scenario, there is nothing to stop the defendant offeror from
seeking to persuade the court that making an order, in this
sense ‘limited’ to the usual Part 36 costs consequences
under new CPR 36.17(3), would be unjust (under CPR 36.17(5))
and that the court should instead order the defendant his
costs for a greater period than envisaged under CPR 36.17(3).
Cynical claimant offers – but what about ‘blind’
defendant offers?
Q:new CPR 36.17(5)(e) was introduced to deal with the so-called
‘cynical claimant offer’ (as identified in Huck1, and discussed
above). But what is being done to protect claimants in (say)
personal injury or clinical negligence cases who, having
issued their claim, are swiftly met with a ‘blind’ defendant’s
offer of a fixed sum, the basis for which it is not possible to
determine from the offer itself. As a claimant lawyer you
become familiar with a number of defendant insurers who
repeatedly adopt this policy. The offer is made before any
medical evidence has been obtained and so prognosis is
often, as yet, unknown, and this makes it very difficult for the
claimant to take a proper view on the merits of the offer. In
such cases, acting in the claimant’s best interests it is not
possible to advise acceptance of the offer at such time and
so the claimant is more or less immediately ‘at risk’ of Part
36 costs consequences. This seems unfair. The issue was
highlighted in Hewitt2 where an originally very poor prognosis
of the child’s recovery, later turned out to be more positive.
A: the question implies that the claimant will have had
insufficient information against which to assess the offer
during the relevant period. The solicitor should write
immediately making that point. The Hewitt risk is that the
1Huck v Robson [2002] EWCA Civ 398;
[2002] All ER (D) 316 (Mar)
2SG v Hewitt [2012] EWCA Civ 1053;
[2012] All ER (D) 16 (Aug)
Part 36: Your questions on
the New Rule answered
claim later proves to be lower value than originally feared,
whether because later medical evidence shows that the claimant
is expected to make a better recovery than originally feared
or because the claimant’s recovery surpasses the experts’
predictions. In such a case the claimant may want to accept the
offer late. Indeed Part 36 offers must always be kept under review.
he default costs order on late acceptance remains that the
T
claimant will recover his/her costs until the expiry of the relevant
period but that thereafter the offeree should pay the offeror’s
costs: CPR 36.13(5).
The new rule 36.13(6) clarifies that the court should depart
from such usual order when it is ‘unjust’ and that in making that
assessment the judge should consider all the circumstances of
the case including the factors at CPR 36.17(5).
mongst the factors the court has to have regard to in deciding
A
whether or not to order the usual Part 36 costs consequences,
is the stage in the proceedings at which the offer was made (CPR
36.17(5)(b)) and, whilst this has a direct reference to how close
before trial the offer was made, it does not exclude the court
taking into account the fact that the offer was made very early on
in the proceedings.
ore importantly on the assumed facts is CPR 36.17(5)(c) which
M
requires the court to take into account the information that was
available to the parties at the time the offer was made. So, if the
offer was made before medical experts’ reports were exchanged
this would be a relevant factor for the court to consider.
The ‘additional amount’ of £75,000 under CPR
36.17(4)(d)
Q:CPR 36.17(4)(d) provides that where a claimant has made a
Part 36 offer which the defendant has not accepted and, at
trial, the claimant obtains judgment ‘at least as advantageous’
as the proposals in his own Part 36 offer he will be entitled
to interest on the sum awarded, indemnity costs, interest
on those costs (not exceeding 10% above base) and an
‘additional amount’ not exceeding £75,000 and calculated as
a percentage figure (on a sliding scale) of any sum awarded.
There does not appear to have been much take up of the
additional amount that can be awarded under CPR 36.17(4)
(d) so, was thought not given to scrapping it in its entirety?
A: no. When the Civil Procedure Rules Committee (CPRC)
started out on its work on Part 36 it had to consider whether
or not to meddle with the basic set of incentives which the
rule encompasses. People had suggested that the existing
Part 36 was unfair. However, Lord Justice Jackson did a
significant job and consulted widely with lawyers and the
profession and came up with his recommendations. The
CPRC sub-committee took as its starting point that, on
balance, it should not lightly interfere with those policy driven
recommendations. The sub-committee did consider (as it
is required to do) whether or not it should consult on its Part
36 proposals. It took the view, however, that the work being
done did not merit consultation since the task was more of a
technician’s tidy-up rather than a policy change. So, on that
basis, we did not move to change the operation of the basic
incentives to encourage settlement set out in Part 36.
The ‘Mitchell problem’ – CPR 36.23
Q:how did you arrive at the 50% level for the costs assessment
in CPR 36.23?
A: CPR 36.23 provides that where your recoverable costs have
been limited to court fees (for non/late filing of your costs
budget) then, where you have made a Part 36 offer which
has been accepted late or not accepted such that any of the
costs provisions in CPR 36.13 or CPR 36.17 apply, then the
costs recoverable under those provisions will be 50% of the
costs assessed without reference to the court fees limitation.
This provision was included to deal with the so-called ‘Mitchell
problem’ – the need to recognise the court’s punishment of
those failing to file costs budgets on time balanced against
the need to encourage settlement nonetheless by the
use of Part 36. This way the party guilty of late filing of his
costs budget will still be punished but the effects of that
punishment diminished if he makes a sensible attempt to
settle the claim.
The CPRC had wondered whether to let this issue just play out
in the cases and had no particular view on what percentage
figure, if any, should be applied. However, Ed Pepperall QC, as
chair of the CPRC sub-committee on Part 36 thought it would
be clearer to include a percentage figure and alighted on 50%
as being a fair figure in order to deal with the problem that
Mitchell had thrown up.
Confidentiality terms in Part 36 offers
Q:this question is not concerned specifically with any changes
brought in by the new CPR 36 but, more generally: can you
make a Part 36 offer which includes a requirement for the
offeree to sign a confidentiality provision?
A: there is nothing to stop you setting out any criteria you wish
in a Part 36 offer as to its precise terms and, therefore,
you can include the requirement for an offeree to sign a
confidentiality provision. If the offeree accepts the offer and
the claim is settled with that confidentiality provision in place,
all well and good.
The difficulty arises if the claim does not settle. Is the judge
at trial likely to order some form of confidentiality provision?
This seems unlikely in the making of a public judgment and
therefore you struggle to demonstrate that you have obtained
a judgment at least as advantageous as your Part 36 offer.
As we know, the costs consequences of Part 36 set out
in (old) CPR 36.14 and (new) CPR 36.17 only define what is
‘more advantageous’ than a defendant’s offer or ‘at least as
advantageous’ as the claimant’s offer in monetary terms but
that does not mean that the assessment is limited solely to
financial aspects. If your offer contained a settlement sum
and the requirement for confidentiality and the judgment,
Part 36: Your questions on
the New Rule answered
at least in monetary terms, is ‘at least as advantageous’ as
the sum proposed in the Part 36 offer then this element of
the Part 36 offer will meet CPR 36.17(1)(b), but that is not the
end of the assessment and it will be for the judge to assess
whether, overall, the claimant has obtained a judgment ‘at
least as advantageous’ as the proposals in its Part 36 offer.
Making an offer more advantageous (CPR 36.9(5))
Q:CPR 36.9(5) is a new provision which provides that where an
offeror has made a Part 36 offer and then seeks to vary it so
as to make it more advantageous to the offeree, the variation
takes effect as a new Part 36 offer with a new relevant period,
the original offer remaining on the table open for acceptance.
What if the offeror varies his offer, advantageously, so as
to include the offer of additional or other remedies to the
offeree, how should the offeree respond?
A: the issue of non-monetary Part 36 offers or the non-money
element of Part 36 offers is, as seen in the question above,
a difficult one. Following Carver3 and the clarification in
CPR 36.17(2) (the old CPR 36.14(1A)) purely money offers
present no such problem – if the offer is to pay £50 and the
claimant obtains £51 at judgment then the judgment is more
advantageous than the offer for Part 36 costs consequences.
Thought was given as to whether there was anything the
legislature could do to cater for the more difficult issue of nonmonetary Part 36 offers and the conclusion was that there was
not. It is an assessment that the judge will have to make as to
whether or not the claimant has obtained a judgment ‘more
advantageous’ than the defendant’s Part 36 offer or ‘at least
as advantageous’ as his own offer, where such offers and/or
judgments contain non-monetary elements.
In the instant example, as with the confidentiality example
above, it is at the acceptance stage that you would have to
make the decision as to whether or not to accept. Of course,
you could seek further clarification (if appropriate) under CPR
36.8 but this may not assist. It is the subjective assessment
of the judge which, inevitably, will have to be determined on
each fact-specific basis.
Quantum offer with no acceptance of liability
Q:it has been suggested that under the new rules you can no longer
make a single defendant’s offer to pay £x in quantum subject to
liability, ie not conceding liability and still get the full Part 36 costs
consequences. Is this still possible under the new rules?
A: yes it is. CPR 36.2(3) makes it clear that you can make a Part
36 offer limited to a single issue(s). If quantum is in issue in the
case, then there is no reason why you cannot make an offer to
pay a single sum but with no concession on liability. If the offer
were accepted then costs would be significantly reduced as
you would then have a trial solely on the issue of liability. So
yes this is still possible under the new CPR 36.
3Carver v BAA plc [2008] EWCA Civ 412; [2008] All ER (D) 295
(Apr)
Sunset clauses (new CPR 36.9(4)(b)) and
withdrawing your Part 36 offer
Q:how does the new rule allowing time-limited offers (sunset
clause) under CPR 36.9(4)(b) work in relation to withdrawing
an offer during the relevant period?
A: a Part 36 offer will only take effect as a valid Part 36 offer
if (amongst the other requirements) it contains a relevant
period for acceptance of at least 21 days (CPR 36.5(1)(c)).
Given this, there will never be a circumstance where you can
make a time-limited Part 36 offer where the time-limit for
acceptance is less than 21 days.
So, for example, you can make your Part 36 offer time-limited
so that it remains open for acceptance for a period of 21 days,
22 days, 50 days, 100 days etc etc. Regardless of this, if you
have made a time-limited offer and you decide that you want
to withdraw it then the specific rules of Part 36 on withdrawal
of offers, and not general contract principles, apply.
So, if you want to withdraw your time-limited offer within the
relevant period you must follow the procedure under CPR 36.10.
If you want to withdraw your time-limited offer after expiry of
the relevant period then CPR 36.9 provides that you may do
so provided that the offeree has not already served notice of
acceptance of it.
Part 36 on counterclaims (CPR 36.2(3)(a))
Q: where you are a counterclaiming defendant and you make
what is, therefore, essentially a claimant’s Part 36 on your
counterclaim, is it intended under the new rules that when it
comes to costs you will effectively be displacing the Medway
Oil4 principle. Medway Oil provides that where a defendant
has succeeded in his defence but failed in his counterclaim he is entitled to the costs which he has actually and
properly incurred in defeating the claim, but he is not entitled
to any costs which he would not have incurred had he not
counterclaimed. The claimant is only entitled to such costs
as he would not have incurred had he not been compelled
to meet the counterclaim, but in the absence of special
directions by the court there is to be no apportionment.
A:the ability to make a Part 36 offer on a counterclaim has
always existed, it is just that this has now been clarified in CPR
36.2(3)(a), so you can make a Part 36 offer on a counterclaim.
This does not interfere with the amount of costs that will be
awarded. They will be whatever the recoverable costs of that
counterclaim are so if that would be the amount by which
the action has been increased by reason of the counterclaim
then that is what they will be. Part 36 does not interfere with
what the recoverable costs actually are.
4Medway Oil v Continental Contractors
[1929] AC 88; [1928] All ER Rep 330
Part 36: Your questions on
the New Rule answered
Reducing a defendant’s offer
Q:under the new rules, is it the case that a defendant can make
a good Part 36 offer and then, having seen surveillance
evidence, instead of withdrawing that offer and making a
new, lower one, instead reduce down their original offer, with
the result that the claimant who now wants to accept the
lower offer is going to be hit with the costs consequences
applying from that earlier period for acceptance of the offer
as originally made?
A: Yes, there is nothing you can do to stop this. If the case takes
a twist and there is now evidence which might make the
lawyers, and possibly even the judge, take a different view of
the case which is adverse to the claimant then, whether the
defendant reduces its offer or leaves the original one on the
table, the claimant will still be in a position of late acceptance
and there is no reason why, ordinarily, the claimant should
avoid the costs consequences of late acceptance.
The position may be subtly different for PI lawyers as can
be seen from the decision in Hewitt. Here the claim was in
respect of injury to a young boy, the defendant had made
a Part 36 offer which the claimant had turned down. It then
became apparent that the boy was going to make a better
recovery than expected and the claimant now wanted to
accept the offer late. The Court of Appeal interfered with
the decision of Popplewell J and said that on that occasion
the decision to turn down the offer when first made had
been a responsible one, given what was then known about
the claimant’s prognosis, and so the claimant should not
be punished with the usual costs consequences when
he later wished to accept the offer, the boy’s prognosis
having improved. The rules do provide for such situations
by providing that the usual Part 36 costs consequences will
apply unless it would be unjust to order them and in CPR
36.17(5) sets out what circumstances the court has to take
into account in determining whether it would be unjust to
make such an order. Thus if you have merit on your side then
there is a good chance that you can invoke CPR 36.17(5) in
support that the usual costs consequences would be unjust.
However, if the case is one where surveillance evidence
shows the claimant working on a building site when he is
claiming for a bad back, then the chances are that such an
order would not be unjust and the claimant will be penalised
with paying the costs consequences of late acceptance.
Standard Form N242A
Q:given all the technical issues there have been with whether
or not a Part 36 offer is valid, would it not have been worth
making use of the Form N242A mandatory? This might
help litigants-in-person in particular who struggle with Part
36 perhaps by ensuring the Form is accompanied by good
drafting notes and is made mandatory.
A: for a litigant in person or someone who does not know what
they are doing with Part 36 then using Form N242A may be a
sensible idea. If the Court of Appeal at some point looks at the
form and decides that the sub-committee made a mess of it
then one imagines that the party using the form will not suffer
for having used a form signed off by the CPRC. As to whether
it should be mandatory – this was suggested to the CPRC
sub-committee and rejected. Not only do most firms prefer
to use their own precedents and bespoke drafting but, more
importantly, making use of the form mandatory could end up
back in a Thewlis5 type situation. If a Part 36 offer was drafted
in a letter that was otherwise compliant with the rules but not
on form N242A then the offeree could argue that it could not
take effect as a valid Part 36 offer because of the existence
of a rule making use of Form N242A mandatory. Overcoming
overly technical objections to the validity of a Part 36 offer
was precisely one of the reforms that the sub-committee
sought to deal with in its re-write of Part 36 and so making use
of the form mandatory was rejected on that basis. Although
the CPRC sub-committee have signed off on an amended
version of Form N242A to bring it into line with the revised
Part 36, at present it is understood that this form is still with
HM stationers for processing. We will update you once it has
been published.
5
Thewlis v Groupama Insurance Co [2012] EWHC 3 (TCC);
[2012] All ER (D) 09 (Jan)
For more information or a free trial of LexisPSL Dispute
Resolution visit lexisnexis.co.uk/dr/part36
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are trademarks of Reed Elsevier Properties Inc. © LexisNexis 2015 0215-013. The information in this document is current as of March 2015 and is subject to change without notice.