Analysis of how the new Civil Procedure Rules directly affect the client.

Kate Tye and Clare Collier continue their analysis of the new Rules and how they directly affect the client

In the previous edition of this Bulletin we set out the fundamental principles underlying the Woolf reforms and highlighted those areas where we anticipated the greatest changes would take place. By the time this Bulletin is published the Civil Procedure Rules (“the Rules”) will be in force and will already have begun to affect all civil litigation in England and Wales. In this article we concentrate on areas where the reforms will directly affect the client: case management, document disclosure, legal costs, court fees and settlement.

Case Management and Sanctions

The new philosophy of “case management” is to take control of the cases out of the hands of the parties (who are seen to have managed it poorly) and to put it into the hands of the Judges. However, in the Technology and Construction Court (“TCC”) most Judges have always been pro-active, and case management should not come as too much of a shock (to them or to the court user). When making directions the Judge will have in mind the “overriding objective” of the new Rules and his duty to further it, as well as the usual considerations. All cases assigned to or issued in the TCC will be allocated to the multi track, designed for complex cases or those with a financial value of over £15,000.

The first court hearing, which will take place soon after the filing of the acknowledgement of service or defence, will act as a case management conference and directions hearing (which the client may be required to attend in person). The parties will have to complete a case management questionnaire prior to the hearing. The questionnaire will address whether the case should be stayed to enable settlement discussions or ADR to take place, what expert evidence will be needed and what costs have been incurred to date and are likely to be incurred. Judges will look favourably on those who have tried to agree these issues and directions in advance.

However, what may change under the new Rules are the sanctions laid down for failure to comply with the Court’s directions. Under the old system if one party failed to comply with a direction, it was up to the other party to obtain an Order requiring him to comply, ultimately an Unless Order, and where the Court lists were busy, delay could result. Judges are now encouraged to include sanctions in directions Orders when first making them. Failure to comply with an Order could, for example, have the effect of striking out the whole or part of a Statement of Case (claim or defence). The parties are also likely to face costs sanctions for failing to comply with directions. Although this sounds daunting, sanctions should be designed to ensure compliance, not to punish defaulting parties, and should (hopefully) be proportionate to the default. How this will work in practice remains to be seen.

Disclosure

One of the steps in litigation criticised by Lord Woolf in the Access to Justice report was Discovery. Out of the masses of documents deemed relevant by the parties, often only a handful would relate to what was really in issue and would be referred to at trial.

The new Civil Procedure Rules will attempt to change this by the use of “standard disclosure”. Standard disclosure will be usual in multi track cases. A different obligation will apply only if the Court can be convinced that greater (or lesser) disclosure is necessary and, of course, proportionate to the amount of money involved, the importance of the issues to the parties, and all of the matters described in the overriding objective.

Under standard disclosure a party only discloses documents:
(a)which he relies upon; and
(b)which

• adversely affect his own case;
• adversely affect another party’s case; or
• support another party’s case; and

(c)which a relevant practice direction requires him to disclose.

Each party has to make a reasonable search for documents falling within categories (b) and (c). What is reasonable depends upon how many documents are involved, the nature and complexity of proceedings, the ease and expense of retrieval of any documents and the significance of any document likely to be located. Proportionality will always be the key consideration.

In the light of the new Rules, the client’s and solicitor’s duties will change. Previously a client might send his solicitor all the documents relating to a contract and the solicitor would weed out those documents that were privileged, or not relevant, and chase up copies of any documents that were obviously missing. Under the new system the onus of the obligation to disclose documents now falls on the client and the client will have the primary duty to make a reasonable search for the described classes of documents. The reason for this is that the client must now sign a “disclosure statement” (see below). Clients must also be aware that the search should take place as early as possible, even before proceedings are issued, as the Court may impose a tight timetable.

Generally, once documents have been disclosed, other parties have a right to inspect them. However, a party may refuse to permit inspection where they consider it would be disproportionate to the issues in dispute to do so. They must state the reason for withholding inspection when they disclose the existence of the documents.

There are potential problems here. Parties who have “fallen out” and who distrust each other are unlikely to believe that their opponent will make a reasonable search for a crucial document likely to harm the opponent’s case. There may be some satellite litigation on what is reasonable in the circumstances. The effect of failing to disclose a document is that a party may not rely upon it unless the Court gives permission.

As before, documents are disclosed in a list. The new list must include a Disclosure Statement made by the party (in normal circumstances the client) disclosing those documents. This statement must set out the extent of the search they have made, and certify that the party’s representative understands their duty to disclose documents and certify that to the best of their knowledge they have complied with that duty. The statement must be made by a person competent to make it and it must provide information about the signatory showing that they are such a person.

For the construction industry, it will be interesting to see how much difference “Standard Disclosure” will make to delay and disruption claims. Will parties rely on all of the documents to “tell the story” and to establish the disruption suffered or will the clients’ use of contractual notices of delay and disruption become more sophisticated?

Costs and Fees

A new Fees Order was introduced on 26th April 1999. The Government’s intention is that the Court system is to pay for itself. Thus whilst the maximum Writ fee will be reduced from £500 to £400, there will be a new fee of £80 payable by the Claimant on allocation, whatever the amount in dispute, and a fee of £400 payable by the Claimant on filing of the Pre-trial Review Questionnaire. It is possible that the fees will be altered to a sliding scale with higher value cases attracting higher fees.

The matters that the Court is now entitled to look at when considering whether to make a costs award and in what amount are:

• the conduct of the parties before, as well as during, proceedings;
• the efforts made to resolve the dispute before, as well as during, proceedings;
• whether a party has succeeded on a particular issue;
• whether it was reasonable to raise or contest a particular issue or allegation;
• the manner in which a particular issue or allegation was pursued or defended; and
• whether the successful Claimant exaggerated his claim.

The Court will not allow costs that it considers were unreasonably incurred or unreasonable in amount. Further, the Court usually will not allow costs that are not proportionate in amount. Taking the above matters into account the Court may make an order limiting the costs by amount, by reference to particular dates, or by reference to certain issues.

On the positive side, the new costs rules will provide litigants with more certainty as to the costs of litigation. There should no longer be unpleasant shocks because at allocation, listing, or at any other time if the Judge so requires, the parties’ solicitors must provide estimates of costs incurred to date and likely future costs. Further, a party’s own solicitor must inform them if a Costs Order is made against them, and, when the Court uses its power to assess those costs immediately, the unsuccessful party will also know the precise amount that they will be liable for as the case progresses.

Settlement proposals and Part 36

Many will be familiar with the concepts of payments into court and Calderbank letters under the “old” rules. These allowed a defendant to obtain a measure of costs protection during the continuation of any proceedings by making an offer to settle proceedings. Under Part 36 of the Rules the concept of costs protection has been both augmented, and extended to the claimant. Both parties may now seek to persuade their opponents that the best course of action is to settle the case. Further, under Part 36, offers to settle can now be made before proceedings commence. Thus, in keeping with the “overriding objective”, the offer to settle has now changed from a simple means by which a defendant could exert pressure on the claimant. A settlement offer in accordance with the requirements laid down in Part 36 is now another means by which the Rules seek to encourage settlement of disputes and make use of the Court as a last resort.

Part 36 payments

A “Part 36 payment” is a payment made into court in accordance with the rules set out in Part 36 and can only be made by a defendant. If a defendant wishes to make an offer to settle a money claim against them, and gain some measure of protection against liability for the claimant’s costs, then they must make a Part 36 payment. This payment must be accompanied by a notice detailing:

• the payment amount;
• whether it relates to the whole, or part, of the claim or to an issue, or part of an issue;
• whether it takes into account any counterclaim;
• that it takes into account any interim payment has been made; and
• whether interest is included.

The payment cannot be withdrawn without the Court’s permission (Rule 36.6).

If no proceedings have been issued by the claimant, there is no action against which a payment can be recorded and consequently no Part 36 payment can be made until proceedings have been commenced. However, if a future defendant will have to defend a money claim he can make an offer to settle the matter before proceedings start (Rule 36.10). If he does so the offer must:

• remain open for at least 21 days from the date on which it was made; and
• include an offer to pay the claimant’s costs incurred up to 21 days after the offer was made.

The defendant’s offer is “made” when it is received by the claimant.

After proceedings have been issued by the claimant the defendant can obtain costs protection from their early offer only by making a payment into Court within 14 days of service of the claim form. The payment into Court must not be less than the amount offered before the proceedings started.

Once proceedings have commenced the claimant cannot accept either the defendant’s pre-action offer or any subsequent payment in without the Court’s permission. This is because having had the chance to avoid proceedings the claimant cannot then decide that his decision to issue proceedings was a mistake. In considering any application to accept an offer the Court must take into account the whole costs of the proceedings and it is probable that the claimant may pay for their indecisiveness.

If he wishes to accept a defendant’s Part 36 payment, the claimant must do so within 21 days of the payment being made. If he does not, or if the defendant’s payment was made less than 21 days before trial, then the claimant can only accept if:
(a)the parties agree costs liability; or
(b)the Court agrees and deals with costs in its order (Rule 36.11).

Part 36 offers

Of course, not all cases involve claims for money. Where the claim is a non-monetary claim the defendant may make what is known as a Part 36 offer. The defendant’s Part 36 offer must:

• be in writing;
• state whether it relates to the whole of the claim, to part of it, to a discrete issue or to part of an issue;
• state whether it takes into account any counterclaim; and
• if not expressed to be inclusive of interest, the rate(s) offered and the period(s) for which interest is offered (Rule 36.5).

As with a money claim, the defendant may make an offer to settle before proceedings are commenced.

It should be noted that where the claim is mixed and the defendant wishes to offer to settle the case in its entirety they must make a payment in, in relation to the money claim, and a Part 36 offer in relation to the remaining issues. When making the Part 36 payment the defendant must identify the offer document and state that acceptance of the payment by the claimant will mean that the claimant has also accepted the offer.

In a new and enterprising departure the Rules allow a claimant to make a Part 36 offer. The claimant’s Part 36 offer must comply with the Rules highlighted above, and, like the defendant’s offer, the claimant’s Part 36 offer to settle can be made both before and after proceedings are issued.

The deadlines for acceptance of a Part 36 offer are the same as those relating to any payment in.

Costs consequences of settlement proposals

To encourage settlement of disputes without recourse to the Courts, the Rules set out clear consequences for failure to accept, or make, an appropriate offer. As a result, a carefully timed and well judged settlement offer under Part 36 can bring huge benefits to a party and will help focus the parties’ attention on settlement rather than prolongation of the action.

A successful offer or payment

In general terms, where a Part 36 offer or payment has been successfully judged - i.e. the party to whom the proposal has been made has accepted the terms of the settlement - then the “offeree” is entitled to their costs up to the date on which they served their notice of acceptance. For example, if the claimant accepts a payment in within the deadline set out above, then they are entitled to their costs. Similarly, if the defendant accepts a claimant’s Part 36 offer within the specified deadline they are entitled to their costs up to the date of serving their notice of acceptance.

An unsuccessful offer or payment

In this context an unsuccessful offer or payment is one which has not been accepted. Where the defendant’s offer or payment is too low and the claimant recovers more at trial then the defendant will be required to pay the claimant’s costs in the action. The Rules allow a defendant a measure of flexibility by allowing them to amend their offer or increase the amount of their payment in.

What happens where the claimant recovers at trial more than the amount for which they previously offered to settle? Here the Rules introduce an innovation. In these circumstances the Court may order the defendant to pay interest on the whole, or any part, of the sum claimed at a rate not exceeding 10% above base rate. Interest may run for some, or all, of the period starting with the latest date upon which the defendant could have accepted the claimant’s offer without the Court’s permission. In addition, the Court may also order the defendant to pay the claimant’s costs on an indemnity basis, and interest on those costs at a rate not exceeding 10% above base rate.

Such punitive orders are to be made unless the Court believes it unjust to do so. Unjustness is considered by reference to:

• the terms of the offer;
• the stage at which the offer is made;
• the information available to the parties when the Part 36 offer was made; and
• the conduct of the parties with regard to provision of information allowing the offer to be evaluated.

The Rules encourage the parties to consider all offers carefully and, particularly in the case of the defendant, to weigh up the likelihood of the claimant winning a more favourable result at trial.