Reforming Part 36: 10 things you need to know

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Making an offer to settle a claim under Part 36 of the Civil Procedures Rules (CPR) allows parties to put pressure on each other but also more importantly to protect, to some extent, their position on costs. Due to this, a Part 36 offer is an important tactical step, and parties need to keep in mind at all stages whether a Part 36 offer needs to be made, accepted, withdrawn or revised, and to carefully consider any Part 36 offers made by the other side.

A revised version of Part 36 came into force on 6 April 2015. It attempts to codify some of the more significant case law on Part 36 and generally clarify the technical provisions of the old Part 36, grouping together similar provisions (for example, those on personal injury claims).

Below are 10 things you need to be aware of when considering a Part 36 offer:

1. The new CPR 36.1 confirms Part 36 is a self-contained procedural code. It codifies various case law (including Gibbon v Manchester City Council), all of which made it clear that Part 36 shouldn't be interpreted as incorporating all the common law principles of offer and acceptance.
2. Previously it was not apparent whether a Defendant making a counterclaim was treated as a "Defendant" or a "Claimant" for Part 36 costs consequences. It makes no sense for the Defendant to make a "Defendant's" offer that, if unbeaten, would entitle it only to damages assessed on the standard basis plus interest. Now, the party making a counterclaim will be the "Claimant" for the purposes of that Part 36 offer – whether it is the main Claimant, a Counterclaimant or any other Part 20 Claimant in any given proceedings.
3. Reverting to the substance not form. Previously, a Part 36 offer had to be drafted in very narrow terms – for example, formally stating on its face that it was intended to have Part 36 offer consequences. Although the requirements for a Part 36 offer remain much the same (the offer still needs to be in writing, include the relevant period of 21 days for the offeree to accept, state the scope or extent of the offer, and whether the offer takes any counterclaim into account), it is sufficient to make clear that an offer is made pursuant to Part 36. This is to avoid a situation where the offer is clearly intended to be a Part 36 offer but is not held as one due to the wording of the offer itself.
4. CPR 36.9(4)(b) allows for time limited or "sunset clause" offers i.e. offers that provide for their own automatic withdrawal rather than the offer needing to be formally withdrawn in writing. However, if the offer is not accepted in time it will not have the Part 36 consequences once it is withdrawn.
5. Setting the level of a Part 36 offer can be difficult at the beginning of a claim where not all documents (whether of the other sides' or your own) have been reviewed and the strength of the case has not been considered in depth. Now, if the Part 36 offer is varied to make it more advantageous to the offeree, the original offer does not need to be withdrawn and the revised offer will be treated as a new offer. This means that the cost consequences will run from the original offer, and so will a new relevant period (i.e. 21 days) from when the revised offer is made. Withdrawing an earlier offer made on less generous terms will not only be inappropriate but will actually result in the costs protection being gained by that offer being thrown away.
6. Conversely, where the offeror serves a notice of withdrawal or varies the offer to make it less advantageous to the offeree before the end of the relevant period, the offeree does not get a new time period to accept the offer. If the offeree has served notice of acceptance, the costs consequences will only take effect from the end of the relevant period in the original offer.
7. Where there is a split trial (split between liability and quantum), if parts of the claim or certain issues have been decided, a Part 36 offer cannot relate to those already decided issues. Offers relating to matters that have not been decided can be accepted, but only once seven clear days have passed since the preliminary issue trial, therefore allowing the offeror to consider its position and withdraw its offer if it wants to. Additionally, the existence of a global Part 36 offer may be disclosed at the end of the trial of preliminary issues but the terms will not be.
8. New CPR36.13(1) specifies that recoverable pre-action costs are included in Part 36 offers. However, a Claimant who accepts a Part 36 Offer which relates to part only of the claim will only be entitled to the costs of that relevant part of the claim, unless the court orders otherwise. The court must decide liability for costs, and must consider whether it would be unjust to make the usual orders.
9. The unjust exception is considered in the new CPR and adds a new item to the list of factors likely to be relevant when applying this exception, namely whether the offer was a genuine attempt to settle proceedings. This aims to discourage purely tactical offers by Claimants, such as an offer to accept virtual entirety of the compensation they are seeking or admission of almost 100 per cent liability on the part of the Defendant, which places the Defendant at risk of indemnity costs unfairly. The problem will come when deciding whether a Part 36 offer was a genuine attempt to settle proceedings, as it is going to be fact sensitive and subjective – further case law is anticipated on this issue.
10. Under the Jackson reforms, if a party fails to file a costs budget on time it is deemed to have filed one containing court fees only. The incentive to make Part 36 offers was therefore significantly reduced: when the sanction is imposed on the Defendant the rewards under CPR 36 become virtually meaningless – however, a Claimant subject to the sanction is in an excellent position if its Part 36 offer is not beaten, as the costs will be awarded on the indemnity basis. Under the revised rules, if an effective Part 36 offer is made, the offeror will be entitled to 50 per cent of the costs that would have been awarded without the court fees limitation.

The revised Part 36 will apply to offers made on or after 6 April 2015. However, some of the new rules in Part 36 will apply to the old Part 36 regime where the offer was made before 6 April 2015 but a trial of any part of the claim or of any issue arising in it starts on or after 6 April 2015.

The Civil Procedure Rules Committee has already indicated that they will revisit the new rules once they have had a chance to settle and to work through in practice.