Law Costs Update – changes to CPR Part 36

CPR 36.1 now introduces the Part as follows: “This part contains a self-contained procedural code rules about offers to settle made pursuant to the procedure set out in this Part (“Part 36 Offers”)”. This had already been declared in cases such as Gibbon v Manchester City Council [2010] EWCA Civ 726, where it provided the answer to the question of whether or not ordinary contractual principles applied to offers – determining that they do not, and so there is no room for notions such as implied withdrawal of offers as a result of a further offer by the same party or implied rejection by a counter offer (therefore offers remain in force unless a written notice of withdrawal is served).

Incidentally this would seem to have a bearing on the practice which has recently become commonplace, of making an offer and asking the recipient to point out if they do not consider that the offer is Part 36 compliant. Presumably the intention is to set up some form of estoppel argument if nothing is said at the time but an objection is taken only later. However, in my view it is extremely doubtful whether there is any room for the doctrine of estoppel in this self-contained procedural code (although of course non-compliant offers may still be taken into account, and it might be thought that the point could provide some assistance there).

Rules about the form and contents of Part 36 Offers are now to be found in 36.5 and have been relaxed in one significant regard: rather than being required to state on its face that it is intended to have the consequences of Section 1 of Part 36, an offer now need only “make clear that it is made pursuant to Part 36 Offer”. This softens the approach embodied in Thewlis v Groupama [201] EWHC 3 where a party was able to disavow its own offer for failing to include the necessary wording. I note however that there is some scope for argument about the new provision: it need only “make clear” rather than “state” that it is made pursuant to Part 36, so will that be satisfied if the letter is merely headed “Part 36 Offer” and no further explanation is given? In my view it ought to be, given the deliberate relaxation of the rule, but I would suggest that the offerer should err on the side of caution.

The former 36.10 (now 36.13) deals with the position where a defendant’s Part 36 offer only deals with part of the claim and the claimant accepts it within the relevant period and at the same time abandons the balance of the claim. The previous version of the rule provided for the Claimant to get the costs of the action up the date of acceptance, unless the court ordered otherwise. The new version provides that the claimant will only be entitled to the costs of that part of the claim (ie the part which is the subject of the offer) unless the court orders otherwise. So this appears to be trying to make it less likely that the claimant will recover the costs of the abandoned part of the claim, thereby encouraging the defendant to make such partial offers.

The former 36.14(4), (now 36.17(5)) deals with the position where the court is considering whether it would be unjust to make the usual order where the claimant fails to beat a defendant’s part 36 offer or where the claimant obtains a judgment at least as favourable as a claimant’s Part 36 offer. To the existing list of factors which must be considered in exercising that discretion a new fifth factor is now added: “whether the offer was a genuine attempt to settle the proceedings”. There may well be scope for argument about what constitutes a genuine offer. It would seem that a claimant’s offer to accept 100% would not be a genuine offer since it would be all take and no give, per Henderson J in AB v CD [2011] EWHC 602, but the majority of the Court of Appeal in Huck v Robson [2003] 1 WLR 1340 thought that a 95% offer was effective. The answer is likely to be fact sensitive.

Finally, the courts have previously ruled that offers which are said to expire automatically were not valid Part 36 offers (since under Part 36 an offer remains valid unless withdrawn by a written notice) – although finding as a matter of interpretation that particulars offers did not fall foul of that rule: see for example C v D [2010] EWCA Civ 646. Offers with “sunset clauses” are now expressly permitted by 36.9(4) which states that after expiry of the relevant period the offer may be automatically withdrawn in accordance with its terms. This may be useful for an offeror as a way of focusing the mind of the offeree on the need to consider the time limited offer carefully, but remember that once an offer is withdrawn it ceases to have effect under Part 36 (although the court may still take it into account as a non-compliant offer under its general discretion).

After Mitchell there had been some debate about what happens if a party fails to file a budget on time and is treated as having filed a budget limited to applicable court fees. Did that trump Part 36 so that such a party could never thereafter recover his other costs and so could not make a Part 36 offer with any bite? That has been addressed by a new provision in 36.23 by which if he makes an effective Part 36 Offer he can recover 50% of his costs assessed without reference to the limitation to court fees. However, one can see how that might create a tension between solicitor and client where the solicitor was at fault for failing to file the budget, and therefore will presumably have to bear the loss of the fees, but the client is not as keen as the solicitor to make a Part 36 offer to try to win back 50% of the fees.

36.16(3) now deals with the position where the court has determined the first part of a split trial or preliminary issue. A Part 36 offer which only relates to the part of the claim or issue which has been determined may now be disclosed to the judge at that stage, potentially enabling the judge to make an order for the costs of that part or issue at that time rather than having to wait until the conclusion of the whole case. The court had previously expressed dissatisfaction where if an offer had been made it could not be told of the terms and no costs could be determined until the conclusion of the whole case: Ted Baker v AXA Insurance [2012] EWHC 1779 and Beasley v Alexander [2012] EWHC 2715. Also 36.12 introduces some new rules on split trials to prevent acceptance of offers relating to the issue in question being accepted after that issue has been determined, and allowing a period of 7 days after judgment for any other offer to be withdrawn.

Stephen Innes (Barrister), 4 New Square

For DeNovo
Costs Lawyers, Costs Draftsmen And Legal Costs Expert

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