Part 36 vs Calderbank Offers
Disease Aware Issue 6
Negotiating is an essential part of life and never more so than in litigation. It is essential to understand what you are offering, the consequences of making an offer and any procedural requirements.
Parties to litigation are always encouraged to consider settlement. There is more than one way to try to settle a claim. Each method has its own advantages and pitfalls.
The most obvious way of trying settle a claim is by making an offer under CPR Part 36. This has its own set of rules and requirements. Part 36 offers can be made at any time (even before proceedings).
They must adhere to a certain format and are governed by strict time rules. They offer defendants costs protection if a claimant ‘fails to obtain a judgment more advantageous’ than the Part 36 offer.
Alternatively, offers can be made on a ‘without prejudice’ basis. These may include an offer in respect of costs or may even be a non-monetary offer. These offers are commonly known as Calderbank offers. Their costs consequences are governed by CPR Part 44.
Calderbank offers provide some of the flexibility that Part 36 offers do not. A party can set differing time limits on the offer, can withdraw it at any stage and the usual 14 day payment terms do not apply. A Calderbank is particularly useful in disease claims with multiple defendants.
If you just want to settle part of the claim and don’t want to incur the Part 36 costs consequences (costs automatically flow with settlement against the offeror), they are ideal. If you need cheques from multiple insurers - perhaps the Financial Services Compensation Scheme - then the Part 36, 14 day payment limit may be impractical. So if Calderbank offers are so attractive to disease defendants what are their downfalls?
Calderbank – can it really beat a good Part 36?
The Court of Appeal (COA) recently heard the Intellectual Property case of Coward v Phaestos. This was complex litigation, spanning a number of countries, claims and counterclaims. It ended in a 12 day trial with the claimant’s case being dismissed.
The COA hearing was about the costs. This was not your usual costs battle. This intellectual property battle resulted in both parties’ incurring costs of around £19 million.
The claimant said that he had made a Calderbank offer in July 2012, and argued that the defendant had substantially achieved the same as that offer at trial. That being so, the claimant ought to be entitled to his costs from that date. This would mirror the effect of Part 36.
The judge at first instance found that the defendant had actually “significantly” bettered the Calderbank offer. She also found that there were issues about the clarity of the offer which prevented the defendant from accepting it. She awarded costs to the defendant.
The COA agreed that the defendant had “achieved a significant advance at trial on the terms of the Calderbank offer”.
It also provided broader guidance on the effects of the two kinds of offer. Mr Justice Richards said that CPR 36 and CPR 44 are entirely separate regimes used for entirely separate purposes. Part 36 goes beyond Part 44, sets ‘highly prescriptive terms’ and strips the court of any real discretion.
In contrast, Part 44 does allow court discretion to deal with costs. The only real limitation is 44.2(4). This says that the court must consider three factors only;
- the conduct of the parties,
- whether a party has succeeded on part of its case (even if not wholly successful), and
- any non Part 36 offer.
These would include Calderbank offers. The Court of Appeal said that it would be incorrect to apply the rigid rules of Part 36 on cases in which Part 44 applies.
This means that where Calderbank offers are used, the court will continue to have a wide discretion over costs. There is no automatic consequence if a party fails to beat a Calderbank offer at trial. Costs consequences will not automatically flow from the date of the expiry of the offer.
Already it is clear that defendants will have to play a balancing game when considering how to make offers. We can either allow ourselves the flexibility of Calderbank or the rigid, but cost protective qualities of Part 36. But does the certainty of Part 36 always benefit defendants?
Part 36: withdrawing some of its benefits?
As we have seen, Part 36 has very strict rules with little court discretion to deviate from them. Often, a defendant may make an offer and for some reason, wish to withdraw it before it is accepted.
CPR 36.2(2)(c) is very clear; offers must be made open for acceptance for at least 21 days. But what if you wish to withdraw or amend the offer within that period? CPR 36.3(5) is again clear and strict; an offer cannot be withdrawn or amended without the court’s permission.
The recent case of Evans v Royal Wolverhampton Hospitals NHS Foundation Trust considered this in more detail.The defendant made an offer to the claimant under Part 36. Within the expiry period of 21 days, it served notice withdrawing it.
However, the claimant accepted the offer at the same time. The defendant did not explain why the offer had been withdrawn.
At the same time, the defendant had made an ex parte application to the court seeking permission to withdraw the offer. Permission was given by the court, but the claimant was not present at the hearing, nor was she aware of the reasons for the withdrawal of the offer. The claimant appealed.
Leggatt J heard the appeal in the High Court. The defendants explained that new evidence had come to light, which led to the offer being withdrawn. However, the defendant refused to disclose that evidence to the claimant, or to the court.
Leggatt J found that it was unreasonable for the defendant to apply to withdraw the Part 36 offer without notice to the claimant. He set aside the original order. He then considered whether the defendant could properly withdraw the offer.
He said that to withdraw a Part 36 offer within the expiry period, the offeror must be able to show ‘a sufficient change of circumstance to make it just’.
Mr Justice Leggatt said that if an offer is going to be withdrawn, the party will need to be able to show a sufficient change or new circumstances to allow it to be withdrawn. They must be able to make the offeree aware of those facts at the time they serve the notice to withdraw.
The warning from Evans is clear. Part 36 is a prescribed and rigid regime. It is there to entice and encourage settlement. If you are going to make a Part 36 offer, you need to be aware of the rules that you will be bound by. If you do change your mind, and want to withdraw any Part 36 offer within the expiry period, you will have to be able to give a good reason, to the court and the other party. If you cannot do so, then you are likely to be bound by the terms of your offer.
Defendants have a choice when making offers…but choice is not always a good thing. Real thought needs to be used when choosing the form of your offer.
A Calderbank offer gives flexibility but less certain costs protection. Part 36 gives that certainty but brings very strict rules. Each form of offer has its own part to play but both must be properly understood.