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The new Part 36 - simplicity, clarity and codification

AWARE30/04/2014
Property Insurance Aware 3

It is well established that Part 36 offers can be used by either party in negotiations to bring about a cost effective resolution to part of, or the whole of, a dispute pre and post litigation. However, the rules surrounding Part 36 offers (pre-change) were overly complex which resulted in a significant amount of case law.

The new Part 36 provisions came into effect as of 6 April 2015 so as to:

  • Simplify the Part 36 process;
  • Introduce new provisions; and
  • Codify case law surrounding Part 36.

The rules as contained within the 78th amendment to the Civil Procedure Rules have brought about a change in the structure for existing provisions and have introduced new rules, the results of which are yet to be seen as to how it will change the landscape of Part 36 in practice.

Formalities (Part 36.5)

To gain the protection of Part 36 certain benchmarks need to be hit - these rules are now codified in Part 35.6 (formerly 36.2).

A Part 36 offer must:

  • Be in writing;
  • Be clear that the offer is made pursuant to Part 36;
  • Specify “a relevant period” for acceptance of not less than 21 days;
  • Whether the offer relates to part or all of the claim; and if so, to which element; and
  • State whether the offer takes into account any counterclaim.

Automatic cost consequences (Part 36.13)

The new provisions have codified that, when a Part 36 offer is accepted where a fixed cost regime applies, costs are not awarded on the standard basis.

When a claimant beats his own Part 36 offer, the court must give Part 36 rewards under Part 36.17, unless the court considers that such an award would be unjust. When there is late acceptance, the court must order that the offeree pays the offeror’s costs from the end of the relevant period - unless the court considers it unjust to do so.

The ‘unjust test’ (Part 36.14 (4))

In deciding whether an award is unjust, the court will give consideration to whether the offer was a ‘genuine attempt to settle’ or whether the offer was merely tactical in an attempt to gain Part 36 Rewards. Such a decision will be subjective and based on the specific facts of the case in light of the strength of the evidence.

Time limited offers (rule 36.9 (4) (b))

Prior to 6 April 2015, offers subject to an automatic withdrawal provision would have been invalid and thus did not carry the cost protection associated with Part 36.

However, the new provisions under rule 36.9 (4) (b) permit time limited offers, provided that the withdrawal is outside “the relevant period”.

Whilst the effect is yet to be seen in practice, it is anticipated that time limited offers will encourage parties to settle, particularly where a spike in costs is on the horizon, for example in complying with directions/obtaining expert evidence etc.

However, when an offer is withdrawn, the Part 36 costs consequences no longer apply to the offer (rule36.17 (7)), and so, time limited offers must be deployed with caution when the specific facts permit.

Withdrawal within the relevant period (Part 36.10)

The new rules see a new process for withdrawing Part 36 offers within the relevant period.

What is the process?

  • Offeror serves written notice to withdraw;
  • Withdrawal is effective at the expiry of the relevant period unless the offeree has served notice of acceptance.

What if the offeree accepts within the relevant period?

  • The offeror must apply to the court for permission to withdraw the offer within seven days of acceptance.

When is the court likely to grant permission?

  • When there has been a change in circumstance such as new evidence; or
  • If it is in the interests of justice for the offer to be withdrawn.

What about improved offers?

The new Part 36 rules specifically deal with improved offers in rule 36.9 (5). The offers are treated as new offers in that a new relevant period begins, however the original offer is not withdrawn.

What about reduced offers?

Where an offer is reduced, for example when favourable evidence is received following service of the Part 36, there is no new relevant period. However, rule 36.17 (3) does not apply if the reduced offer is bettered leaving costs at the discretion of the court rather than there being an automatic provision for costs.

What about Part 36 Rewards?

When a claimant beats his own Part 36 offer and obtains a Part 36 reward, the new rules (36.17 (4) (d)) have clarified that the claimant can only receive one additional award for the claim and not multiple awards in respect of each and every Part 36 offer made for part of a claim.

Split trials

A Part 36 offer by its very nature is without prejudice save as to costs and, as such, must not be communicated to the trial judge until the case had been decided. This has previously resulted in difficulties arising from the application of Part 36 in split trials.

However, the new provisions provide that a judge at a split trial can be told of the existence of a Part 36 offer in relation to an issue which has been decided, but not of the precise terms (unless the parties agree) so as to dissuade the court from summarily assessing costs following the split trial.

Unlike the new provisions which apply to Part 36 offers made on or after 6 April 2015, the rules relating to split trials apply to any trial starting on or after 6 April 2015 irrespective of when the Part 36 offer was made.

Tips for insurers

  • The rules surrounding Part 36 embodies a self-contained code where the usual contractual provisions do not necessarily apply.
  • Part 36 offers are formal offers, with costs and other consequences, and as such, early consideration ought to be given to deploying a Part 36 offer so as to gain the maximum benefit.
  • To gain the protection of Part 36, the offer must be made in accordance with the strict provisions of Part 36. Failure to comply will result in the offer being non-compliant and the natural consequences will not follow.
  • So as to avoid any doubt, make Part 36 offers as clear as possible and ensure the formalities of Part 36.5 are compiled with.
  • When deploying a time limited offer, be specific as to the terms of the withdrawal; and state the date and time as to when the offer will expire so as to avoid any ambiguity.
  • Keep a record of all Part 36 offers made and re-evaluate these at key evidential and procedural stages.
  • In the event that an offer needs to be withdrawn, ensure this is done in writing, but do not lose sight of the fact that withdrawing the offer means that the natural Part 36 consequences do not apply. Consider increasing or improving upon the offer.
  • When accepting a Part 36 offer, bear in mind that payment must be made within 14 days of acceptance, failing which, judgment can be entered.
  • When pursuing recoveries, a Part 36 offer to settle can result in Part 36 Rewards if the claimant matches or beats the defendant’s offer, and it may focus the defendant’s approach to settlement by increasing the risk of litigation.
  • When defending liability claims, a Part 36 offer can result in costs protection from the expiry of the relevant period and a recovery of costs thereafter if a more advantageous award to the defendant is handed down.