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The new Rule 36: path to change

Agreement iStock 000005449211XSmall 146x219Part 36 offers – to accept or pay some amount less than the full amount in dispute - are powerful weapons in every litigator’s armoury which have led to the settlement of many disputes since their introduction in 1999. 

Their ‘teeth’ lie in the significant financial penalties faced by parties who refuse reasonable offers to settle. The rationale is clear: the acceptance of a sensible Part 36 offer to settle leads to the avoidance of future legal (and client management) costs including, in many cases, the very heavy costs of the trial itself.  Here the Lexis®PSL Dispute Resolution team analyses the development of the Part 36 regime, some of the ‘bumps along the road’ and how the imminent April 2015 reforms seek to address these.

Since its introduction in the Civil Procedure Rules in 1998, Part (CPR) 36 has undergone a number of reforms in: April 2007, April 2013 and now, again, April 2015.  This latest incarnation represents more of a tidying up and codifying re-write than a substantive change, but what has lead us to this new and shiny New Rule 36 which comes into force on 6 April 2015?

A wounded foot soldier in the CPR army

Why so many changes to Part 36? The answer is not hard to find. Since its very inception a provision intended to assist with effective settlement of cases, and thus reduce litigation cost, has spawned a not insubstantial amount of satellite litigation, with practitioners and the courts seemingly overly taxed by its drafting and application.

Intended as a self-contained code, free from the broader principles of interpretation of contract law, CPR 36 has become weighed down by an attendant entourage of case law as litigators struggle to manipulate its provisions to gain best tactical advantage or to apply it by analogy to fit their specific case circumstances.

From the battlefield – Part 36 war stories

Here are some of the more telling examples:

The form and content of a Part 36 offer (CPR 36.2) – the technicality issue

Existing CPR 36.2(2)(b) requires that to be a valid Part 36 offer, the offer letter must ‘state on its face that it is intended to have the consequences of Section I of Part 36’.  This requirement has not been free from controversy. For example, PHI Group considered whether it was essential to refer in the offer to the fact that it was being made under Section I of CPR 36 in circumstances where Section II (which deals with RTA and the EL/PL protocol cases) could not apply given the circumstances of the case.

The court concluded it did not.  This case, along with that of Thewlis, typified the problem with the regime: as a self-contained code it needs to operate with certainty and therefore with a fair degree of rigidity, however, as seen in this case, this can result in the potential to suffer from an over technical application. See our report:  Court of Appeal consider Part 36 offers, specifically the 21 day period and withdrawal of an offer (PHI Group v Robert West) [PHI Group v Robert West Consulting [2012] EWCA Civ 588, [2012] All ER (D) 34 (Jun)] [Thewlis v Groupama Insurance Company Limited [2012] EWHC 3 (TCC), [2012] All ER (D) 09 Jan)]

Could you make a Part 36 offer in respect of a counterclaim?

It took the Court of Appeal in 2009 to decide that a defendant’s offer to settle an, as yet unpleaded, counterclaim could amount to a valid claimant’s Part 36 offer within the meaning of CPR 36 (AF v BG).  It was a sensible decision but one which had to work its way through what was meant by ‘proceedings’ under CPR 36 and whether the result of allowing such a Part 36 offer would be consistent with the then CPR 36.10(6) (which provided that in terms of costs consequences under Part 36, a claimant’s costs included any costs incurred in dealing with the defendant’s counterclaim if the Part 36 offer stated it took such counterclaim into effect’).  See our report: If correctly drafted a Part 36 Offer to settle an unpleaded counterclaim can dispose of the entire claim (23 July 2009) [AF v BG [2009] EWCA Civ 757, [2009] All ER (D) 249 (Jul))].

Notwithstanding this decision, the issue of counterclaim arose again in 2011 in F&C Alternative Investments.  Here the claimant sought declaratory relief and initiated proceedings as a tactical manoeuvre in the knowledge that the defendants would have to bring the real substance of the dispute as a counterclaim.  The defendants wanted to seek a settlement but, faced with the prospect of having to bear the claimant’s significant legal costs were their offer made and accepted as a defendant’s Part 36 offer (by virtue of CPR 36.10(1)), deliberately stated their offer did not take the form of a Part 36 offer and yet sought the court’s indulgence of it when it came to costs by seeking to apply the Part 36 costs consequences by analogy.

Sales J granted such indulgence (see our report:  CPR 36 costs consequences by analogy (F&C Alternative Investments v Barthelemy & Anor)) but the Court of Appeal overturned him, stressing the need for compliance with the strict code of CPR 36 if certainty is to be maintained – its consequences cannot be implied by analogy, see our report: Court of Appeal: settlement offer and Part 36 (F&C Alternative Investments v Bartelemy). [F&C Alternative Investments v Barthelemy [2011] EWHC 2807, [2011] All ER (D) 42 (Nov)] [F&C Alternative Investments v Barthelemy] [2012] EWCA Civ 843, [2012] 4 All ER 1096]

Time-limited offers

In C V D the claimant made a settlement offer which it expressed to be an ‘Offer to settle under CPR Part 36’ and in which it set out the costs consequences of failing to accept the offer as set out in CPR 36.14 before further stating that ‘….the offer will remain open for 21 days from the date of this letter (the “Relevant Period”)…’. It was over 12 months later (and just days before trial) that the defendant sought to accept the offer.  Warren J had to consider whether stating a period for which the offer was to remain open (albeit, it was the same amount of time as the relevant period required under CPR 36, ie 21 days) rendered the offer outside CPR 36.

He concluded it did and that the offer therefore failed as a Part 36 offer (see our report: A time-limited offer cannot be a Part 36 offer (News, 18 November 2010)). The Court of Appeal upheld this decision at least to the extent of confirming that a time-limited offer could not be a Part 36 offer. However, on the precise wording of this offer letter, given the overall CPR 36 context in which it had been intended to be made, it concluded that by saying that the offer would be ‘open for 21 days’ did not mean that if it were not accepted within that timeframe it would automatically lapse, rather that for a period of 21 days the offer would not be withdrawn (see our report: Court of Appeal: CPR 36: time-limited offers and the meaning of 'open for 21 days' (News, 2 June 2011)) . Not an ideal position in which to leave a self-contained code that should be relatively certain to interpret and apply.  [C v D [2010] EWHC 2940 (Ch), [2011] 2 All ER 404] [C v D [2011] EWCA Civ 646, [2012] 1 All ER 302]

Part 36 offers and split trials (the Ted Baker issue)

The existing CPR 36 does not cater for split trial scenarios. So, just what was Eder J to do in Ted Baker when, having found for the claimants on a preliminary issue hearing, he could not be certain that there were not Part 36 offers out there that might impact on any costs order he might make. Given that CPR 36 does not currently permit disclosure of a Part 36 offer after a split trial, even where the offer relates only to the decided issues, he could only properly consider costs when any such offers as might exist could be made known to the court. See our report: When can the existence of a Part 36 offer be communicated to the court? (Ted Baker v AXA). [Ted Baker v Axa [2012] EWHC 1779 (Comm)]

Withdrawing a Part 36 offer in the relevant period

The decision in Evans saw a defendant withdrawing its Part 36 offer within the relevant period, whilst the claimant was (almost) simultaneously accepting it, in circumstances where the permission to withdraw had been given on an application made without notice to the claimant. It was left to Leggatt J to unravel this apparent breach of the general principles of natural justice whilst highlighting some of the difficulties that can be encountered under the existing CPR 36 when seeking to withdraw a Part 36 offer during the currency of the relevant period. See our report: Court sets aside without notice order permitting Part 36 offer withdrawal where offeree in the dark as to reasons (Evans v Royal Wolverhampton Hospitals). [Evans v Royal Wolverhampton Hospitals [2014] EWHC 3185 (QB), [2014] All ER (D) 86 (Oct)]

Cynical claimant offers

An issue that was discussed at length by their Lord Justices in Huck was whether a claimant’s Part 36 offer which represented only a small discount (in this case 5%) from the sum sought would render it unjust for the court to then make the Part 36 costs consequences when the claimant achieved a judgment ‘at least as advantageous’ as its own offer, in circumstances where it was inevitable that the defendant would reject such an offer. The making of offers by claimants in such a way has been considered to be on the increase since the introduction of the ‘additional amount’ under CPR 36.14(3)(d) – up to £75,000. The indication being that the offer is made, not as a genuine attempt to try and settle the claim (knowing the defendant is very unlikely to accept), but rather merely as ‘a tactical step designed to secure the benefit of the incentives provided by [CPR 36.14(3)(d)].’ (Tuckey LJ, para 71).  These so-called ‘cynical claimant offers’ were recognised as a problem but one which it was anticipated judge’s would deal appropriately with. See our report on the (then proposed) 2015 Part 36 reforms: Part 36—2015 reforms and the decision in Huck v Robson [2002] EWCA Civ 398, [2002] 3 All ER 263.

General Jackson – April 2013

Revolution? No. There was enough of that going on in the general costs world for Part 36 to be much affected, other than by the ‘small’ addition of the additional award - to align itself more with Lord Justice Jackson’s vision of a more cost-effective and cost-equitable litigation stage, by rewarding those claimants who pitched their Part 36 offer sensibly and so obtained a judgment ‘at least as advantageous’ as their proposals, and punishing defendants who did not accept such proposals with the award of an additional amount in the claimant’s favour (CPR 36.14(3)(d)) introduced in April 2013).   In part, the intention was to try to balance the effects of removing ATE premiums from a successful claimant’s recovery.  Beyond that, Part 36 was left alone. But the case law did not die down and the uncertainties thrown up by the caselaw continued unabated.  

Call in the cavalry – the Civil Procedure Rules Committee re-write Part 36

So, has everything changed? The Civil Procedure Rules Committee (CPRC) organised a Part 36 working party, chaired by Ed Pepperall QC, tasked with reviewing Part 36 in order to produce a substitute Part 36 which ‘aligns the rules with case law developed since the Part was last amended and re-arranges the order of the rules in the Part’.

Thus, this was not hailed as a substantive change of the principles under which Part 36 operates but more a reorganisation and a codification of some of the issues that have been thrown up in its operation since 2007. On that we say, well done!

So what are the main changes? Dealing with the issues thrown up by the cases highlighted above, we now have:

•    technicality – we still have a self-contained procedure but at least now it is sufficient for your Part 36 offer letter to ‘make clear that it is made pursuant to Part 36’ (New Rule 36.5(1)(b))

•    counterclaims – it is now clear that you can make a Part 36 offer ‘in respect of the whole, or part of, or any issue that arises in (a) a claim, counterclaim or other additional claim…’ (New Rule 36.2(3)(a))

•    time limited offers – yes, provided your Part 36 offer is otherwise compliant (ie you do not compromise the requirement for a relevant period) then you can specify in the terms of your offer that it will automatically expire on a given date if not accepted by then (New Rule 36.9(4)(b))

•    split trials – all now catered for courtesy of New Rule 36.12 (accepting a Part 36 offer in a split trial case).  New Rule 36.16(3)(d) permits you to communicate to the judge the existence and terms of a Part 36 offer which is limited to issues which have been decided.  New Rule 36.16(4) permits you to communicate to the judge the existence (but not the terms) of a Part 36 offer which is a global Part 36 offer or includes issues which have not yet been decided

•    withdrawing a Part 36 offer or varying its terms so as to be less advantageous to the offeree during the relevant period: this is permitted under New Rule 36.10. If the offeree does nothing then the withdrawal or variation takes effect on expiry of the relevant period. However, serving a notice of withdrawal or adverse variation does not prevent the offeree from still accepting the original offer within the relevant period. Where the offeree does so then the offeror has seven days (or earlier if trial is earlier) in which to apply to court for permission to withdraw/adversely vary the offer and the court may give such permission where satisfied that there has been a change of circumstance and it is in the interests of justice to give permission

•    cynical claimant offers – the CPRC sub-committee did not enter the debate in percentage terms as to what amounts to a cynical claimant offer, however, it has added a new requirement in the form of New Rule 36.17(5)(e) that the court has to consider, when deciding whether or not it would be unjust to make the costs consequences of failing to accept a Part 36 offer (under New Rule 36.17(3) or 36.17(4)), whether the unaccepted Part 36 offer was a ‘genuine attempt to settle the proceedings’

The sub-committee also sought to balance the position as regards parties who have been penalised by having their costs in some way limited to recoverable court fees as against acknowledging their more positive behaviour when seeking sensible settlement of the claim to which they are party. Hence New Rule 36.23 which provides that where a party has had their costs limited in such way then their costs recovery under New Rule 36 is to mean, in respect of those costs subject to such limitation, ‘50% of the costs assessed without reference to the limitation’ together with any other recoverable costs. So, their punishment is not ignored but its effect diminished if they have acted sensibly as regards seeking to settle the claim.

Peace in our time?

We are rightly concerned when faced with unnecessarily complex and disorderly drafting and we are all more comfortable, generally speaking, with at least some degree of certainty, even in what is, inevitably, still a tactical arena. This is a truth never more so than now. Litigation cost is being squeezed from every angle. Reducing uncertainty and thus contributing to maximising efficiency in the conduct of our claims is something we are ever increasingly striving towards.

There is no doubt that Part 36 requires a certain level of complexity if it is effectively to wield its carrot and stick encouragement to settle and there will always be cases that test some of the more intricately related provisions aimed at achieving this result. But the work of the sub-committee in dealing with those uncertainties and in its general re-ordering and tidying up of the rules, resulting in a less ambiguous set of rules, can only be a welcome change.

 LexisPSL

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Powers to control anti-social behaviour under the Anti-social Behaviour, Crime and Policing Act 2014

This guidance note provides a comprehensive and up to date overview of powers to control anti-social behaviour under the Anti-social Behaviour, Crime and Policing Act 2014, Reform of anti-social behaviour powers (2014), Part 1 Civil Injunctions and Part 2 Criminal Behaviour Order (CBO).
Missiles 91309216 s. 146x219
October 11, 2019

Exploring the court’s power to block sale of arms to Saudi Arabia

Sue Willman, senior partner at Deighton Pierce Glynn, analyses the case of R (on the application of Campaign Against Arms Trade) v Secretary of State for International Trade (Amnesty International and others intervening) and its implications for UK arms trade.
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October 11, 2019

Court rejects challenges to Heathrow expansion

Charles Streeten, barrister at Francis Taylor Building, explains how the court came to reject the claims for judicial review of the Heathrow runway expansion in R (on the application of Spurrier) v Secretary of State for Transport and other cases.
Housing family 96709182 s
October 04, 2019

Exploring the limits of public authority’s liability for children

Duncan Fairgrieve and Jim Duffy, barristers at 1 Crown Office Row, examine the Supreme Court’s decision in Poole Borough Council v GN and another that the respondent local authority did not owe a common law duty of care to exercise its functions under the Children Act 1989 to protect the appellants, who were children of a family which it had housed, from harm at the hands of anti-social neighbours.
Dead end road 32516564 s 146x219
October 04, 2019

Abandoning a procurement exercise - when can a contracting authority extinguish a challenge?

Lucy James looks at the legal effect of a decision to abandon a procurement exercise and whether it extinguishes an accrued cause of action a bidder may have against a contracting authority for breaches of the Public Contracts Regulations 2015 SI 2015/102 (PCR 2015).
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August 23, 2019

‘Funding crisis’ - a detailed look at the funding shortage in UK schools

According to campaigners, more than 200 schools in England are cutting their school weeks short due to funding shortages. This raises questions over legal ramifications and the responsibility of the government. Jean Tsang, associate at Bates Wells and governor of a maintained primary school, addresses these questions and looks at the worrying effects of this ‘funding crisis’ on the ‘most vulnerable children’ in the educational system.
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August 16, 2019

Judicial review challenge over closure of children’s centres defeated by local authority

The case R (on the application of L, an infant (by his mother and litigation friend)) v Buckinghamshire County Council represents the first time when the High Court considered in detail the meaning of the ‘sufficiency duty’ in section 5A of the Childcare Act 2006 (ChA 2006) in the context of whether a council’s consultation on the closure of a number of children’s centres was unlawful or not. James Goudie QC examines the background to and the practical implications of the judgment.
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August 09, 2019

How does a local authority establish a market?

The LexisPSL team outline the powers available to local authorities looking to establish a new market.
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August 02, 2019

Forced academisation of schools - is resistance futile?

What are the circumstances which lead to a school being forced to become an academy, and is there anything that can be done to stop it happening? Katie Michelon provides an overview of the forced academisation process, and explains the options available to schools, parents and local authorities when faced with the possibility of an Academy Order.
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June 13, 2019

Home or away?

Katherine Illsley outlines how a local authority should approach the situation where a parent to be assessed for the purposes of public children care lives in another jurisdiction.
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June 07, 2019

Tenant Fees Act 2019 - government guidance

The government recently published guidance on the Tenant Fees Act 2019 (TFA 2019). Robin Stewart and David Smith of Anthony Gold Solicitors look at some of the key questions relating to the guidance, including enforcement, penalties and some controversial aspects such as guidance pertaining to payment of damages.
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June 07, 2019

How should the courts approach cases with an ‘open’ pool of possible perpetrators?

Chris Stevenson, barrister at Fourteen, examines the Court of Appeal’s decision in Re B (children: uncertain perpetrator) to allow a father’s appeal against a Family Court judge’s finding that he was within a pool of possible perpetrators responsible for sexually transmitting gonorrhoea to three of his children (registration required).
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May 24, 2019

Court of Appeal finds permissive housing policies can restrict development elsewhere

In Gladman Developments Ltd v Canterbury City Council [2019] EWCA Civ 669, the Court of Appeal dismissed an appeal by developer Gladman against the decision of the High Court to quash planning permission granted on appeal for a residential development on a site not allocated for development, not on previously developed land, and outside the existing built-up area.
Child safety gate 36045624 s 146x219
May 24, 2019

Safety first?

Daljit Kaur looks at the implications for disability discrimination of a case concerning a nursery-age child prevented from accessing provision over 15 hours.
UK map 66823434 s 146x219
May 17, 2019

The changing landscape of local authority Trading Standards prosecutions?

Richard Heller considers the potential impact of Qualter and others v Crown Court at Preston [2019] EWHC 906 (Admin) could have on the way regional Trading Standards services investigate and prosecute criminal offences (registration required).
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May 17, 2019

Wish they weren't here?

Can a parent with parental responsibility object to their child, who is subject to an interim care order, being taken on holiday by their foster parents?
Housing Rogue Landlord 99725772 s 146x219
May 10, 2019

Exploring the new guidance on greater protections from rogue landlords

Jason Hobday, associate at Womble Bond Dickinson, discusses the implications of recent government guidance documents which intend to enforce greater protections from rogue landlords (registration required).
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May 09, 2019

Court finds judge in Uber licensing case was not biased

Philip Kolvin QC examines the High Court’s decision in R (United Cabbies Group) v Westminster Magistrates’ Court to dismiss the claimant’s application for judicial review of a district judge’s grant of an operator’s licence for London private hire vehicles to the third interested party, Uber.
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May 03, 2019

End of the road?

Morayo Fagborun Bennett looks at the Court of Appeal's decision on waiving offers of alternative accommodation and the lawfulness of an earlier review decision on a subsequent homelessness appplication in Godson v London Borough of Enfield [2019] EWCA Civ 486.
Council Tax 89947548 s 146x219
May 03, 2019

Court rejects implied duty to report change of address for council tax purposes (R v D)

Samuel Genen, solicitor at Steel & Shamash, comments on the case of R v D [2019] EWCA Crim 209 where the Court of Appeal ruled that a failure to notify the local council of a change of address for the purpose of council tax did not constitute a criminal offence under the Fraud Act 2006 (FrA 2006). (Registration required)
Evidence in Foreign Courts 71283762 s 146x219
March 22, 2019

Is it in the best interests of a child to give evidence in a foreign trial?

Katherine Duncan explains how the court, in Re X, carried out a balancing exercise in determining whether a child, who was ward of the court, should be permitted to travel out of the jurisdiction to give evidence at a foreign criminal trial.
High Courts inherent jurisdiction for the protection of vulnerable adults 95112860 s 146x219
March 15, 2019

High Court’s inherent jurisdiction for the protection of vulnerable adults

The case of Southend-on-Sea Borough Council v Meyers [2019] EWHC 399 (Fam) highlights the wide and largely unfettered nature of the power to grant injunctive relief under the High Court’s inherent jurisdiction for the protection of vulnerable adults and the difficulty surrounding the issue of how the balance should be struck between protection of a person on grounds of vulnerability and respect for their autonomy, writes Bethan Harris.